Importance and technical aspects of the On-Balance Volume (OBV) Indicator

In the world of trading there are fundamental notions, for example; in an upward trending market volume increases in correlation with upward price action, while in a downward trending market such as the one that is currently developing, volume usually increases when price action is downward.

Beyond how simple it may seem to understand that volume as an indicator shows the sentiment of the crowd, either bullish or bearish, not all volume indicators give reliable signals, hence the need to study multiple volume indicators that project more reliable data on the main direction of the trend, in order to be able to take operational advantages regardless of the direction of the market.

In this sense, and in attention to what was mentioned in the first two paragraphs of this publication, the objective of this manuscript is to describe in detail the technical aspects of the On-Balance Volume Indicator or OBV, in order to take some guidelines that allow us to trade our Steem coin or any other cryptocurrency that offers us entry signals.

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From a theoretical/technical constructor, the on-balance volume indicator is one of the most effective momentum technical analysis tools, mainly because it is an indicator that uses volume flow with the objective of projecting potential changes in the price direction of a given financial instrument in correspondence to the volume injected by buy/sell transactions.

A noteworthy element of the on-balance volume indicator is that it provides information on the strength of price movements because it measures the buy/sell volume over time by weighting the volume on up days and subtracting the volume on down days.

Screenshot from Binance portal

Now to reinforce what was mentioned in the previous paragraph, it is worth mentioning that the on-balance volume indicator usually increases or decreases during each day in correlation with the price action, for example, if the price closes higher or lower compared to the previous day's close.

Another element to note about the on-balance volume indicator is that in order to project the direction of the trend, if the price action closes above the previous close, this reflects that all of the day's volume is of bullish projection, while if the price action closes below the previous close this behavior reflects that all of the day's volume is of bearish projection.

I hope you found the shared content useful, and that you can somehow put it into practice when deciding to trade our Steem coin or any other cryptocurrency that offers us entry signals.