Trading Crypto with On-Balance Volume Indicator - Crypto Academy / S5W4 - Homework Post for @fredquantum

A lot of indicators are being used in the crypto world to analyze the crypto market. The traders use these indicators to analyze the market and then use the result to take the trading decisions. There are multiple ways to analyze the market. Some indicators analyze the market on base of the volume, some analyze the market on base of momentum, etc. Today, I am going to explain the On-balance- Volume indicator.

We know that the price of the asset keep changing because of change in demand and supply of the coin. When the demand and supply change, this effect on volume of the coin. There is deep relation between the volume and demand$ supply of the asset.

The On-balance-volume indicator was introduced by Joseph Granville in 1963. This is the momentum indicator which is use to analyze the future of the market by using the volume which is injected in sell or buy of the asset during specific time period. This indicator determine where the market will move next by using the volume inserted in any coin in the market during specific time period.

When the demand and supply of the coin change, the volume also change. The volume go up and down by the selling or buying activities of the coin in the market. This up or down moves of the volume are being used by the On-balanced-volume indicator to determine in which direction the market will move next.

Working of Indicator

The on-balance volume indicator is simple and easy to use. This indicator analyze the next market move which help the traders to take the important trading decisions. The buy and sell of coin inserted the volume in the market which is use by the on-balance volume indicator to determine the future of market. The buy and sell of coin effect the volume. The volume goes ups and down by the selling and buying of coin during specific time period. The On-Balance Volume indicator produce the signals to predict the next market trend by utilizing this volume.

When there is high buying pressure, the coin rise upward. The market move from top to bottom. The higher high moves are formed where each high is higher than previous high which show that there is high demand. The buying pressure is high as compare to the selling pressure. At this moment, the traders utilize the buyer volume to enter into the market.

When the traders start selling the coins, the selling pressure get high and demand get low. The supply get increase and demand get decrease, because of which, the price start falling downward. The lower low are form where each low is lower the previous low which show that the sellers are dominant on buyers in market. At this time, the traders use the seller volume to exit from the market.

Key points

• This indicator helps the traders to predict the direction of the market. The traders use the buy and sell volume injected in the market during specific time period and predict where the market will move next.

• This indicator help to identify the breakout point on the chart

• The traders can identify the divergence using this indicator

• This indicator help to confirm the market trend.

Using any charting platform of choice, add On-Balance Volume on the crypto chart. (Screenshots required).

It is quite easy to add the On-Balance Volume indicator on any price chart. The traders use this indicator to predict in which direction the market will move next. I will show you how to add this indicator on chart. I am going t use the Tradingview.com website to answer this question.

• Go to the TradingView.com website. Open the chart on which you want to add the On-balance volume indicator.
• Click on the Indicator icon.
• Search for the On-balance Volume Indicator from the search bar
• Click on the indicator and it will add on your chart.

Once you add this chart, now you can change the setting according to your own by clicking on the setting icon. Mostly the default setting is preferred more because this is the setting which is advised by the introducer of the indicator who is much more experienced. But there is option to change the time period for this indicator. You can change the color of line too easily. It's up to you according to your trading plan and trading demand.

What are the Formulas and Rules for calculating On-Balance Indicator? Give an illustrative example.

The on-balance volume indicator use the closing prices of the coin during specific time period to for calculation purpose. The time period is set and then the previous closing price of the coin and current closing price of the coin is use to calculate the On-balance volume indicator. For example if i have set the time period for 1 day, the indicator will consider the previous day closing price of coin and today's closing price of coin for calculation.

Below is the formula to calculate the On-Balance indicator.

OBV_present = The current On-Balance Volume
OBV_previous = The previous period On-Balance Volume

The On- balance volume indicator is calculated by using the closing price of coin in previous day and today closing price of coin. The current and previous closing prices are used for calculation. And we have three formulas for calculating the On-Balance Volume Indicator.

• The first is If the closing price of the current day is higher than the closing price of the last day.
• Closing price of current day > closing price of previous day
  OBV= OBV_pre + Current Period Volume

• The second is if the closing price of current day is equal to the closing price of the previous day then;
• Closing price of current day = closing price of previous day
  OBV= OBV_pre + 0

• The last if when the closing price of the current day is less than the closing price of the previous day then we use following formula.
• Closing price of current day < closing price of previous day
  OBV= OBV_pre - Current Period Volume

Practical Illustration

Below is the chart were the closing price of the previous day is equal to closing price of present day.

