Recently, an interesting market phenomenon has been discussed in the trading community, and many people have noticed this point: when the funding rate drops to negative, it often leads to a rally; whereas when the funding rate returns to normal levels or even rises, a correction or sell-off may occur.

This pattern sounds quite tempting, as if a certain market signal has been found. But the question is, is this logic really that reliable?

To be honest, this phenomenon has indeed been quite evident in recent times. The funding rate essentially reflects the balance of power between long and short positions—when the rate is negative, it indicates shorts are paying longs, usually implying excessive bearish sentiment, and a counteracting force may be brewing; when the rate turns positive, it means longs are gaining the upper hand, but in extreme cases, it could also signal overly crowded long positions.

However, this correlation is not an eternal rule. Market changes happen very quickly, and a valid signal from the past may become invalid in the next cycle. Therefore, relying solely on this as the basis for a trading strategy carries significant risks. It’s more prudent to consider multiple factors such as the overall market environment, on-chain data, technical analysis, and more, rather than depending solely on the funding rate indicator.