Level 2
12 min readLesson 8 of 43

Introduction to Alternative Data

The data that gives you an edge over price-only traders

Introduction to Alternative Data

In the last lesson, you learned why price and volume alone put you at an information disadvantage. Every retail trader stares at the same candlestick charts—which is exactly why most of them lose.

Now let's explore what else exists.

What Is Alternative Data?

Any data beyond price and volume that can inform trading decisions:

  • •Derivatives data (open interest, funding rates, liquidations)
  • •Order flow data (CVD, buy/sell pressure, absorption)
  • •On-chain data (whale movements, exchange flows)
  • •Sentiment data (social media, fear/greed indices)
  • •Market microstructure (bid/ask spreads, order book depth)

The Data Hierarchy

Level 1: Price only - Where most retail lives. No edge when everyone sees the same thing.

Level 2: Price + Volume - Slightly better but still standard.

Level 3: Derivatives data - Where price moves often originate. Most retail never looks here.

Level 4: Order flow - Battle between buyers and sellers inside each candle.

Level 5: On-chain + institutional flow - Where serious alpha lives.

The higher you go, the fewer competitors you face.

The Four Categories

1. Derivatives Data

  • •Open Interest: Total outstanding contracts, shows conviction
  • •Funding Rates: Cost of holding positions, reveals crowded trades
  • •Liquidations: Force-closures that create cascades

2. Order Flow Data

  • •CVD: Buy volume minus sell volume, shows absorption
  • •Trade Imbalances: When one side dominates
  • •Absorption: Large orders absorbing market orders

3. On-Chain Data

  • •Exchange Flows: Coins moving to/from exchanges
  • •Whale Movements: Large address activity
  • •Network Activity: Active addresses, fees

4. Sentiment Data

  • •Social Media Volume: Can precede volatility
  • •Fear & Greed Indices: Extreme readings can mark turns
  • •News Flow: Regulatory, hacks, protocol updates

Cost Reality Check

Free: Coinglass, TradingView scripts, exchange APIs

Paid: HyBlock ($600/mo), Glassnode ($29-799/mo), Laevitas ($150-500/mo)

Good data costs money—that filters out competitors.

The Beginner's Mistake

"High funding = short" and "Whale moved to exchange = sell" don't work consistently.

Alternative data is an INPUT to analysis, not a replacement. You still need:

  • •Statistical validation
  • •Context (market regime)
  • •Risk management

Don't trade single data points. Build systems with multiple confirmations.

Key Takeaways

  • •Alternative data creates edges through information asymmetry
  • •Higher-quality data has fewer users
  • •Good data costs money; start with free for learning
  • •Never trade single data points
  • •Alternative data is an input, not a replacement for analysis

Next Lesson

We've covered the landscape. Now let's zoom in on the most accessible alternative data: Open Interest—the gateway to reading the derivatives market.

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