Gate Research Institute: BTC rebound trend is obvious, TD sequence indicator returns up to 178%

Foreword

This quantitative bi-weekly report (from March 12 to March 26) provides an in-depth analysis of the dynamics and trends of the cryptocurrency market through multi-dimensional data analysis, focusing on the key indicators of Bitcoin and Ethereum, as well as the liquidation situation of contracts, while also deeply analyzing and backtesting the TD sequence indicators.

Summary

• In the past two weeks, the BTC market has been more sensitive, with ETH prices weak and lacking upward momentum, but the volatility is relatively small.
• The BTC long-short trading volume ratio is between 0.95 and 1.10, indicating a strong willingness to go long in the market during the BTC price rebound.
• The average daily liquidation amount in the overall contract market is 200 million USD, a decrease of 74% compared to the previous period.
• Bitcoin has achieved a monthly market capitalization growth rate of only 0.67%, indicating that new capital inflows are nearly stagnant.
• Use TD Sequential Indicators to predict market price reversals, with an optimal parameter selection yielding returns of up to 178%.

Market Overview

1. Analysis of Price Volatility of Bitcoin and Ethereum

In the past two weeks, the price of BTC has continued to rebound after forming a temporary bottom around the 80,000 USDT region in mid-March, rising to 87,000 USDT as of March 26. In contrast, the price trend of ETH has been relatively stable, only oscillating upward from 2,000 USDT to around 2,100 USDT, with an overall increase less than that of BTC, indicating that the market’s bullish sentiment towards ETH is relatively weak.

Figure 1: BTC price rebounded to 87,000 USDT, while ETH only rose to around 2,100 USDT, showing relatively weak performance.

In terms of volatility, BTC’s volatility changes are generally higher than those of ETH, indicating that the market is more sensitive to BTC’s price fluctuations, with trading sentiment still leaning towards short-term operations. Compared to the high volatility phase in early March, the current volatility of BTC and ETH has significantly decreased, and market sentiment is gradually becoming more rational, with short-term extreme emotions easing.

Figure 2: The volatility of BTC is generally higher than that of ETH, indicating stronger price volatility.

Overall, the market has recently entered a phase of volatility contraction, with BTC showing stronger rebound momentum than ETH. If volatility continues to remain low, it may indicate that the market is about to enter a trend confirmation phase; if volatility rises significantly again, a directional breakthrough may be imminent, and we must remain vigilant about the operational risks brought by increased short-term volatility. In terms of short-term operations, attention should be continuously paid to the capital flow and volatility changes of BTC, as they are important indicators of market risk appetite.

2. Analysis of the Long-Short Ratio (LSR) of Bitcoin and Ethereum Trading Volume

The Long/Short Taker Size Ratio (LSR) is a key indicator that measures the trading volume of long and short positions in the market, typically used to assess market sentiment and trend strength. When the LSR is greater than 1, it indicates that the volume of active buying (taking long positions) exceeds that of active selling (taking short positions), suggesting that the market is more inclined towards long positions, with sentiment leaning bullish.

According to Coinglass data, the overall LSR of BTC has shown a fluctuating upward trend in the past two weeks, with a fluctuation range roughly between 0.95 and 1.10. During the process of BTC’s price gradually stabilizing, the LSR has not significantly retreated, indicating that the market still has a strong willingness to buy during the rebound, with overall sentiment tending to be positive. In contrast, the LSR of ETH has remained in the range of 0.90 to 1.05 during the same period, but the fluctuation pace appears to be slightly slower, and during the rebound of ETH’s price, the long-short ratio has not shown significant strengthening, reflecting the market’s wait-and-see attitude towards ETH’s rise. Although the price has slightly recovered from the low, the upward momentum is relatively weak, indicating that the speed of capital inflow remains conservative.

Overall, the BTC long-short ratio resonates with the price trend, indicating that there is a certain level of confidence in the upward movement of BTC; however, ETH lacks strong bullish support during the price recovery process and may maintain a low-level oscillation pattern in the short term. Investors are advised to continuously monitor changes in LSR as an important signal for assessing changes in market sentiment.

Figure 3: The long-short trading volume ratio of BTC remains between 0.95 and 1.10, indicating a strong willingness to buy in the market even during the rebound of BTC prices.

Figure 4: The fluctuation rhythm of the ETH long-short trading volume ratio is slightly sluggish, maintaining overall between 0.95 and 1.05.

3. Analysis of Contract Position Amount

According to Coinglass data, since March 12, the amount of BTC contract holdings has shown a significant rebound trend, quickly rising from a low of about 49 billion USD to nearly 58 billion USD, indicating a notable inflow of market funds and a gradual shift in short-term trading sentiment towards positivity. This change may be influenced by price recovery, improved risk appetite, or the reconstruction of certain leveraged positions, with the market’s short-term bullish expectations for BTC having increased.

