In the complex world of financial trading, understanding and using technical indicators plays an important role. Among these, the On Balance Volume (OBV) indicator stands out as one of the prominent factors. With the ability to provide insight into market volatility based on trading volume. Join Crypto Trading to trade effectively when mastering the strategy and operating mechanism uses of the What is OBV indicator!
Traders understand What is OBV indicator
Explore What is OBV indicator to capture trading opportunities and optimize your investment strategy! In the trading world, OBV is not just an indicator. It is also a powerful tool that helps you gain a deeper understanding of price behavior and apply effective trading strategies.
What is OBV indicator
The OBV indicator, which stands for On Balance Volume, is a type of indicator related to trading volume. However, it has a similar form to other momentum indicators such as MFI or Momentum.
This indicator was developed by Joseph Granville and introduced in 1963. In his book “Granville’s New Key to Stock Market Profits”. Granville believed that trading volume is an important factor in showing the market trend and its strength.
In addition, Traders need to learn more indicators to optimize trading. For example, CCI index (Commodity Channel Index) and aroon indicator both provide information about overbought or oversold conditions in the market, while the OBV (On-Balance Volume) indicator highlights the correlation between trading volume and price fluctuations.
Learn Crypto Technical Analysis: OBV Indicator Calculation Formula
To calculate the above tool, we apply the following formulas:
In case the closing price of the current trading session is greater than the closing price of the previous session, OBV is calculated according to the formula:
- OBV increases by accumulating active trading volume: OBV = Previous OBV + New Trading Volume
In case the closing price of the current trading session is less than the closing price of the previous session, OBV is calculated as follows:
- OBV decreases when trading volume is negative: OBV = Previous OBV – New Trading Volume
If the current session’s closing price is equal to the previous session’s closing price, the OBV value remains the same as before.
See more: Capture indicator to strongly “buff” your transaction
How to analyze coin trading techniques with OBV indicator, what are the benefits?
Discover how using OBV in cryptocurrency trading technical analysis can help you identify trends and shape your trading strategies intelligently, maximizing your gains from the market.
What does the OBV indicator tell us?
When we look at the OBV technical tool, we notice that it moves quite similarly to the price chart as it relates to the volume of bullish or bearish candles.
When OBV increases, it means that buying volume is overwhelming selling volume. Conversely, if OBV decreases, it is a sign of dominance from the sellers over the buyers.
There are cases where OBV increases sharply, but the price chart only shows sideways movement with small candles, not the usual strong bullish candles, indicating that the buyers may be losing strength and the sellers are likely to dominate in the near future.
Conversely, OBV is falling sharply while the price chart remains stable with small candles. It shows that despite the large selling volume, the sellers may be losing strength. This opens up opportunities for buyers.
Or, if you see a series of strong bullish candles on the chart. But the OBV line is flat instead of rising as usual. It could signal that sellers are entering the market, driving down prices shortly.
Conversely, if there is a series of consecutive bearish candles on the chart. But the OBV line remains relatively flat instead of falling significantly. That is a sign that buyers are likely to step in and push the price up.
What Role Does OBV Play in Learning Crypto Technical Analysis?
The OBV technical tool is a powerful tool that helps us understand market activity by reflecting the fluctuations in trading volume over a given period of time.
When the OBV indicator is rising, this indicates that buying pressure is greater than selling pressure. This creates conditions for the price to potentially rise. Conversely, when the OBV indicator is falling, selling pressure is dominant and the price is likely to fall.
If OBV increases while the price remains the same or goes down, this shows that selling pressure is weakening. There is a possibility that the price will reverse and go up again. Conversely, if OBV decreases while the price remains the same or goes up, this shows that buying pressure is weakening, and there is a possibility that the price will go down again.
In short, the OBV technical indicator provides valuable information about the supply and demand situation in the market. And helps investors make smart trading decisions.
See more: Opening an Bybit exchange account for traders
The formula for effective application of What is OBV indicator
Discover the formula for effectively applying the OBV indicator to capture trading opportunities in the financial markets.
Instructions for installing OBV indicator in Trade Coin
So, traders who are using MT4 software. Can easily install the OBV indicator by following these steps:
Step 1: Launch the MT4 application on your device to begin the OBV indicator installation process. Select the “Insert” item in the main menu. Next, select “Indicators”. Then select “Volumes” and finally “On Balance Volume”.
Step 2: Next, you need to set up the parameters for the OBV indicator on the MT4 software interface. In the Parameters section, you can customize parameters such as the color and thickness of the displayed OBV line.
Step 3: Continue setting other parameters in the Visualization section. This is where you can choose the time frame to display the OBV indicator. By default, the system will display the entire time frame. But you can also adjust it as you like.
How to analyze Trade Coin technique with What is OBV indicator
Knowing how to use the On Balance Volume (OBV) indicator effectively is an important element in technical market analysis. Here are some basic ways to apply the OBV indicator:
A specific example of how to use OBV is in determining the continuation trend of a cryptocurrency. When the price and OBV of this coin are in an uptrend. But then the price starts to sideway and OBV tends to move sideways.
In this case, the investor can place a buy (Long) order immediately after OBV breaks above the resistance level of the previous sideways trend. The stop loss can be placed at the lowest price during the sideways phase. While the take profit can be placed at the nearest resistance level.
In addition, traders understand how to apply the What is OBV indicator to identify divergence or convergence signals. Divergence signals appear when the price increases but OBV decreases. Implying a potential trend reversal. Meanwhile, convergence signals appear when the price decreases but OBV increases. Suggesting a potential trend reversal.
Conclude
Based on the above information, understanding What is OBV indicator is helps investors understand the market. But it is also an indispensable part of their trading strategy. Accompany Crypto Trading to effectively apply the OBV indicator. From there, it can help investors achieve success in this challenging financial market.
FAQs:
What is OBV?
OBV stands for On Balance Volume, a technical tool used to measure the flow of money into and out of a security based on trading volume.
How to use OBV in trading?
OBV can be used to determine the trend of the market. Confirm reversals in stock prices and find potential buy/sell points. Based on the fluctuation of trading volume.
What types of assets can OBV be applied to?
OBV can be applied to all types of trading assets. From stocks to cryptocurrencies and commodities. It helps investors better understand the supply and demand situation in the market.