OBV= OBV _{previous day} + 0

OBV= 403.543 + 0
OBV = 403.543K

4. What is Trend Confirmation using On-Balance Volume Indicator? Show it on the crypto charts in both bullish and bearish directions. (Screenshots required)

The On-Balance volume indicator is highly useful. It help to determine the market trend. The trend can either be bullish or bearish This indicator help the traders to confirm the market trend so that they can take the important trading decisions.

Bullish Trend

When the buying pressure is high in market as compare the the selling pressure, the price of the asset move in upward direction. The price rise up because of high demand and low supply. This indicate that the buyers are entering into the market with great volume. The price move from bottom to top while forming the higher high moves where each high is high as compare to previous high. This indicate that there is uptrend. The trend is confirm by the OBV indicator in such way that when the line of the OBV indicator also move from the bottom to top, this indicate that there is uptrend in market. If the OBV show the upward movement by making some higher high and higher low moves, this confirm that there is uptrend in the market.

Above is the chart where the price was moving upward . There were higher high and higher low moves indicating that there is uptrend in the market. The trend is confirmed to be real because the line of the OBV indicator also moving from bottom to top while making the higher high and higher low moves. The OBV confirm that there is uptrend in the market.

Bearish Trend

When the selling pressure is high in market as compare the the buying pressure, the price of the asset move in downward direction. The price fall down because of low demand and high supply. This indicate that the sellers are entering into the market with great volume. The price move from top to bottom while forming the lower low moves where each lower is lower as compare to previous low. This indicate that there is downtrend. The trend is confirm by the OBV indicator in such way that when the line of the OBV indicator also move from the top to bottom, this indicate that there is downtrend in market. If the OBV show the downward movement by making some lower low and lower high low moves, this confirm that there is downtrend in the market.

Above is the chart where the price was moving downward . There were lower low and lower high moves indicating that there is downtrend in the market. The trend is confirmed to be real because the line of the OBV indicator also moving from top to bottom while making the higher lower low and lower high moves. The OBV confirm that there is downtrend in the market.

What's your understanding of Breakout Confirmation with On-Balance-Volume Indicator? Show it on crypto charts, both bullish and bearish breakouts (Screenshots required).

There are basically two trend in the market. Uptrend and downtrend. These are two trend in which the market move. While trending upward, the market move from bottom to top and while trending downward, the market move from top to bottom. But beside these moves, sometime, the market start moving in a boundary between support and resistance level. At that time, there is no clear trend in the market. The price keep moving between support and resistance level. This is known as the market is in ranging phase. But when the breakout occur after the ranging phase. the price start moving in upward or downward direction. The breakout points are best to enter or to exit from the market. When the traders see that the breakout occur in the market, they make the important trading decisions that end there trading in profit. The OBV indicator can be use to confirm the breakout.

Bullish Breakout Confirmation

A bullish breakout is form on the chart when the price of the coin start moving in upward direction after ranging phase. When the market is in ranging phase, it keep moving between resistance and support level. The buyers and sellers are there with same volume. They both drag the market in opposite direction because of which, the market cannot move in a particular direction. But when the market price break the resistance level and start moving in upward direction after breakout, this is said that a bullish breakout occur. When the OBV indicator also give the breakout signals and line of the indicator start moving in upward direction after the breakout, this confirm the breakout in the market.

The above is the chart where the price was in ranging zone. The price was moving between resistance and support. There was no particular trend in the market. Then the price break the resistance level and start moving in upward direction. This is said that the breakout occur. The breakout is also confirmed by the OBV indicator. The OBV line also break the resistance level and start moving from bottom to top after the ranging zone.

Bearish Breakout Confirmation

A bearish breakout is form on the chart when the price of the coin start moving in downward direction after ranging phase. When the market is in ranging phase, it keep moving between resistance and support level. The buyers and sellers are there with same volume. They both drag the market in opposite direction because of which, the market cannot move in a particular direction. But when the market price break the resistance level and start moving in downward direction after breakout, this is said that a bearish breakout occur.

When the OBV indicator also give the breakout signals and line of the indicator start moving in downward direction after the breakout, this confirm the bearish breakout in the market

The above is the chart where the price was in ranging zone. The price was moving between resistance and support. There was no particular trend in the market. Then the price break the resistance level and start moving in downward direction. This is said that the bearish breakout occur. The breakout is also confirmed by the OBV indicator. The OBV line also break the resistance level and start moving from top to bottom after the ranging zone

Explain Advanced Breakout with On-Balance-Volume Indicator. Show it on crypto charts for both bullish and bearish. (Screenshots required).