In contrast, the amount of ETH contract positions has also seen a slight rebound during the same period, but the overall volatility is smaller, rising only from about 19 billion USD to around 21 billion USD, with limited gains. This phenomenon indicates that the willingness of leveraged funds to participate in ETH remains relatively conservative, and the market’s confidence in ETH’s rebound is not as strong as that in BTC.

Overall, the momentum of BTC contract positions is stronger than that of ETH, reflecting a short-term market sentiment that leans towards BTC, with investors’ risk appetite warming up. However, if BTC contract positions cannot continue to rise in the future, there is still a possibility of returning to a volatile pattern. Observing whether funds continue to flow in will be key to judging the market in the future. [4]

Figure 5: The BTC contract position amount has rebounded strongly, while the ETH contract position amount has limited recovery, indicating a lack of confidence in the ETH rebound in the market.

4. Funding Rate

The funding rates of BTC and ETH have experienced significant fluctuations over the past two weeks, showing a high-frequency oscillation pattern with overall volatility, indicating that market leverage sentiment is wavering and the short-term direction remains unclear. During this period, the BTC funding rate has repeatedly dipped into negative territory, with a low close to -0.01%, reflecting that short positions dominated during certain periods, which shows that the market still holds bearish expectations for BTC’s short-term trend. In contrast, although the ETH funding rate has also been volatile, the overall magnitude of fluctuations is slightly smaller than that of BTC, indicating that ETH leverage positions are relatively moderate and market speculation sentiment is not as intense as that of BTC.

It is worth noting that although the prices of BTC and ETH have rebounded over the past week, the funding rate has not strengthened correspondingly. Instead, it has quickly declined after reaching a local peak, indicating that the current rise lacks strong leverage support. The fluctuating funding rates may suggest that the market is still in a tug-of-war between bulls and bears, and the flow of funds has not formed a clear trend.

Figure 6: The BTC funding rate has repeatedly fallen into negative territory, reflecting that short positions dominate during certain periods.

5. Cryptocurrency Contract Liquidation Chart

According to Coinglass data, since March 12, the amount of liquidation in the cryptocurrency futures market has significantly contracted. Compared to the large-scale liquidations at the beginning of March, the recent market fluctuations have eased, and the adjustments in leveraged positions have been relatively mild, indicating that the market is gradually entering a consolidation phase. The average liquidation amount for short positions is slightly higher than that for long positions, reflecting that some shorts were passively liquidated during the price rebound, with the market holding a conservative expectation for the rebound. Meanwhile, the liquidation of long positions has returned to a normal level, indicating that bullish sentiment has somewhat recovered but remains cautious.

Overall, the liquidation data has significantly cooled compared to the high volatility phase from late February to early March. The current average daily liquidation amount in the contract market is about 200 million USD, which is a reduction of approximately 74% from that phase, indicating that market risks have been partially released. If prices continue to rise steadily and liquidations remain stable, market confidence is expected to further improve. 【7】

Figure 7: From March 12 to March 25, the average daily liquidation amount in the overall contract market was 200 million USD, a decrease of 74% compared to the previous period.

6. Bitcoin has achieved a monthly market capitalization growth rate of only 0.67%.

According to Glassnode data, the monthly growth rate of Bitcoin’s Realized Cap is only 0.67%. Realized Cap is calculated based on the price of each BTC at the time of its last on-chain movement, which can accurately reflect the actual cost of funds. The slowing growth indicates a lack of new capital inflows in the market, and the buying power supporting price increases is weakening. Bitcoin’s price has fallen from its February peak of 97,000 USDT to the current 87,000 USDT, with a cumulative decline of over 10%. This drop is not only a technical correction but also reflects a significant contraction in market liquidity and a continued cooling of trading enthusiasm.

If there is a lack of strong support from the fundamentals or capital, there is still a risk of further market corrections. At this stage, investors should pay special attention to the flow of funds, including ETF subscriptions and redemptions, changes in the market capitalization of stablecoins, the number of active addresses on the blockchain, and other key indicators. They should also carefully assess risks in conjunction with changes in the macro environment, avoiding blind chasing of highs or heavy bets.

Figure 8: The monthly growth rate of Bitcoin’s realized market cap is only 0.67%, indicating that new capital inflow has nearly stalled.

Quantitative Analysis - TD Sequential Indicator, a Warning System for Market Turning Points

(Disclaimer: All predictions in this article are based on historical data and market trends, and are for reference only. They should not be considered as investment advice or guarantees of future market movements. Investors should carefully consider risks and make prudent decisions when making related investments.)

