If you want to become a successful trader, it's important to understand not only price movements but also trading volumes. One of the most popular indicators for volume analysis is OBV (On-Balance Volume). Despite its complicated name, using it is quite simple. Let’s figure out what it is and how to apply it to find the best moments to enter and exit trades.

The On-Balance Volume (OBV) indicator shows how trading volumes relate to price movement. Its idea is simple: if the price of an asset is rising, it means interest in it is increasing, and the volumes are "growing". If the price is falling, the volumes are "decreasing".

OBV formula:

If the closing price is higher than the previous day, the entire volume is added to OBV.

If the closing price is lower, volume is subtracted.

If the price hasn't changed, OBV remains at the same level.

Essentially, OBV turns volume information into a single line that helps you see where the market is heading.

Why OBV is useful:

OBV shows who currently dominates the market:

Bullish trend (rise): if OBV is rising, it means volumes support the price increase. This is a good sign for buying.

Bearish trend (fall): if OBV is falling, it means volumes support the price decrease. This is a signal for caution or selling.

How to use OBV in trading?

1. Trend confirmation

If OBV rises along with the price, the trend is considered "healthy". This means that the movement is supported by volumes.

- Example: The price $BTC is rising, and OBV is rising — this is a good sign for trend continuation.

2. Divergences

Divergence is when the price and OBV move in different directions.

If the price is rising while OBV is falling, it is a signal that the rise is weak and may be false.

If the price is falling while OBV is rising, it may be a sign that the market is ready to reverse upwards.

3. Breakouts of levels

When OBV breaks through an important resistance or support level, it often indicates the beginning of a new trend.

Example: If OBV has sharply increased while the price has just started to move, it may be a buy signal.

Example of using OBV

Imagine you are analyzing Ethereum $ETH

- The price #ETH fluctuates in the range of $3,200 –$3,400.

- During this time, OBV slowly rises even when the price remains stationary.

This may signal that large players are buying $ETH "in the shadows". Soon the price may rise sharply when this becomes obvious to everyone.

OBV limitations

Although OBV is useful, it has its downsides:

1. Noise: The indicator can give false signals, especially on small timeframes.

2. Does not show entry points: OBV helps to understand the overall trend but does not indicate when exactly to buy or sell. It’s better to combine it with other indicators, such as RSI or MACD.

OBV is a powerful tool for volume analysis that can give you an edge in the market. It helps you understand whether a trend is indeed supported by volumes, thus being sustainable. Use it to confirm trends, look for divergences, and understand the sentiments of major players.

Remember: indicators are just part of the puzzle. Always consider other factors, such as news, support and resistance levels, to make informed decisions.

Try adding OBV to your toolkit, and it may become your reliable assistant in trading!

#Traiding #currency #Binance #BTC☀