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Average Cost to Price Ratio

Overview

The Average Cost to Price Ratio measures the percentage difference between the current market price and the Total Average Cost of all token holders. This metric quantifies the aggregate profit or loss position of token holders and serves as an indicator of market sentiment and potential selling pressure.

Definition

The Average Cost to Price Ratio is calculated using the following formula:

Average Cost to Price Ratio = (Daily Average Price - Total Average Cost) / Total Average Cost

Where: - Daily Average Price: The volume-weighted average price of the token for the day - Total Average Cost: The weighted average acquisition price of all tokens currently held

Significance

  • Profitability Gauge: Directly reflects the average profit/loss percentage of all holders
  • Market Sentiment Indicator: Helps assess overall market psychology
  • Buying/Selling Pressure Predictor: Indicates potential for profit-taking or loss-cutting behavior
  • Market Cycle Positioning: Assists in identifying extreme market conditions

Interpretation

  • Positive Values: Indicate that the average holder is in profit
  • Low Positive (0% to 20%): Modest profit, often stable market conditions
  • Medium Positive (20% to 50%): Healthy profit, potential for some profit taking

  • High Positive (>50%): Substantial profit, increased likelihood of profit taking

  • Negative Values: Indicate that the average holder is at a loss

  • Low Negative (0% to -20%): Modest loss, potential accumulation zone
  • Medium Negative (-20% to -50%): Significant loss, possible capitulation ahead
  • High Negative (<-50%): Severe loss, often indicates extreme market stress

Analysis Applications

  • Market Bottom Identification: Extremely negative ratios often precede market bottoms
  • Market Top Warning: Extremely positive ratios may signal unsustainable price levels
  • Mean Reversion Strategy: Trading based on historical ratio extremes
  • Accumulation Zone Detection: Identifying favorable risk/reward entry points
  • Divergence Analysis: Comparing with other indicators to confirm trend changes

Considerations

  • Exchange wallets and contract addresses may distort the calculation
  • The ratio should be analyzed alongside trading volume for better context
  • Historical extremes vary by token and market conditions
  • Comparison to the token's own historical ratio range is more meaningful than fixed thresholds
  • Consider using Adjusted Average Cost for a more refined analysis

Parameters

This indicator uses the base parameters for time range and resolution settings.