Trading the cryptocurrency market using on balance volume

0 13

Written by

trader,blockchain technologist and contentpreneur.Also founder and ceo at teacher forex sc... [more]

4 years ago

On balance volume is a volume based momentum indicator.

As a momentum volume indicator,on balance volume indicator was created by Joseph Granville with the main objective of helping traders to know the direction of the cryptocurrency market.As a volume based momentum indicator, on balance volume indicator uses volume flow to predict changes in cryptocurrency prices.

Just like other volume indicators,on balance volume is also based on divergence and trend strategy and trend line strategy.

Based on trend and trend line strategy,the on balance volume will be considered to be on a rising trend when each new peak is higher than the previous peak and each new trough is higher than the previous trough.It will be considered to be on a falling trend when each new peak is lower than the previous peak and when each new trough is lower than the previous trough.

According to Joseph Granville, the values of on balance volume is therefore calculated using the following formula;

-If the close price of the current bar is higher than the previous one,then the volume of current bar will be added to the previous one thus giving the formula as;

current period(OBV)=previous period(OBV) +current bar Volume

-if the close price of the current bar is lower than the previous one,then the volume of current bar will be subtracted from the previous one thus giving the formula as;

current period(OBV)= previous period(OBV)- current bar Volume.

1.On Balance volume(OBV) bullish cryptocurrency market

Therefore,on the basis of divergence,when the price of the market is moving downwards when the On Balance Volume(OBV) is rising,the market will reverse and start moving upward in the same direction as the on Balance Volume.This will signal a cryptocurrency trader to buy a given amount of cryptocurrency with their USDT balance .The cryptocurrency trader can either place a market buy order which will be executed instantly or they can place a limit buy order which will be executed when the price reaches their buy limit order. This is indicated as from the candlesticks chart below;

The price analysis above is that of TRX against USDT. Two points are being indicated on the analysis. There is point A and point B. Point A is the On balance Volume while point B represents the upward on balance volume movement. At point B, the market can be seen moving in a downward direction while the on balance volume was in an upward direction. The market then reverse and start moving in the same direction upwards as the on balance volume. This signals the cryptocurrency trader to purchase a given amount of TRX with their USDT balance. The cryptocurrency trader can either place a market buy order or a limit buy order. The market buy order will instantly be executed while the limit buy order will be executed when the price reaches their limit buy order. When the order is being executed,the account of the cryptocurrency trader will start increasing in value provided that the movement is in an upward direction

2.On Balance volume(OBV) bearish cryptocurrency market

Therefore,on the basis of divergence,when the price of the market is moving upwards when the On Balance Volume(OBV) is falling,the market will reverse and start moving downwards in the same direction as the on Balance Volume.This will signal a cryptocurrency trader to sell a given amount of cryptocurrency which he will have previously purchased and is holding so that they can prevent their account from declining in value. The cryptocurrency trader can either place a market sell order which will instantly be executed or they can place a limit sell order which will be executed when the market price reaches their limit sell order. This is indicated as from the candlesticks chart below;

The price analysis above is that of TRX against USDT. Two points are being indicated on the analysis. There is point A and point B. Point A is the On balance Volume while point B represents the downward on balance volume movement. At point B, the market can be seen moving in an upward direction while the on balance volume was in a downward movement . The market then reverse and start moving in the same direction downwards as the on balance volume. This signals the cryptocurrency trader to sell a given amount of TRX which he had previously purchased and is currently holding in order to avoid declining the value of their account. The cryptocurrency trader can either place a market sell order which will instantly be executed or they can place a limit sell order which will be executed when the market price reaches their sell order limit. When the order is successfully placed,their account will increase in value in terms of USDT.