Bitcoin traders are all familiar with how volatile cryptocurrency prices could be, but with the right strategy, such as setting ideal entry and exit points, traders will get a higher chance to identify the right directions and able to capitalize in a turbulence market. Despite cryptocurrency remains largely a young asset class and far from reaching full market maturities like FX and equities, bitcoin’s market behavior has been getting more recognizable. Bitcoin’s monthly range data could be one of the clues that able to help traders to identify the possible trends of the crypto. In this article, we will take the OKEx BTCUSD Index as an example and have a look at what the ranges can tell us.
OKEx BTCUSD Index
Before we get into the ranges, let’s briefly go through what OKEx BTC Index is about. The Index measures the broader BTC prices by tracking the weighted average of BTCUSD spot prices from 5 major crypto exchanges globally, it gives investors a wider perspective of the general BTC markets and a comprehensive performance of the leading crypto in a specific timeframe. The Index is considered one of the benchmarks of the cryptocurrency market.
High Beta perhaps is one of the most well-known characteristics of cryptocurrency, we’ve seen the prices of bitcoin had some double-digit surges on one day and gave up all the gains the other day. Despite the overall cryptocurrency market remains relatively high volatility, the BTC markets have shown signs of starting to stabilize. This is especially noticeable in the past year and could indicate the increasing of market maturity and improving effectiveness in price discovery. Instruments like futures, options and perpetual swaps, all are all a crucial part of price discovery in the BTC markets.
As the market matures, traders can have a better medium-term prediction of the price by examining the monthly ranges of the BTCUSD. Table 1 shows the monthly highs, lows, and ranges of the OKEx BTC USD Index since 2017.
In the equities markets, a stock’s range is the difference between the high and low on any given timeframe. A blue-chip stock or a benchmark index in a developed market is more likely to be moving within an expected range with expected volatility in a given period under a normal circumstance, that’s because the market has already developed a general bias on that given stock or index.
As the crypto market is getting more developed, the same thing happens in the bitcoin markets as well. Data shows that the YTD average monthly range of OKEx’s BTCUSD Index is about 2700, slightly lower than last year’s monthly average of 3140. We’ve also noticed that the monthly ranges have increased after the so-called “Crypto Winter” period. The monthly range seems peaked in June after hitting over 6000, and the number has been staying at around 3000 levels for the months.
Application of Ranges
The monthly ranges could also provide useful insight when it comes to setting out a medium-term outlook. Let’s use the September YTD average range and October performance of the OKEx BTCUSD Index as an example. The Index closed at 8294.17 at the end of September, and the Index’s YTD monthly average range was 2697.711. By adding and subtracting the range number with the closing price, it gives you a monthly range estimation of the Index. Any price action inside this area could be considered within expectations. Conversely, when the price action happens outside of the range, it could consider out of expectations.
That fact that China’s blockchain announcement has fueled the BTC rally in October, and that pushed the Index closer to the green line. The closer to the green line, the more rooms for short positions or vice versa.
Now, let’s apply the same method into November. OKEx BTCUSD Index closed at 9238.06 in October, and the YTD monthly average range is 2743.846. It shows that the Index could surge to near 12000 levels under the most bullish case and could retreat to below 6500 levels in the most bearish scenario.
It’s worth noting that this range calculation method is just a simple way to give a rough estimation based on the past performances of the Index. Since BTC is still a young asset and its volatility cycles and price behaviors could still surprise the market, traders and investors could get a more accurate assessment in conjunction with other instruments such as trading data, technical indicators, and quantitative analysis.
Range study is one of the common methods of the forecasting price movement of an asset or an index, it has been widely used in the equities markets, and that could be borrowed by bitcoin or other major cryptocurrencies. However, it also has its limitations due to crypto’s unstable volatility cycle and unique price behavior. Though it still provides actionable information when combining with technical study and relevant analytical methods.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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