Steemit Crypto Academy – Season 4 - Week 2 - Post for @kouba01

Question 1 - Explain the volume indicator in your own words

When it comes to trading any cryptocurrency asset, volume is one of the factors that is very important and play an important role in determining what is happening in the market. The volume indicator is basically a technical indicator that measures the trading activity of any cryptocurrency asset at any time, such as the amount of a particular cryptocurrency traded in the market by traders and number of traders in the market trading that particular cryptocurrency asset at a particular timeframe. he volume indicator can be applied on most charting platforms like tradingview and is mostly located at the bottom of the chart as a histogram. Each of the histogram bar represents the total volume of the particular cryptocurrency traded at any given timeframe.

The main benefit of the volume indicator is that it is a tool that helps show a visual representation of the trading volume in the market or the amount of the particular cryptocurrency asset traded in the market by traders at any given timeframe. This is very useful for traders as they can make use of that information to have a better understanding of what is going on in the market and the strength of the market in terms of price increase or decrease and buyers and sellers in the market. Take for instance, the price of a cryptocurrency asset can show the direction of the market, but it doesn’t always represent what is going on in the market like how much coins have been traded by traders in the market at a given time and also whether the market is still holding strong regardless of price.

The volume indicator can be used alongside other indicator during technical analysis to confirm market trends. When the market is in an uptrend, it will also show in the volume, the volume indicator will visually show an increase in volume for that particular cryptocurrency asset at any given timeframe. Also, the volume indicator can help traders identify when the trend is becoming exhausted regardless of the direction of the price. This is indicated by a decrease in volume while the price is increasing. This is useful to know when a trend is about to reverse.

Question 2 - Use a platform other than Tradingview to present the volume indicator on a chart and show how to configure its parameters by justifying your choices

Adding the volume indicator on GoodCrypto charting platform

Adding the volume indicator on a cryptocurrency price chart is quite a straightforward process and only requires a few steps when using the goodcrypto platform which is another very good charting platform and alternative to the popular tradingview.

• To do this, I will visit the goodcrypto website https://app.goodcrypto.app. On goodcrypto platform, the trade interface https://app.goodcrypto.app/trade provides the charting tools.

• Click on the cryptocurrency pair dropdown and search for any cryptocurrency to add on the chart for technical analysis. For this demonstration, I chose the AAVE/USDT pair.

• To select a particular exchange, click on the exchange dropdown and select from the available list of crypto exchanges. I selected Binance exchange.

• After that, click on the expand icon to enter into full screen mode.

• On the chart interface, to change the timeframe, click on the timeframe symbol at the top right on the tabs section. select the preferred timeframe. For this, i selected the 1 hour timeframe.

• To add the volume indicator, located the indicators tab icon "fx" at the right tab section, click on it to open the indicator options.

• Scroll down and look for "Volume". Click on the Volume indicator to add it on the chart.

• The volume indicator histogram will be added to the chart.

• On the volume indicator area on the chart, click on the 3 dots that for more options.

• Select settings option to open the volume indicator settings

• The volume indicator has 2 main sections; input section and styles section.

• Input - On the input section, there is only 1 main parameters that can be modified which is the moving average input. By default, it is 20, this is based on the 20 periods moving average of the volume. However, the number of periods can be changed based on the technical analysis needs. This input can be reset at any time by clicking on the defaults dropdown at the bottom and clicking reset settings.

• Styles - The styles section contains all the styles settings change the visual look of the various indicator components such as the colours of the histogram bars for falling and growing. The shape for volume visual representation can be changed. Also, moving average line can be toggled on or off and also the moving average line thickness can be changed as well. Like the inputs section, the styles section can be reset to default at any time.

For me I when using the volume indicator, I like to leave everything set to default as it has proven to work best for my strategy and technical analysis. However the moving average input is also very useful in certain situation when I want to know the average volume of the market. The default of 20 periods works best for me so I always leave the moving average periods set at 20 periods. This helps to have a clear understanding of the volume activitity of the market in the past 20 periods of my selected timeframe.

Question 3 - What is the link between Volume and Trend and How to use volume to predict a trend reversal?

When it comes to price forecasting and trading any cryptocurrency asset, there is a strong relationship between volume and market trend.

