What is On-Balance Volume?
On-Balance Volume (OBV) is a technical indicator that measures the cumulative flow of money into and out of a security. It is based on a simple concept: if the closing price is higher than the previous closing price, then the day's volume is considered to be a buying pressure; if the closing price is lower than the previous closing price, then the day's volume is considered to be a selling pressure. The OBV indicator then adds up the buying pressure and subtracts the selling pressure to arrive at a cumulative total, which is the On-Balance Volume.
How Does On-Balance Volume Work?
The On-Balance Volume indicator is used to measure buying and selling pressure in the market. It is based on the idea that if the closing price is higher than the previous closing price, then the day's volume is considered to be a buying pressure; if the closing price is lower than the previous closing price, then the day's volume is considered to be a selling pressure. The OBV indicator then adds up the buying pressure and subtracts the selling pressure to arrive at a cumulative total, which is the On-Balance Volume.
How Can On-Balance Volume be Used in Altcoin Analysis?
On-Balance Volume can be used to identify trends in altcoin markets. By tracking the buying and selling pressure in the market, investors can identify when a trend is beginning to form and when it is likely to reverse. OBV is also useful for identifying divergences between the price of the altcoin and the buying and selling pressure in the market. For example, if the price of the altcoin is rising but the OBV is falling, this could indicate that the current trend is unlikely to continue and that a reversal is likely.
Conclusion
On-Balance Volume is a powerful technical indicator that can be used to identify trends and divergences in altcoin markets. By tracking the buying and selling pressure in the market, investors can identify when a trend is beginning to form and when it is likely to reverse. This can be a useful tool for investors looking to make informed decisions when trading altcoins.