The advance breakout mean that the breakout is occur on the OBV indicator but the price is still in the ranging phase. The breakout is not occur in the price on the chart but the OBV indicator show that the breakout occur and it start moving in a particular direction. The price on the price chart is still moving in the ranging phase between the support and resistance level. But the OBV break the previous high or low and start moving in upward or downward direction. The breakout on the OBV indicator is shown in advance before breakout occur on the price chart.

Advance Bullish Breakout

The advance bullish breakout occur when the price of the coin is still in ranging phase moving between support and resistance level but the OBV indicator break he resistance level and start moving in upward direction. The Advance bullish breakout indicate that soon the price of the coin will break the resistance level and will move in the upward direction. This is the best spot for the traders to enter into the market.

The above is the screen short where we can see that the price of the coin was in ranging zone. The price of the coin was making the little high and lows between the resistance and support level. But unable to break the previous higher high. There is not breakout occur in the price but the OBV break the resistance level and started moving in upward direction. This was indicating that soon the price will also break the resistance level. We saw that after a few moment, the price broke the resistance level and it also started moving upward direction.

Advance Bearish Breakout

The advance bearish breakout occur when the price of the coin is still in ranging phase moving between support and resistance level but the OBV indicator break he resistance level and start moving in downward direction. The Advance bearish breakout indicate that soon the price of the coin will break the resistance level and will move in the downward direction. This is the best signal for the traders to exit from the market.

The above is the screen short where we can see that the price of the coin was in ranging zone. The price of the coin was making the little high and lows between the resistance and support level. But unable to break the previous lower low. There is not breakout occur in the price but the OBV break the support level and started moving in downward direction. This was indicating that soon the price will also break the the previous low. We saw that after a few moment, the price broke the previous low and it also started moving downward direction

Explain Bullish Divergence and Bearish Divergence with On-Balance Volume Indicator. Show both on charts. (Screenshots required).

When the price of the coin move in opposite direction but the indicator move in other direction, the divergence occur. The divergence is the difference between the direction in which the price and the indicator move. The divergence show that the price trend is going to change. The earlier signals are produced which helps the traders to take the important trading signals before the market start moving in the certain direction. The earlier signals are produced before the trend start in actual on chart.

Bullish Divergence

When the bullish divergence occur in the market, the price of the coin start rising upward. When the price of the assets is forming the lower low moves but the OBV indicator show the higher high move, this indicate that the bullish divergence occur in the market. The higher high move of the OBV indicator indicate that soon the market will start moving in upward direction.

In the above chart, we can see that the price of the coin was in Downtrend. There were lower low and lower high moves where each lower was low than previous low. Thus the trend was continued. But then the bullish divergence occur and the OBV indicator show the higher low move but the price on the chart show the lower low move. There were contradiction between the direction of price and OBV indicator. The Bullish divergence indicate that the bearish trend is going to reverse in bullish trend. This is a signal showing that the trend is going to reverse. The traders should enter into the market when bullish divergence occur.

Bearish Divergence

When the bearish divergence occur in the market, the price of the coin start rising downward. When the price is in uptrend, there are some higher high moves where each high is higher than previous high. When the price of the assets form the higher high moves but the OBV indicator show the lower low and lower high move, this indicate that the bearish divergence occur in the market. The lower low move of the OBV indicator indicate that soon the market will start moving in downward direction. This is a signal showing that the trend is going to reverse. The traders should exit from the market when the bearish divergence occur.

In the above chart, we can see that the price of the coin was in uptrend. But then the bearish divergence occur when the OBV indicator show the lower high move but the price on the chart show the higher high move. The Bearish divergence indicate that the trend is going to reverse in bearish trend.

Confirm a clear trend using the OBV indicator and combine another indicator of choice with it. Use the market structure to place at least two trades (one buy and one sell) through a demo account with proper trade management. (Screenshots required).

It is not good approach to use an indicator alone. No indicator is 100% accurate. There are always some drawback in each indicator because of which the indicator sometime may produce false signals. The trader may have lose because of those signals. So best way is to use the indicator while combining with some other indicator. This help to filter out the false signals and thus the traders can trade in a successful way.

The OBV indicator also sometime produce the false signals. So I am going to use the Moving average with the OBV indicator . Moving average help to determine the trend of market. I am going to use two MV indicators where first is of length 9 which is by default length and second is 28. When the MA indicator is above the price, it mean that there is downtrend. When the price if above the MA, its mean that there is uptrend in the market. This indicator is easy to understand but analyze the market in excellent way. It produce the signals which help the traders to analyze the market and to take the important trading decisions.