The link between volume and uptrend using AAVE/USDT Pair

When the price is in an uptrend, there will also be a noticeable increase in the volume because the quantity of the asset being traded by traders increases and also there is an increase in momentum. This means that there will be much trading activity for that particular cryptocurrency in the market. The buying pressure from the buyers are suppressing the selling pressure from sellers hence why the price is in an uptrend. On the AAVE/USDT chart, we can see that in the area where the price is in an uptrend, there is also a noticeable increase in the volume.

AAVE/USDT Chart

The link between volume and uptrend using BNB/USDT Pair

When the price is in a downtrend, there will also be a noticeable increase in the selling volume and the momentum because there are more sellers in the market selling. The selling pressure from the sellers are pushing down the price hence why the price is in a downtrend. On the BNB/USDT chart, we can see that in the area where the price is in a downtrend, there is also a noticeable increase in the selling volume and also there is a decrease in volume that follows next.

BNB/USDT Chart

Question 3b - How to use volume to predict a trend reversal?

For uptrend reversal

When the price is in an uptrend, the volume indicator can be used to know when the trend is about to reverse. When the price is about to reverse from uptrend to downtrend, the selling volume bars will be in a downward slope which indicates that there is a slowdown in the upward momentum in the market and that the buying pressure is weakening. On the AAVE/USDT chart, we can see that the price candle was in an uptrend but the buying volume bars was on a downward slope which was an indication that the trend was about to reverse. The buying pressure was slowing down in each candle. After that there was a downtrend that followed next.

AAVE/USDT Chart

For Downtrend reversal

When the price is in a downtrend, the selling volume bars also shows a downward slope which indicates that there is a slowdown in the downward momentum in the market and that the selling pressure is weakening. On the AAVE/USDT chart, we can see that the price was in a downtrend but the selling volume bars was on also in a downward slope which was an indication that the trend was about to reverse to an uptrend. The selling pressure decreased and after that, an uptrend followed next.

AAVE/USDT Chart

Question 4 - How to use the volume to have a signal confirmation?

Signal confirmation is one of the usefulness of the volume indicator as it can be used to confirm signals before taking a trading decision. The volume indicator bars is great for breakout confirmation.

For support breakout confirmation

During a support breakout, the selling volume bars would show an upward increase slope of the selling volume which is an indication that there are more selling pressure going on in the market which caused the price to break below the support level. The breakout point on the candlestick chart corresponds with the tallest selling volume bar around the breakout region. On the AAVE/USDT chart, we can see the support level. The breakout point corresponds with the upward slope of the selling volume bars.

AAVE/USDT Chart

For resistance breakout confirmation

During a resistance breakout, the buying volume bars would show a spike or an upward increase slope which is an indication that there are more buying force going on in the market which caused the price to break above the resistance level. The breakout point on the candlestick chart corresponds with a spike or the tallest buying volume bars around the resistance breakout region. On the AAVE/USDT chart, we can see the resistance level. The breakout point corresponds with the spike and upward slope of the buying volume bars.

AAVE/USDT Chart

Question 5 - How does the volume reflect the evolution of prices in the charts and why does the volume sometimes anticipate the price?

Volume and price action have a very close relationship which is noticeable on the charts. What this means is that the volume of a particular cryptocurrency asset reflects on the price. When there is a significant increase in volume, there is a greater chance that there is also a significant increase in the price of the particular cryptocurrency asset. Volume is basically the quantity of the particular cryptocurrency being traded in the market by traders, which means more buyers or sellers are either buying or selling the particular cryptocurrency.

This has a close relationship with the price of that particular cryptocurrency. For instance, if there is an increase in buying volume, it means that the buying pressure is increasing as well. This will show in the price as there will be a rise in price. Likewise, if there is an increase in selling volume, it means that the selling pressure is increasing as well. This will also show in the price as there will be a fall in price. Also, if there is a decrease in volume, it means that the quantity of the asset being traded in the market is weakening and that there are low trading activity in the market.

From the MATIC/USDT chart below, we can see that in the uptrend, there was also an increase in the volume. The buying volume bars was increasing which indicates that there are more buyers in the market trading.

