It is a technical indicator used in crypto business analysis and other financial markets to measure the buying and selling pressure behind a particular asset. It was originally developed by Joseph Granville and is based on the premise that changes in trading volume can precede significant movements in the price of an asset.
Calculating On-Balance Volume involves adding or subtracting the trading volume of the asset based on the price direction. When the price closes higher, the day’s trading volume is added to the previous OBV value. Conversely, when the price closes lower, the day’s volume is subtracted from the previous OBV value. This buildup or decline in volume reflects buying or selling pressure in the market.
On-Balance Volume is useful for identifying trends and divergences between trading volume and price, which can provide signals about possible changes in market direction. For example, if the price of an asset is rising, but the OBV is declining, it could indicate a bearish divergence and signal a possible price reversal. It is widely used by analysts and traders to make informed decisions about their trades, providing a better understanding of the strength behind price movements and the validity of an uptrend or downtrend in the cryptocurrency market.
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