This weighs what the market is banking as gain against what it is crystallising as loss, and reports the result as one figure rather than two competing lines. The question it settles is simple: is the seller setting today’s tape ahead or behind?

That question is worth more than either underlying series. Both swell with price and with turnover, which leaves an early reading and a recent one measuring different things. Weighing one against the other strips both effects out.

What it actually measures

The hinge sits where the two sides match. At that point coin is trading at roughly what it cost, and what has historically mattered is the act of crossing rather than how far the reading has travelled beyond.

At the top of the range, barely anyone parting with coin is doing so behind. That reads as comfort and is better understood as exposure: a market with no reluctant sellers left has nothing standing between it and the next disturbance.

The bottom of the range behaves quite differently. Where losses swamp gains the arrangement has tended to resolve instead of settling in, which is what makes the lower extreme the more useful one.

Comfort at the top is thinner than it looks

A market where sellers are overwhelmingly in profit reads as healthy, and in one obvious sense it is. Nobody is being forced out and nothing is breaking.

The absence of forced sellers is also the absence of a shock absorber. Supply that had to leave has already gone, so the next disturbance meets a market with no reluctant hands to soak it up, and moves arriving into that condition have travelled further than the news behind them warranted.

What it does not tell you

The figure counts value and not people. A single enormous holder taking a gain and a broad crowd doing so produce the same reading, and only the second describes a market that has genuinely changed its mind.

It cannot separate a sale from a transfer. Coins moved between wallets under one owner are recorded exactly as coins sold, which puts noise into every reading and a great deal into some of them.

Extremes describe conditions rather than dates. The high end in particular has persisted for months at a stretch, so reading one as an instruction has been expensive for a long line of people.

How to read it

Euphoria. Gains swamp losses. Practically nobody selling into this tape is selling at a loss.

Profit-led. Gains are clearly in front, which is the everyday state of an advance.

Balanced. The two sides roughly cancel, so the market is changing hands at around what it cost.

Loss-led. Losses are in front, which puts the seller setting the tape underwater.

Capitulation. Losses swamp gains, an arrangement that has resolved at lows rather than carrying on indefinitely.

Profit / Loss Ratio appears on the Profit & Loss dashboard, along with Cash Extracted, Pain Map and Sell-Side Risk Ratio.

Common questions

Why weigh the two against each other?

Because each swells with the market and with turnover, which leaves an early figure and a recent one measuring different things. Pitting them against one another cancels both distortions and leaves the useful question behind.

What does the hinge point mark?

That the two sides are matched. It divides a market parting with coin into strength from one parting with coin into weakness, and what matters is crossing it rather than how far past it the reading gets.

Should an extreme high reading be acted on?

It reports a condition and instructs nothing, and such readings have held for months. What it describes is exposure, since with barely anyone parting with coin behind, nothing stands between the market and the next disturbance.

Does one large seller distort it?

It can. The figure counts value and not participants, so one enormous holder and a broad crowd produce the same reading, and only the second describes a genuine change of mind.

How reliable is the low end?

More so than the high end. Losses swamping gains has resolved at lows instead of continuing, which makes it the more informative extreme of the two.