Why Market Data Is Key to Successful Crypto Trading

Introduction

It is crucial for crypto traders to learn how to access and employ market data. From on-chain activities to chart patterns, market knowledge equips you with essential skills to cope with volatility and emotional disturbance. You cannot make sound decisions and respond to the price action if you do not know how to make something out of trading data. Market data spans seconds to years and it can be retrieved using special features offered by exchanges.

What Is Market Data?

Market data refers to various kinds of information about crypto coins and tokens. This information can be related to the current market price or price history. It can also consist of future projections. Price alone does not tell the whole story. If a coin has started pumping but its volume shows weaker candles as compared to price candles, the pump is usually short-lived.

The data also includes essential insight about trading volume. If a majority of traders are speculating that a coin will dump, and have opened short positions, the coin may actually pump to grab the liquidity by hitting Stop-Loss levels or even liquidations.

Significance of Market Data

Market data is indispensable in crypto trading. First, it enables traders to be aware of the real value of an asset. This is so because professional traders do not rely entirely on a single platform. They use DeFi aggregators to know the best deals available at the time of taking a trade.

Secondly, market data enlightens traders about the chart patterns. By analyzing the patterns, they can predict the future price to some extent. It is not possible to be absolutely accurate, but historical patterns do reveal some systematic repetition if all else remains the same.

You might be stuck if you have bought a coin that cannot be sold. This may happen if there is insufficient liquidity in the market. On centralized exchanges , your buying and selling depends on the order book. The exchange automatically matches your order with the orders in the order book . If there is no match, there will obviously be no transaction. On decentralized exchanges , your transaction depends on the liquidity pool, in the absence of which, you cannot carry out any transaction. All this information is also a part of market data.

How to Access Market Data

1. K-Lines

You can visualize market data by using a number of tools. One of them is K-Lines. This term is used for candlesticks in the crypto world. Candlesticks psychology is a major area held at high esteem. One candlestick usually has four kinds of information: open, close, high and low. High and low parts are usually shown by wicks and open and close by the main body. Although it is rare, in the absence of a wick, the open and close are also high and low levels.

You can choose K-Lines to represent different time frames to suit your trading type. Candles can be viewed from seconds up to years. However, one or two candles can seldom tell you anything substantial. It is the pattern of the candles that discloses the trends.

Moreover, candlesticks can be used for price as well as market cap and volume. TradingView and CoinMarketCap can show these details to reveal to you some really useful information. For example, suppose you are waiting for an ATH of a coin. But it is also necessary to see what the market cap was when the coin reached its ATH previously. It is possible that the coin hold even a larger market cap than it had on its ATH. In such a situation, a new ATH is a far-fetched idea.

Trading data is also available both in spot and futures trading. Volume and direction of the trades, especially the ones by top traders, signal important things for the future.

2. Order Books

As discussed earlier, order books carry important information regarding liquidity. Volume in the order books shows that traders are active and interested in the asset you want to trade. Ask and bid prices show the depth of the market at the time of your analysis. Heavy buy and sell orders are helpful in finding out support and resistance.

3. Sentiment Data

When you open platforms like CoinMarketCap, you come across sentiment data in addition to many other things. This represents what people think about a coin. The platforms may even provide a percentage of positivity and negativity. Furthermore, you can use social media to discover what people think about the coin. As about the internet in general, you must be cautious about whom you are following. There are many paid influencers who create baseless hype or fear about coins.

4. On-Chain Metrics

Glassnode and IntoTheBlock disclose what the on-chain activity is like. When a large amount of a coin is being scooped off exchanges, it indicates that traders want to hold it. Similarly, the movement from wallet into exchanges may indicate possible sell-off coming. Increase or decrease in the active addresses are the key information acquired from on-chain metrics.

5. Volatility Index

The first thing that strikes out mind when we think of cryptocurrencies is volatility. In traditional stock markets, volatility index is a commonplace thing, but it is rarely used in crypto trading. Platforms like cvi.finance, volmex.finance, deribit.com, coinapi.io, etc. show the current volatility. It is not wise to open trades in the hours of high volatility as your short and long both can be trapped and liquidated.

6. Correlation between Assets

Another very useful tool to access market data is the correlation between the price action of different coins. Bitcoin is the king of cryptocurrencies. Its movement is almost invariably mimicked by all other coins. Also, the coins of the same narrative may sometimes move together. If you see an AI coin on the list of top gainers, you can speculate that strong coins of the same narrative may also show some strength soon.

7. Dominance Charts

Last but by no means the least, $USDT dominance and $BTC dominance indicate the origin and destination of the flow of money. If $BTC dominance is rising, it means traders are selling altcoins. The fall in dominance means the opposite. Pumping $USDT dominance indicates bearish sentiments because traders are shifting to stablecoins, sensing an imminent dip.

Conclusion

Any endeavour in our life is destined to be led astray if undertaken without proper planning. Crypto trading is no different. Market data enables us to make reasonable decisions by looking at the price patterns, liquidity, etc. Many tools can be employed to access the data.