How To Use Whale Alert’s Realized Profit Metric
The Realized Profit metric helps you understand when market participants have decided to take profit (sell at a gain) or to cut losses (sell at a loss). By monitoring the realized profit you can:
- Identify Market Sentiment: Large waves of selling at a loss often signal a bear market or even capitulation, while waves of profit taking can indicate a bull market or local tops.
- Pinpoint Risk & Opportunities: Sudden spikes in profit or loss can hint at impending price shifts.
Understanding the Chart
The Realized Profit chart shows how much profit or loss is being made by market participants at a certain time and is based on on-chain and price data. For more in-depth information on how Realized Profit is calculated, check out our introduction on ABP.
Green Bars: signify profit taking and typically occur during bull markets when sentiment is high and prices trend upward. The bigger the bar, the bigger the profit.
Red Bars: signify loss and are typical for bear markets or periods of market capitulation.
Orange Line: represents the asset price for the same period.
Market vs. Short vs. Long: the market overview shows the realized profit for all market participants combined, while short only shows the realized profit for participants with an average holding time of less than 6 months. Likewise, the long overview shows the realized profit for market participants who, on average, held on to the asset for more than 6 months.
Spotting Bull vs. Bear Market Transitions
Understanding market sentiment is essential for formulating entry and exit strategies. With the help of the realized profit graph the transition between the two stages can be observed and even anticipated.
Bear to Bull: bear markets are identified in the graph as longer periods of red bars. A significant loss spike during a longer period of loss can indicate capitulation or a shakeout of “weak hands”; once most sellers are out, the market may be poised for an upturn. Capitulation can be observed in the graph in early 2020, early to mid and late 2022, where large loss spikes preceded market recovery.
Bull to Bear: a bull market is characterized as a longer period of profit taking. Repeated large profit spikes can signal that traders are locking in gains and may be preparing to exit. Prolonged profit-taking often leads to increased selling pressure and, subsequently, a downtrend. The start of a bull market is often preceded by a period of declining profits.
Applying Realized Profit Data To Your Strategy
An informed trader is often a good trader so make sure you know where the market currently is between bull and bear sentiments, both on a macro (long term) and micro (short term) scale. It may be wise to sell if the risk of a bear market is increasing and after clear signs of capitulation it might be time to stock up. Micro-bear and bull markets can be very short lived, so depending on your overall strategy you may want to keep an eye on the short term holder profits to determine their sentiment. Additionally, keep an eye out for unusual spikes as these are often followed by negative price changes. You could formulate a simple short term strategy based on spikes: sell on a big spike, buy after the drop in price.
The realized profit data is available for more than 100 coins, and the data between coins can vary wildly. A stagnant coin with very little profit and loss taking over a long period of time might be a bad investment, since it suggests that existing holders are possibly waiting for a price increase before selling. Any coin with lots of sudden profit taking might be risky; there might be news or an event that is triggering the sale or you may even be dealing with a pump-and-dump.
There are plenty more ways to use the realized profit data to your advantage depending on your strategy. Try to figure out what works best for you and take full advantage of the historical data available on the Whale Alert dashboard to test and refine your theories.
If you want to become a better trader, check out our other metrics and alerts as well at the Whale Alert dashboard!
Disclaimer: this article only contains advice on how to interpret the Realized Profit data by Whale Alert. It does not contain any direct trading advice and the reader is responsible for their own trading decisions. No single metric by itself can be used to predict price changes and a single source is never a solid basis for any trading strategy. Crypto trading is risky and can result in loss of part or all of the investments made.