1. Overview of Indicators

TD Sequential is a counting system proposed by technical analysis master Tom DeMark, used to capture trend reversals, widely applied in stock, futures, and cryptocurrency markets. Its core idea is that after a period of continuous price increases or decreases, there often appears a sign of “exhaustion”, which may lead to a reversal or at least a pause. This article will validate the effectiveness of this indicator in actual trading through historical data backtesting.

2. Core Calculation Logic

The core calculation of the TD Sequential indicator is based on a price comparison mechanism, which determines the relative position and magnitude of the price by comparing the current price with the prices from a specific past period. The calculation process starts from the initial TD value of 0 and continuously compares with the prices from the past LAG_N periods.

• If the current price is higher than the price N periods ago, the TD count increases by 1, with a maximum of 13.
• If the current price is lower than the price from LAG_N periods ago, the TD count decreases by 1, with a lower limit of -13.
• When both are equal, the TD count resets to 0.

This calculation method allows the TD Sequential indicator values to range between -13 and 13, thereby identifying the relative size and position of prices to find potential reversal points.

3. Trading Application Strategy

Trading Logic:

• In an uptrend, when the TD indicator drops from a higher value (such as 10) to a specific value (such as 9), it may indicate that the price is about to fall, and shorting may be considered.
• In a downtrend, when the TD indicator rises from a lower value (such as -10) to a specific value (such as -9), it may indicate that the price is about to rise, and one could consider going long.

Trading Example:

The following example uses the table for the BTC 15-minute contract on January 3, 2025.

TD is used to determine the relative position of the current price. BTC_Close is the closing price of Bitcoin’s 15-minute candlestick chart. Diff is the value of the current price minus the previous price. Signals indicate entry and exit signals, with 1 meaning entry conditions are met and 0 meaning no action.

We assume that the price comparison benchmark is compared to the previous period (this can be adjusted to other numbers ), the TD signal starts from the initial position of 7. When the price of this period is continuously lower than the previous period (when Diff is green), TD will continuously decrease by 1. Conversely, when the price rises (when Diff is blue), and the price of this period is greater than the price of the previous period, TD will increase by 1, thus determining the relative position of the price.

Assuming the entry signal is that the current TD is 1 and the previous TD is greater than the current TD, it indicates a downward trend and is approaching near 0 (the center point), a reversal may occur. Once the conditions are met, a buy is initiated, and on 2025-01-03 at 5:15:00, buy at the closing price when Signals is 1.

Strategy Parameter Description:

In this strategy, we determine the trigger conditions for trading signals through the two parameters LAG_N and N_SIGNAL.

1. LAG_N (Lag Periods)

LAG_N is used to set the comparison between the current price and the prices of past N periods to determine trend changes.

If LAG_N = 1, it means comparing the closing price at each time point with the closing price of the previous period. For example, when the BTC price drops from 97,019.1 to 96,930.5, the TD value decreases from 7 to 6. If LAG_N = 4, it means comparing the current price with the price from 4 periods ago, which helps to reduce the impact of short-term market noise and makes trend judgments more stable.

2. N_SIGNAL (Trading Signal Trigger Conditions)

N_SIGNAL is used to set the entry trading when the TD indicator equals a certain value, and it checks that the previous TD must be greater than the current TD. If the previous TD is 13 and N_SIGNAL is 13, then it changes to require that the previous TD must be greater than or equal to the current TD to comply with the upper limit of TD.

If N_SIGNAL = 1, it indicates that when TD equals N_SIGNAL and the previous TD is greater than the current TD, a buy signal is generated. For example, on 2025-01-03 05:15:00, when the TD value drops from 2 to 1, it triggers a buy signal. This suggests that the past prices have been in a downward trend and may be approaching exhaustion, with a potential rebound in prices.

By adjusting these two parameters, we can set more suitable trading strategies according to different market conditions, in order to enhance trading accuracy and reduce risk.

4. Parameter Optimization and Backtesting Validation

The core logic of this trading strategy is based on calculating the relative position of prices. By using the TD indicator, we can determine the relative position of the current price against past prices, combined with the direction of the trend and exhaustion points, to identify appropriate turning points. When prices are excessively high or low, or return close to the average, there is an opportunity for a reversal. The TD values are set between -13 and 13. The backtesting period is fixed at N K-line cycles, spanning from March 24, 2024, to March 24, 2025, using the 15-minute level BTC_USDT perpetual contract, without considering transaction costs such as fees.

To find the optimal parameter combination, we will backtest the following range:

• LAG_N : 0 ~13
• N_SIGNAL : -13~13

A total of 14 * 27 = 378 parameter combinations.

