Derivatives Composite Indicators
Why Composite Analysis
Funding rate, open interest, and long/short ratio each show only one aspect of the market.
- Funding Rate: Cost structure between longs/shorts (intensity of bias)
- Open Interest: Size of positions in the market (amount of fuel)
- Long/Short Ratio: Directional distribution of traders (direction of the crowd)
You need to observe all three simultaneously to see the complete market picture. When you select a coin on BitInsight, you can view all three indicators on one screen, making it ideal for composite analysis.
Market State Classification Framework
Six Core Scenarios
Market states can be classified by combining the three indicators.
Scenario 1: Healthy Uptrend
| Indicator | State |
|---|---|
| Funding Rate | Slightly positive (0.01-0.03%) |
| OI | Gradual increase |
| Long/Short Ratio | Long 55-60% |
Interpretation: Moderate long demand with new capital flowing in. Leverage is not excessive, making the uptrend sustainable. The healthiest bullish structure.
Response: Maintain spot holdings. Additional buying possible. Derivatives longs are appropriate.
Scenario 2: Overheated Uptrend
| Indicator | State |
|---|---|
| Funding Rate | High positive (0.05%+) |
| OI | Near historical highs |
| Long/Short Ratio | Long 65%+ |
Interpretation: Extreme long bias. Maximum long bets are stacked in the market. Even slight declines can trigger liquidation cascades. Maximum warning state.
Response: Avoid new long entries. Reduce existing long positions or take profits. Explore short opportunities (after confirming with other indicators). Consider partial profit-taking on spot holdings.
Scenario 3: Short Squeeze Setup
| Indicator | State |
|---|---|
| Funding Rate | Negative (-0.03% or below) |
| OI | High |
| Long/Short Ratio | Short 60%+ |
Interpretation: Many traders betting on decline while maintaining high OI. Short positions are stacked as fuel. Short squeeze possible if price rises.
Response: Spot buying opportunity. Consider long position entry (stop-loss mandatory). Short entry is risky.
Scenario 4: Capitulation/Panic
| Indicator | State |
|---|---|
| Funding Rate | Extreme negative (-0.05% or below) |
| OI | Dropping rapidly |
| Long/Short Ratio | Short dominant or rapidly changing |
Interpretation: Large-scale long liquidations in progress. Rapid OI decline means positions are being forcibly closed. Panic state.
Response: Immediate entry is risky. Search for rebound opportunities after liquidations complete (OI stabilizes). "Don't catch a falling knife."
Scenario 5: Apathy/Accumulation
| Indicator | State |
|---|---|
| Funding Rate | Near 0 |
| OI | Low or declining trend |
| Long/Short Ratio | Balanced (near 50:50) |
Interpretation: Market participants exiting. Leverage activity declining. No directional bias. Long-term, this could be an energy accumulation phase for the next big move.
Response: Consider spot accumulation. Stay on the sidelines with derivatives. Enter after direction is confirmed.
Scenario 6: Early Recovery
| Indicator | State |
|---|---|
| Funding Rate | Transitioning from negative to positive |
| OI | Starting to increase from lows |
| Long/Short Ratio | Shifting from short to long |
Interpretation: New capital flowing in after major liquidations/panic. Market sentiment transitioning from fear to neutral. Early bullish signal.
Response: Actively consider spot buying. Low-leverage long positions possible. Stop-loss at recent lows.
Signal Strength by Scenario
Strong Signals (High Reliability)
When all three indicators show extreme values in the same direction:
- Extreme positive funding + Historical high OI + 70%+ long = Maximum overheating warning
- Extreme negative funding + High OI + 65%+ short = Optimal short squeeze conditions
Medium Signals
When two indicators align and one is neutral:
- High funding + Increasing OI + Balanced long/short = Overheating in progress but not yet extreme
Weak Signals
When only one indicator is extreme and others are neutral:
- Only funding is high = Short-term bias, but if OI is low, squeeze fuel is insufficient
Analysis by Timeframe
Real-time (Snapshot)
Check all three indicators at a glance on BitInsight. Suitable for immediate market state assessment.
Daily Trend
Track changes in all three indicators on a daily basis. When funding gradually rises while OI also increases, you can make trend-based judgments that overheating is progressing.
Weekly/Monthly Trend
Long-term, when OI recovers from historical lows and funding stabilizes in positive territory, it suggests the start of a new cycle.
Integration with On-chain Indicators
Combining derivatives indicators with on-chain metrics adds depth to analysis.
Derivatives + Exchange Flows
| Derivatives State | Exchange Flow | Combined Interpretation |
|---|---|---|
| Long overheating | Exchange inflows increasing | Double warning. Leverage overheating + Selling pressure building |
| Short crowding | Exchange outflows increasing | Double accumulation signal. Derivatives in fear, spot being accumulated |
| OI increasing | Exchange holdings unchanged | Pure derivatives speculation. Uptrend without spot backing |
Derivatives + MVRV
If MVRV is below 1.0 (market-wide losses) while the derivatives market is in apathy/accumulation, historically this has been the strongest buying zone.
Derivatives + Fear & Greed Index
When the Fear & Greed Index shows extreme greed and derivatives are overheated, warnings are sounding across both spot and derivatives. Conversely, extreme fear + short crowding reinforces bottom signals.
Practical Checklist
Items to check in order when viewing the BitInsight derivatives panel:
Step 1: Check Funding Rate
- Confirm positive/negative direction
- Watch at 0.05% or above, warning at 0.1% or above
- Check time until next settlement
Step 2: Check Open Interest
- Recent increase/decrease trend
- Position relative to historical levels (high/normal/low)
- Judge based on USD denomination
Step 3: Check Long/Short Ratio
- Whether one side exceeds 60%
- Whether it aligns with funding rate direction
Step 4: Comprehensive Assessment
- Which of the 6 scenarios applies
- Signal strength level (strong/medium/weak)
- Whether it aligns with on-chain indicators
Step 5: Cross-coin Comparison
- Whether BTC and altcoin derivatives states match
- If only specific coins are extreme, speculation is concentrated there
Cautions
Beware of Overfitting
If you only recognize signals when all three indicators are extreme, opportunities are rare. If you judge by just one, false signals are frequent. Two or more indicators in the same direction is practical for meaningful signals.
Markets Can Be Irrational
"The market can remain irrational longer than you can remain solvent." Prices can rise further even when overheating signals appear, and fall further even at bottom signals. Indicators improve probability but don't guarantee certainty.
Position Sizing
Since any signal is probabilistic, risk management and appropriate position sizing are more important than analysis.
Summary
By analyzing funding rate (intensity of bias), open interest (amount of fuel), and long/short ratio (direction of the crowd) together, market states can be classified into six scenarios. Signal reliability is highest when all three indicators are extreme, and combining with on-chain indicators adds analytical depth. View all three indicators on one screen in BitInsight's derivatives panel and systematically assess the market following the practical checklist.
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