The “Taker buy/sell ratio” shows us the ratio between the long and short volumes in the derivatives market. When the value is greater than 1> it shows us that more traders are opening long positions using a market order and that bullish sentiment is dominant in the markets.
The name of this indicator can be confusing at times, what does “taker” mean exactly? Different order types exist if a trader wants to execute a trade on Bitcoin or any other cryptocurrency. The trader can either set a limit order (maker) or execute through a market order (taker). The difference between these two order types is that a limit order provides liquidity to the order book and a market order takes liquidity from the order book. As a result, the fees paid on market orders are generally higher than on limit orders.
So the trader executing a market order doesn’t want to wait for the asset to reach a certain price but wants to execute the trade immediately and is willing to pay a premium, as the fees for market orders are higher.
The grey line shows the ratio, and the yellow line calculates the moving average of the taker buy/sell ratio. Therefore the analyst can see the average direction. The green and red lines are there to give the chart more structure. As a result, the trader can identify overbought and oversold conditions.
More traders buy instantly at the market price when the value exceeds 1. This metric helps set entry or exit targets.
It can help you determine the sentiment in the short term and long term based on the buying behavior of the traders.
Remember that when the value is above 1, the price doesn’t necessarily have to go up because of the dominant bullish sentiment. It should always go together with other metrics strengthening specific possible scenarios. As with any indicator or metric, the trader should study it carefully because data doesn’t provide any value if the interpretation of the data is wrong.
The “Taker Buy/Sell Ratio” can be a short- and long-term indicator. For example, the direct ratio for the short term and a moving average to view more long-term trends.