Buy Signal

The market show the lower low moves while trending downward. The each low is lower than previous low. But when the price stop making the lower low moves and after breaking the resistance level, it start moving upward, the BUY entry is placed there. When the OBV indicator break the resistance level by breaking the previous lower high and start moving in upward direction, the BUY opportunity raised there. To confirm the trend reversal, look at the MA. If the moving average 9 cross moving average 28 and start moving in upward direction, it confirm that the bullish trend start. The price move above the MA while trending upward. After confirming the bullish signals from both indicators, enter into the market by buying the coins.

The above is the chart where the coin was in downtrend. There were lower low moves where each lower was lower than previous. But then the OBV indicator break the previous lower high and start moving in upward direction. The price start rising which indicate that the bullish trend is going to place in the market. To confirm the signals, when you look at the MA, the cross section of the lines of MA indicate that trend is reversed. The MA 9 crossed the MA 28 and started moving upward which confirm the bullish trend. The price is moving above the MA which indicate that the price is trending upward. Now place the buy entry after setting the stop lose and take profit at ratio 1:1 or 1:2.

Sell Signal

The market show the higher moves while trending upward. The each high is higher than previous high. But when the price stop making the higher high moves and after breaking the resistance level, it start moving downward, the SELL entry is placed there. When the OBV indicator break the resistance level by breaking the previous higher low and start moving in downward direction, the SELL opportunity raised there. To confirm the trend reversal, look at the MA. If the moving average 28 cross moving average 9 and start moving in downward direction, it confirm that the bearish trend start. The price move below the MA while trending downward. After confirming the bearish signals from both indicators, exit from the market by selling the coins

The above is the chart where the coin was in uptrend. There were higher high moves where each high was higher than than previous high. But then the OBV indicator break the previous higher low and start moving in downward direction. The price start declining which indicate that the bearish trend is going to place in the market. To confirm the signals, when you look at the MA, the cross section of the lines of MA indicate that trend is reversed. The MA 28 crossed the MA 9 and started moving downward which confirm the bearish trend. Moreover, the price started moving below the MA. Now place the sell entry after setting the stop lose and take profit at ratio 1:1 or 1:2

Buy Demo Trade

I chose XRP/USDT pair to place the buy entry. First i look at the both indicator. The market was trending upward. I confirm the uptrend from the OBV indicator. The OBV indicator line broke the previous lower high and moving from bottom to top which indicate the uptrend and a good buying opportunity. Then i check the MA, the 9 moving average cross the 28 MA. There cross indicate the trend reversal, then the MA started moving upward. The price was moving above the MA which also confirm the uptrend. After confirming the BUY opportunities from both indicators, i placed the BUY order

Sell Demo Trade

I chose ETH/USDT pair to place the sell entry. First i look at the both indicator. The market was trending downward. I confirm the downtrend from the OBV indicator. The OBV indicator line broke the previous higher low and moving from top to bottom which indicate the downtrend and a good selling opportunity. When the market start trending downward, the traders should exit from the market. Then i checked the MA, the 28 moving average cross the 9 MA. There cross indicate the trend reversal, then the MA started moving downward. The price was moving below the MA which also confirm the uptrend. After confirming the SELL opportunities from both indicators, i placed the SELL order

What are the advantages and disadvantages of On-Balance Volume Indicator?

Advantages

• The On-Balance Volume indicator is simple to understand

• The OBV is easy to use.

• It confirm the market trend. The traders get to know which trend i going on in the market.

• This indicator help to predict the next market trend in the market

• It is equally beneficial for all the time frame in the market but work better for long time period

• This indicator give the earlier breakout signals

• The OBV give the divergence signals.

Disadvantages

• This indicator sometime produce false signals

• When we use the OBV for small time frame, more irrelevant signals are produce which create the noise.

• When there is low volatility in the market, the OBV do not work efficiently in such cases.

Conclusion

OBV indicator is very useful and helpful in the crypto world. This indicator help to analyze the crypto market trend by utilizing the volume which is injected in the market by the sell and buy of the coin. This indicator help to get the divergence signals which the traders can use to earn more profit. The bullish and bearish trend can be confirmed using the OBV indicator. It is easy to use and even the new user in the crypto world can use this indicator to analyze the crypto market.

I am thankful to the professor @fredquantum for teaching us about another important and useful indicator.