"Simple indicators with magical effects" - Relative Unrealized Profit/Loss

The market continues to fluctuate, and we continue with this series. Today we will share the following simple indicators: relative unrealized profit (RUP) and relative unrealized loss (RUL). These are two sets of data, but we often combine them when we use them. They have one thing in common with the SOPR explained in the previous issue, that is, they both use the timestamp function of the underlying UTXO structure of#BTCto achieve statistical calculations. The principles are the same, but the purposes are different.

We can think of unrealized profit/loss (UP/UL) this way: if all Bitcoin were sold today, how much would investors gain or lose?

Compared to simply aggregating the circulating supply that is profitable or losing, UP/UL takes into account the actual USD value of Bitcoin profit/loss. In other words, each circulating Bitcoin is weighed by the difference between the current price and the price when the UTXO was created (the last time BTC moved), and the unrealized profit and loss (i.e. UP/UL) of all#BTCis aggregated separately. Finally, after normalizing the data by market capitalization, relative unrealized profit (RUP) and relative unrealized loss (RUL) are derived.

After understanding the basic principles of the indicator, let's look at the specific usage:

🎈Use 1: Relative Unrealized Profit (RUP)

The following figure shows the RUP data. By observing it, we can find that the data provides us with some very valuable information:

1. When RUP is greater than 0.7, it usually means that the bull market has entered the peak range (the green box in the figure). At this time, we should try to consider "selling in batches"; the current RUP is 0.56, which is still some distance away from 0.7.

2. When RUP is less than 0.4, it is the initial stage of the deep bearish trend to the bullish trend (the blue box in the figure). At this time, we should try to consider "buying in batches";

3. During the bull market, whenever the RUP pulls back to around 0.4, it is a mid-buy point in the bull market with a high cost-effectiveness (the red arrow in the figure).

There have been two such opportunities in this bull market. One was on March 10, 2023, when the BTC price was around $20,000. The other was from September 2 to October 13, 2023, when the BTC price was around $26,000.

🎈Use 2: Relative Unrealized Loss (RUL)

The figure below is the RUL data. We can see that when the price of#BTCbreaks through the high point of the previous cycle, RUL will infinitely tend to zero (the blue arrow in the figure).

Then the indicator will remain near the zero axis for a period of time, and the market will enter a continuous rising period. Even if there is a pullback in the middle, it will not affect the data to change significantly. Until RUL suddenly soars from the zero axis, it may mean the end of the bull market.

When the RUL value exceeds 0.5, it means that the market has entered the bottom stage of the bear market (the green box in the figure). If you are a trend trader, this stage is the best position to "buy in batches" in the big cycle to plan ahead for the next bull market.

🎈Use 3: Advanced usage

There is also an advanced usage of RUP and RUL, which provides guidance for us to build positions in batches in the actual operation at the bottom of the bear market. We linearly superimpose RUP and RUL and take the 30D average. As shown in the figure below, the blue line is RUP and the yellow line is RUL.

We can buy 1/3 of the position when RUP < RUL, that is, when the blue line crosses the yellow line for the first time; buy another 1/3 of the position when RUP > RUL, that is, when the blue line crosses the yellow line for the second time; the remaining 1/3 of the funds can be bought at the middle of these two nodes, such as adding positions when the price of#BTCis lower than your initial purchase cost.

You can also make fixed investments at fixed intervals within this range (such as once a week). The funds that are not used up at the end can be temporarily kept for waiting for opportunities. In this way, you have already built most of your positions at a lower average price at the bottom of the bear market. As long as you have enough patience and hold firmly, and sell in batches at the top of the bull market, your returns will definitely exceed 90% of people in the circle.

This is also the lowest threshold and most efficient way to make money that we as retail investors can master.