Trading Signal Filters: Main Volume Indicators in Crypto Trading
Most trading indicators are formed solely based on prices. However, there is a separate group of analytical tools based not only on cryptocurrency cost calculations, but also on quantitative calculations – volumes.
On-Balance Volume (OBV) was developed and researched in the early 1960s by American analyst and writer Joseph Granville. The indicator is cumulative. Its essence is to increase the volume when the price rises and subtract it when the price falls.
If the market has no momentum, there is no need for action.Graphically speaking, OBV is a regular line.It is best to use the indicator when exiting a sideways movement, as it is proactive in relation to the price.Its sharp movement will indicate the emergence of a new impulse.
In addition, an important signal for traders occurs when the value of a cryptocurrency rises/falls and the OBV, on the other hand, falls/rises. In this case, a divergence occurs, which heralds a trend reversal. In the following figure, you can clearly see the indicator using the Bitcoin daily chart as an example.15122401.jpg Source: Tradingview.com Accumulation/Distribution Indicator (A/D) was created by analyst Marc Chaikindeveloped.
The main purpose is to determine whether a trend is supported by a large volume or not. If this does not happen, it is called a weakening of the movement (growth or decline). The indicator is calculated according to the formula: A/Dn = ((Closing price - Minimum price) - (Maximum price - Closing price)) / (Maximum price - Minimum price) * Volume + A/Dn-1 n -Day for which A/D is determined; n-1 – day before the current one. Like OBV, A/D is a regular line on a chart. The main trading signals that this indicator provides are convergence and divergence.
The first is a confirmation of a trend when the direction of movement of the cryptocurrency price and the A/D coincide. Divergence is the discrepancy between price movement and the indicator. The image below shows A/D on an Ether chart. The direction of the indicator coincides with the price movement - that is, convergence is observed, and therefore we can expect continued growth. However, it is better to use A/D in combination with other technical analysis toolsuse.15122402.jpg Source: Tradingview.com Chaikin Oscillator Mark Chaikin was a fairly prolific analyst.
In addition to A/D, he suggested using an oscillator. In fact, both indicators are related to each other. The Chaikin oscillator is calculated as the difference between two exponential averages of A/D. Typically, the ten-day moving average (slower) is subtracted from the three-day moving average (faster). Since volumes are included in the A/D calculation, they remain in the calculation of theChaikin oscillator obtained. The indicator is a regular line.
The signals that exist are quite normal: divergence and zero crossing. The first indicates a divergence in the direction of movement of cryptocurrency prices and the indicator. For example, an asset is growing and the oscillator is falling, or vice versa. Crossing the zero mark from bottom to top is a buy signal, from top to bottom is a sell signal. In the image below you can see a graphical representation of the Chaikin oscillator on theSolana daily chart. The indicator line crossed the zero mark from top to bottom, indicating selling pressure.
Money Flow Index The Money Flow Index (MFI) shows the intensity with which investors deposit and withdraw money in certain cryptocurrencies. This indicator is similar in interpretation and nature to the RSI. However, they are not the same as the MFI calculation is based on volumes. The indicator is calculated in several steps.
The first step is to calculate the so-called typical price. It represents the arithmetic mean between the closing price and the high and low prices for a certain period of time: Typical price = (closing price + minimum price + maximum price) / 3 t - period. Next, the cash flow itself is calculated directly (money flow), as the product of a typical price per volume (volume): Money flow = typical price * volume.In the next step, the money ratio is calculated. It represents the sum of the private positive money flow (Positive Money Flow) to the negative money flow: Money ratio = ∑(Positive Money Flowt)/∑(Negative Money Flowt).
In the final step, the cash flow index (MFI) itself is calculated: MFI = 100 - (100/(1+money ratio)).As with the RSI, the main signals of the money flow index are: divergence - the discrepancy between the price and the indicator, indicating a change in the trend;entry into the overbought and oversold zones, i.e.h. the curve rises above 80% and falls below 20%; exceed 50%: from bottom to top - a bullish signal, from top to bottom - a bearish signal.
You can observe MFI below using the XRP daily chart as an example.The money flow index gives two signals in favor of the bears at once.First, the line crossed the 50% limit from bottom to top.Secondly, there was a bearish divergence in XRP, which is marked by falling purple lines both on the price chart and on the indicator itself.15122404.jpg Source: Tradingview.com ConclusionThere are quite a few indicators based on volume.
In addition, the signals they give are quite similar. There is also uniformity in the graphical representation: all indicators are curved lines. However, they are calculated differently.All volume indicators should be used in combination with other technical and fundamental analysis tools.
Author Anton Rozhkov
