BTC – Trading using OBV

OBV is a lesser used, but particularly powerful indicator because it incorporates volume and price direction.

A break in the trend of the OBV has been very successful for me in the past in identifying what is goin to happen next ahead of time and is always used alongside moving averages and/or support and resistance . When i have ignored the OBV trend change and focussed just on the price action, i have regretted it.

The calculation is quite simple, its the cumulative effect of adding or subtracting volume , if the volume bar resulted in the price increasing or decreasing.

Or in other words:

If closing price is higher than previous closing price then: Current OBV = Previous OBV + Newvolume

If closing price is lower than previous closing price then: Current OBV = Previous OBV – Newvolume

The effect is that it emphasises significant volume moves, so if there is a big selloff which ultimately only maginally pushes the price down, you will see a red candle with a long wick and only a small down move in price.. whereas OBV will show a big trend change which is oftern a prelude to a bigger move.. as they say volume preceedes price and this is why this is such a powerful indicator.

As we can see in the bitcoin market, we are pushing higher which is very positive, but we need to pay attention to which way this trend will break. It appears the bulls are winning at the moment.

If you find this useful, drop it a like, cheers.