5-29-2014, What you know Bitcoin volume? On Balance Volume? A technical analysis indicator
If you are here to make a quick buck, skip this post and go play craps. If you are here to understand what is going on behind the bitcoin market by analyzing price and volume side by side, read on. Today, we are going to learn and analyze a volume indicator called "on balance volume". This indicator measures the buying and selling pressure of a market. It is always important to understand volume together with price, and hence this is a valuable indicator. There is a concept explained section for those of you catching up. Before reading further, I want to disclaim you that no indicator work 100% of the time, this is simply another tool in your toolbox of technical analysis.
Below is the most recent 10 day chart, 2hr bars. Top is bitcoin price and bottom is the on balance volume indicator. Take a look at the chart for a good two minutes and see if you can see any patterns or how it might help you. When you are done, read on.
How to confirm price action with On Balance Volume(OBV)
The best(personal opinion) way to use this indicator is by using it together while observing price. The idea is that whenever price moves up or down, the volume should confirm that move. **Why? Who came up with this rule?.(concept explained section) If this is true, when bitcoin price breaks new high, the price needs to be accompanied by heavy volume. We can use on balance volume to see if the price direction confirms with volume. Two rules to follow:
1. When bitcoin price make new high or low, the on balance volume indicator need to also move to new high or low. We call this price confirmed which suggest that price is sustainable; heavy buying pressure.
2. When price make new high or low, but OBV doesn't make new high or low. We called this an unconfirmed move. When this happens, trade with caution. It could mean a consolidation, a choppy market or even reversal. It is a warning signal, not a sell.
Lets analyze the bitcoin chart:
Green arrows represent the prices and volume confirming with each other. When this happens, we clearly see that the price movement is genuine, market participants are bidding this thing up.
Red arrows represent price and volume not confirming with each other. With non-confirmed price action, the bidding is not heavy, there are buyers, but not many. It could mean price need to consolidate or in the worst case, reverse. In the last 2 days, we are consolidating. A rule of thumb, when price doesn't confirm volume, be careful!
With the recent development of a price consolidation after a powerful run up, we could have a pullback, but I still strongly believe my target in my previous post which is at 610 and 710 usd/btc. It is possible that we just make new highs again then we should throw another party. If you like what you see here at ibankbitcoins. if you can leave a feedback of what you think or what you want to see next, that would be wonderful.
On Balance Volume Indicator Explained:
I see that you are here to learn. Good, You cannot possbily go wrong learning new things. At worst, you can say you learned, applied and the indicator sucks. So get your hands dirty and learn this shtz yo. What you know about rocking a wolf on your noggin? What you know about wearing a fur fox skin? I'm digging, I'm digging, I'm searching right through that luggage. One man's trash is another man's come up. (This song is in my head, sorry).
To calculate on balance volume (OBV), follow these rules below:
If the closing price is above the prior close price then: Current OBV = Previous OBV + Current Volume If the closing price is below the prior close price then: Current OBV = Previous OBV - Current Volume If the closing prices equals the prior close price then: Current OBV = Previous OBV (no change)
**"WHY? who came up with this rule?" asks the 13 year old. Because mother effing Charles Dow and Edward Jones said so. These guys personally invented the DOW JONES INDUSTRIAL AVERAGE and TRANSPORT. Dow and Jones don't mess around, they went on not only to create these indexes, Dow had a set of theories, the dow theory. His rule number 5 is: Trends are confirmed by volume. Feel free to read up on it on google about this guy, the dow theory and dow jones industrial and transportation average.