How do you use the long/short ratio? Take $LYN as an example: the market-wide long/short ratio is 2.79 (73.6% long / 26.4% short) (2.75 an hour ago).
I usually look at it in three steps:
① Check for extremes: it’s fairly extreme right now, and the side that’s heavily one-sided is more vulnerable to a sudden wick that shakes traders out;
② Check the change: more traders are going long than an hour ago;
③ Check for divergence: the price is up 51.91% over 24h, with no obvious divergence for now.
When most people are on the same side, moves in the opposite direction are often more sudden.
#LYN
I usually look at it in three steps:
① Check for extremes: it’s fairly extreme right now, and the side that’s heavily one-sided is more vulnerable to a sudden wick that shakes traders out;
② Check the change: more traders are going long than an hour ago;
③ Check for divergence: the price is up 51.91% over 24h, with no obvious divergence for now.
When most people are on the same side, moves in the opposite direction are often more sudden.
#LYN