What is the SOPR indicator? Familiarity with how to use and its types
One of the best things about Bitcoin is the large amount of data it provides to investors for analysis. To blockchain, Bitcoin can be a lot of data about the flow of money at your disposal, and you can feel through the data and analyze user behavior with very high precision. In this article, we talk about one of the most critical indicators. That is used to measure the feelings of investors and the future of the market, the SOPR indicator.
What is the SOPR indicator?
The Spent Output Profit Ratio (SOPR) indicator allows you to analyze market data and predict the amount of realized profit and loss (Realized) in a specific period.
Using this chart, you can predict the potential profit of all blockchain currencies. Using this indicator, you can expect the amount of profit and loss realized. According to this indicator, investors find that users who at a particular price token have sold there have lost or have been able to exit the market with a profit.
What are the realized gains and losses?
One of the phrases you may hear in trading markets is profit and loss. This phrase refers to the number of earnings and losses that the investor after a transaction will incur.
A currency may have a profit or loss of more than 100% in a certain period, but if you close the appointment within the 20% profit or loss ceiling, your realized profit and loss will be the same 20%. This profit and failure can only be calculated when you close the position and transfer the profit and loss to your account.
How to calculate the SOPR indicator
The calculation of this indicator is straightforward; To do this, simply the realized value of the sale of the desired token (in dollars divide ) into the value of the selected currency at the time of purchase; In other words, this indicator is similar to the sale price/purchase price. The formula of this needle is as follows:
For example, if you 0.003 Ethereum for the price of 3 thousand dollars is bought and sold at 4 thousand dollars, your SOPR amount will be equal to 1.3. In the next section, you will learn that values higher than 1 indicate a profit.
SOPA indicator analysis
If this indicator is more than 1, investors were in profit at the time of sale, but any other result indicates a loss. By specifying the SOPR of all spent tokens in the order of the day they were finished (using blockchain data), the following graphic is created:
Using the graph above, you can perform various analyzes. First, the SOPR fluctuates around the number 1 axis. Still, more importantly, when the market is bullish, SOPR values below one will be supported, but if the market is in a downtrend, SOPR values above one will be resisted; For this reason, the SOPR indicator is a good indicator for identifying an ascending or descending market. The mentioned point can be seen well in the following figure:
As you can see, except for the parts marked in red and the SOPR indicator fluctuating a lot, the rule mentioned applies well in all other conditions, but the question is, why? The answer is, in general, investors can sell their currencies more quickly when they are in profit.
In bullish markets, when the indicator is below 1, the investor has no interest in selling at a loss. This causes a significant reduction in the stock of the currency in question and causes upward pressure on the price, which ultimately leads to a considerable increase.
In declining markets, too, everyone is selling or waiting for the tip of the iceberg to trade the currencies they have. When the SOPA indicator is close to 1 or greater than 1, more people are selling; Because most investors have reached the point. This also causes the price to drop significantly.
How to use SOPR in transactions
There are two general ways to use the SOPR indicator in trading; The first method uses the indicator’s value, and the other strategy is according to the trend. In the first method, one of the following three situations may occur:
- SOPA value greater than one (SOPR> 1): If the SOPR indicator value exceeds 1, all sales are averaged by profit.
- A value equal to one (SOPR = 1): In this case, the tokens sold in a certain period are sold face to face.
- SOPA value is less than one (SOPR <1): Tokens sold over time are sold at a loss.
The second method is to pay attention to the SOPR process. In this method, one of the following two conditions may occur:
- Upward SOPR trend: If this trend is upward, the profit is realized, and the tokens that are in the yield are passed on to other people. It also shows that profitable investors are increasing sales or market conditions for sellers are moving towards greater profitability.
- Downward SOPR trend: If this trend is downward, the loss is realized, and the currencies at a loss are being passed on to others. This also shows that losing investors are increasing their sales, and market conditions for sellers are moving towards lower profits.
Practical scenarios for investing using SOPR
From the past to the present, the market correction begins just before the bullish trend begins in bullish markets, causing the SOPR to fall below 1. This is the best time to buy and use the upward direction. Also, at the beginning of the downtrend, market correction may occur, which will cause the SOPR value to rise above 1. In this case, it is better to sell your currencies to avoid losing money.
Types of SOPR indicators
In general, there are three types of these indicators: modified SOPR, short-term SOPA. And long-term SOPR, each of which has different definitions and applications, but to calculate them all. The formula we saw at the beginning of the article is used.
1. Modified SOPR
Adjusted SOPR is one of the different types of SOPR indicators. In this index, trades are examined, except for businesses that have a lifespan of less than one hour. And therefore are much more accurate than the standard model. Many transactions less than 1 hour old are related to relay transactions and return after a short time; For this reason, they can not be trusted in the calculations.
2. Long-term SOPR
These holders use this SOPR indicator to calculate all blockchain transactions with a lifespan of more than 155 days. This indicator is known as Long-Term Holder SOPR or LTH-SOPR for short and does not consider periods of less than 155 days.
This index reacts less to market fluctuations and analyzes the behavior of more experienced investors. Also, unlike the standard and adjusted SOPR, which fluctuates mainly around the number 1, the fluctuation range of the long-term SOPR indicator is between 0.8 and 2; This is because long-term holders usually sell their currencies at a higher profit.
3. Short-term SOPR
Unlike the LTH-SOPR, the STH-SOPR or Short-Term Holder SOPR indicator examines the gains and losses of trades made in the last 155 days and analyzes the behavior of investors who have just entered the market.
According to statistics, currencies bought in the last 155 days are known as working capital and are more likely to be sold. Using this index, the performance of investors who have just entered the market is evaluated and their reaction to market fluctuations.
Because less than 1-hour transactions are not considered in this indicator, investors will likely have collective behaviors because they are newcomers. The fluctuation range of this indicator is much higher than the fluctuation range of the standard SOPR hand.
Frequently Asked Questions
1. What is the SOPR indicator?
Using the SOPR indicator, you can predict the profit and loss realized.
۲. What are the benefits and harms of research?
The profit and loss of the research refer to the amount of profit. And they are losing that the investor will incur after making a transaction.
3. How to use SOPR in transactions?
There are two general ways to use the SOPR indicator in trading; The first method uses the indicator’s value, and the other process is according to the trend.
4. How to calculate SOPR in transactions?
The SOPR indicator is straightforward to calculate and is calculated using the output. All you have to do is divide the realized value of the token (in dollars) by the currency’s value at the time of purchase.
