Hello friends of @Project.HOPE, in the article I uploaded a few days ago about the OBV On Balance Volume indicator, I outlined exclusively technical theoretical aspects emphasizing that the volume on balance what it does is actually measure the buying / selling pressure, on the cumulative result of the increase / decrease in volume, by subtracting the volume on bearish days and adding the volume on bullish days, elements of importance to be able to confirm the market trend.
Among the considerations to take into account for trend confirmation using volume indicators, is that the continuous increase in volume corresponds to strong uptrends, while strong downtrends are encouraged by a decreasing volume in action, now, in attention to these two principles in the following I will explain how to confirm uptrends and downtrends using the Volume on Balance indicator.
Upward trend
In line with what was mentioned in the previous paragraph, to confirm the direction of the uptrend using the Volume on Balance indicator, it should be taken into account that when the price action of a given instrument is projected in an upward direction, the line of the Volume on Balance indicator will follow the direction of the price action, therefore, it will reach consecutive higher highs and higher lows, a behavior that reveals the confirmation of the uptrend.
To exemplify how to predict the direction of the uptrend using Balance Volume indicator, observe in the following chart the price action of the XRP/USDT pair, note how the price action and the indicator line move in the same direction, which indicates that the balance volume is supporting the price rise, behavior that confirms the uptrend.
Downward trend
However, when the direction of the trend is downward, the on-balance volume indicator also correlates with the downward price action, i.e. it starts making some lower highs and lower lows in sync with the price movement, an element that confirms that the on-balance volume indicator is supporting and therefore confirming that the trend..
To exemplify how to predict the direction of the downtrend using the on-balance volume indicator, observe in the following chart the price action of the ZIL/USDT pair, note how the price, failing to make new higher prices, shows weakening, and then the price action starts downward movements, also note how the on-balance volume indicator line runs the same pattern as the price action which indicates that it is supporting the price depreciation, behavior that confirms the downtrend.
As you may have noticed in the two examples discussed in this post, the OBV indicator is of utmost importance in order to predict the direction of the trend.
SOURCES CONSULTED
Investopedia What is the on-balance volume (OBV)? - On-Balance Volume (OBV) Definition. Link
OBSERVATION:
The cover image was designed by the author: @lupafilotaxia, incorporating image: Ewminteractive