Since the number of trades in this parameter backtest is greater than 750, it meets the statistical sample criteria. Therefore, we will no longer filter based on the number of trades, but will only select the top five parameter combinations with the highest average returns. The five outstanding trading parameter combinations are as follows:

• LAG_N: 3, N_SIGNAL: 8
• LAG_N: 2, N_SIGNAL: 8
• LAG_N: 4, N_SIGNAL: 8
• LAG_N: 4, N_SIGNAL: 7
• LAG_N: 11, N_SIGNAL: 5

After selecting the best five sets of parameters, we assign equal weights to these five strategies and plot the cumulative returns, risk-return Sharpe ratio, and total returns.

Figure: After equal weighting of five groups of parameters, the cumulative returns for different periods are held (one period is 15 minutes)

Figure: Holding until the 4th period, with the highest Sharpe value of 3.72

Figure: Holding until the 61st period yields the maximum return of 178%.

5. Trading Strategy Summary

We combine these five sets of optimal parameter combinations into a comprehensive trading strategy with equal weights. It can be observed that the risk-adjusted return, Sharpe (value )), reaches a peak of 3.72 when held until the 4th period, but the total return is only 77%, indicating that the lag_4 strategy may be relatively conservative compared to other holding periods, with lower volatility, effectively controlling risk but not achieving overall returns as high as other holding periods, which bear higher volatility and pursue greater returns. In terms of overall return rates, as the holding period extends, the return rates continue to rise, reaching as high as 178% when held for the 61st period, but then the return rates gradually begin to decline. Compared to the return rate of holding BTC at 35%, there is a significant improvement.

From the selection of optimal parameters, it can be observed that most LAG_N values in the best parameter combination are between 2 and 4 (with only one group being 11). This indicates that the strategy mainly focuses on short-term price fluctuations, that is, using more recent price changes to determine reversal signals, thereby capturing reversal opportunities within the medium to short term cycles. Furthermore, the N_SIGNAL values are mostly concentrated between 7 and 8. This suggests that the best signals typically appear when the TD indicator reaches higher values, indicating that the confirmation point for market reversals is quite evident, and the strategy tends to enter the market after a certain price decline. Overall, the selection of optimal parameters indicates that this strategy is more suitable for reversal markets in the medium to short term. It utilizes shorter-term price comparisons and higher signal triggering thresholds to capture market reversal opportunities within a relatively short holding period, thus achieving a more robust risk-adjusted return, while holding positions for too long may lead to a decline in strategy returns.

In this backtest, the technical indicator can indeed achieve good returns, but it is still important to note that reversal strategies are about finding turning points. If the direction of the trend is misjudged, it may result in significant losses, so it is still necessary to cautiously manage the downside risk.

Summary

From March 12 to March 26, the cryptocurrency market exhibited structural characteristics of “price rebound and cautious sentiment.” The volatility of BTC and ETH has decreased, alleviating extreme short-term market sentiment. Although BTC’s sentiment has warmed slightly better than ETH’s, the overall leverage momentum remains weak. On-chain and derivatives data indicate that contract positions have rebounded and liquidations have decreased, with market deleveraging essentially completed; meanwhile, BTC has seen a slowdown in market capitalization growth, reflecting insufficient capital inflow and a continued decline in trading activity.

The quantitative backtesting module uses the TD Sequential indicator for analysis and backtesting. The TD Sequential indicator aims to predict market price reversals. Under the condition of using its indicators to select optimal parameters, the return rate can reach as high as 178%. However, it should be noted that the TD indicator is not an absolute predictive tool, and in actual operations, it may still be affected by factors such as severe market fluctuations and false signal interference. Investors are advised to combine multidimensional data with risk control mechanisms for rational judgment and cautious operations.
Reference Material:

1. Gate.io,https://www.gate.io/trade/BTC_USDT
2. Gate.io,https://www.gate.io/trade/ETH_USDT
3. Coinglass,https://www.coinglass.com/LongShortRatio
4. Coinglass,https://www.coinglass.com/BitcoinOpenInterest?utm_source=chatgpt.com
5. Gate.io,https://www.gate.io/futures_market_info/BTC_USD/capital_rate_history
6. Gate.io,https://www.gate.io/futures/introduction/funding-rate-history?from=USDT-M&contract=ETH_USDT
7. Coinglass,https://www.coinglass.com/pro/futures/Liquidations
8. Glassnode,https://studio.glassnode.com/charts/ba1ec93d-85f4-41fe-5606-798a2f30013a?s=1679144783\u0026u=1742303183

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Disclaimer Investing in the cryptocurrency market involves high risks, and users are advised to conduct independent research and fully understand the nature of the assets and products being purchased before making any investment decisions. Gate.io does not take responsibility for any losses or damages resulting from such investment decisions.