It is the simplest volume indicator but the most useful to confirm price trends.
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A Thread.
OBV Stands for On Balance Volume.
It shows the buying or selling pressure.
I discovered OBV in the Book
'New key to Stock Market Profits'
Let's understand how its calculated.
YOU MUST understand how it's calculated to use it.
New traders don't bother to understand how the indicator is derived.
This is a fatal mistake as it makes the information useless mostly.
OBV is calculated by
Adding volume to the indicator when the price goes up.
Subtracting volume from the indicator when the price goes down.
To conclude, whenever the price shows a positive move, volume is added to the indicator.
Whenever the price shows a negative move, volume is deducted from the indicator.
Use of OBV.
In its simplest form, it's used as a volume influx confirmation tool. Period. As simple as that.
Whether a trend is confirmed by volume or not, is what the OBV can help us with.
If a trend isn't confirmed by OBV, it means the Volume influx is opposite of what the price shows, causing a divergence.
A divergence is caused when the price and the indicator show an opposite strength.
We can expect a move in the opposite direction, soon enough.
Situation 1
Price of Bitcoin goes up
OBV also goes up
We can see a positive correlation between price and Volume.
This is a clear and simple scenario that will occur 99% of the times.
The same can happen when price goes down and OBV goes down. Again, a positive correlation.
Divergence.
Before we go into divergence, we first need to understand why volume is important.
Price is set by auction.
The charts show a Continuous auction where prices are advertised to Interested parties for buying and selling.
The asset price is determined by what the market in thinks the asset is worth.
Market is made up of all the individual buyers and seller, i.e. Auction participants.
Hence the market makes it impossible for one individual or a small quantity of asset to alter the entire market.
Eg. In the farmers market, 10000 lemons were sold at 1 dollar a piece.
A seller comes and sells 1 lemon at 10 dollars a piece.
What do you think the price of lemon is?
Of course 1 dollar a piece.
The one dollar sold by that one seller is an outlier, a divergence.
The quantity, the amount of sale(volume) doesn't match the price increase.
This is why Volume is important and this is what divergence is.
Low volume trades = Lower acceptance
Situation 2.
Divergence.
A divergence is when the price and OBV aren't correlated.
In an uptrend divergence, the prices could be expected to go lower in future and the opposite for the downtrend.
In a similar manner, again the OBV warned about a weak uptrend which led to a dump.
Lesser volume pumps means low net volume flow into the market.
The same exact is true for downtrends.
I am not giving separate example or else the thread will become too big.
So.
1. Whenever entering a long or short after a trend, confirm with OBV if the trend is supported by influx of Volume. 2. When price is breaking out, confirm with OBV the Breakout or breakdown volume. 3. If divergences exit, be careful.
Something to keep in mind.
In low liquid market like Crypto, a single candle can have a huge volume which can sometimes give a distorted picture of the OBV.
Hence like all indicators, OBV is not perfect.
This covers OBV in detail and as much as necessary.
I hope you found this useful.
Please RT to help everyone new to trading.
I will be making
How to day Trade Bitcoin tutorial so be ready.
Also, thanks to Delta for making the threads possible through my assistant.
I promise to keep sharing the best trading tutorials as fast as possible. For free, as they should be.
A Mega Thread for All Major Altcoins and how to trade them.
Book Mark and Study for your trades.
BNB
Since our last update, we flipped the 0.0093 resistance level, now forming a new range
Expecting a small range against BTC here before continuation higher.
Suggestion - Hold on to bottom entries if you bought with me around $500.
SOL
Tricky situation, if we hold range high we just flipped, I expect to reach $170 soon
Bidding region would be under $135 sweep based on BTC chart.
1. Visible Range OI Delta Profile on @coinalyzetool
Shows where traders are entering and exiting. Use this like VPVR.
Use this indicator on LTF to identify trading levels in a trending market.
In range, use this to scalp on either side as target when price deviates.
2. Aggregate OI:
Having net open interest across all trading pairs is very useful.
Sometimes, one exchange will market enter large long positions while there is no action or selling action on other exchange. This filters out misinterpretation of that data to a large extent.
Understanding some trading Analysis can be difficult because of Complicated Terms.
Must Know Trading Principles and Terms for Trading and Analysis.
A Thread.
P. S. I will keep Updating this List.
This is the thread of most important trading Concepts and Terminologies you should know to Understand and do your own Analysis.
Consider it the language of trading.
I have added links to important tutorials along side Explanation.
1. MSB - Market Structure Break.
Break of Lower Low formed in Previous impulse = Bearish MSB.
If Lower Low is Broken, consider it a Bearish MSB.
Remember, Lower High formation isn't a MSB, but Lower Low Break =MSB.