MATIC/USDT Chart

From the MATIC/USDT chart below, we can see that in the downtrend, there was also a decrease in the volume. The buying volume bars was decreasing and then there was a cluster of many selling volume bars that followed next. Also, we can see the area of huge price drop which was also reflected on the volume as there was an increase in the selling volume.

MATIC/USDT Chart

Question 5b - Why does the volume sometimes anticipate the price?

Since volume and price have a very close relationship, it means that volume can also anticipate price movement. What this means is that volume tells a lot what is going on in the market in terms of trading activities of buyers and sellers. For instance, when the price is still low and there is a rise in the selling volume bar, if there is an increase in the buying volume, there it can be a signal that there are more buyers entering the market which could push the price up.

From the BNB/USDT chart, we can see the region where the price was falling, the selling volume was also increasing. After that, the selling volume began to decrease and there was an increase in buying volume that followed next. The cluster of buying volume bar was an indication that more buyers have entered the market and the buying pressure has suppressed the selling pressure. It didn't take long for the price to enter an uptrend.

BNB/USDT Chart

Question 6 - Is it better to use the volume indicator alone or use it in parallel with another indicator when trading?

In my opinion, even though the volume Indicator is a powerful technical analysis tool that tells a lot what is going on in the market, it is always better to combine it with another indicator to get better clarification of what is going on in the market because volume alone can sometimes give a false impression of the market. For me, I like to combine the volume indicator with the RSI indicator because both of them help to get confirmation on when there are more buyers and sellers in the market. The RSI indicator is a great indicator that shows overbought and oversold areas. On the BNB/USDT chart, we can see the price went below the 30 mark which is the oversold zone, there was also an increase in selling volume. The price began to rise, and there was an increase in buying volume. On the RSI, it indicated that the price has crossed above the oversold zone which can be a great buy signal if caught early.

Volume indicator and RSI indicator on BNB/USDT Chart

Question 7 - The volume indicators are multiple, choose one of them to briefly explain its usefulness in crypto trading

On-Balance Volume (OBV) indicator

The on-balance volume indicator is a very popular volume based indicator used in technical analysis. It is basically an indicator that measures the strength of buying pressure and selling pressure by making use of volume and price to predict price movements. The OBV is a commutative indicator which simply means that its current value is gotten from past values. The OBV has a simple calculation which states that, when the price is up, the volume is added to the previous period’s OBV. When the price is down, the volume is subtracted from the previous period’s OBV. The main concept behind the on-balance volume is that the price of any cryptocurrency asset follows the volume.

On-Balance Volume (OBV) indicator on MATIC/USDT Chart

Usefulness of the On-Balance Volume (OBV) indicator in trading

• When there is an increase or decrease in price and also an increase in OBV, the OBV indicator confirms the uptrend.

MATIC/USDT Chart

• When there is an increase in price, but there is a decrease in OBV, it shows divergence and confirms that there is a weak price movement and the market lacks conviction.

MATIC/USDT Chart

• When there is a decrease in price and there is a decrease in OBV, it confirms the downtrend. On the MATIC/USDT Chart, we can see that the price of MATIC was falling and the OBV was also falling in a downward slope, which is a confirmation that the market is in a downtrend.

MATIC/USDT Chart

• When the price is ranging, but the OBV indicator is showing an increasing upward slope, it can be a signal that there is a potential bullish movement coming.

• When the price is ranging, but the OBV indicator is showing a decreasing downward slope, it can be a signal that there is a potential bearish movement coming.

8 - Conclusion

Volume is a very important aspect of trading that play a key role in helping traders determine what is happening in the market in terms of trading activities of buyers and sellers. The trading indicator is a very powerful tool that when combined with other technical indicators can provide valuable signals to make the right trading decisions. Aside the regular volume indicator, there are other volume-based indicator that are also very powerful. The On-Balance Volume (OBV) indicator is a typical example of a very powerful and useful indicator that can be used to predict future price direction of any cryptocurrency asset based on the volume and price. However, while indicators can be very beneficial in making correct trading decisions, it is also advisable not to rely on a single indicator, rather a combination of multiple indicators is a great way to have better understanding of what is happening in the market and also confirm signals.