Blockchain and Cryptocurrency Advanced - Using the Volume Indicator in Parallel with Another Indicator and The Usefulness of The Volume Indicator in Crypto Trading
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
The Usefulness of The Volume Indicator 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.
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.