Understanding Volume and OBV: A Guide to Smart Money Tracking in Crypto
Ted Hisokawa Aug 08, 2025 17:54
Explore the significance of Volume and On-Balance Volume (OBV) indicators in identifying institutional money flow in cryptocurrency markets, as discussed in Bitfinex's Chart Decoder Series.
The Chart Decoder Series by Bitfinex delves into the influential tools that distinguish experienced traders from novices. In its latest installment, the series explores the combination of Volume and On-Balance Volume (OBV) as a method to track the flow of institutional money in the cryptocurrency markets.
What is On-Balance Volume (OBV)?
Developed by Joe Granville in the 1960s, OBV is a cumulative indicator based on the premise that volume precedes price movements. It helps traders understand whether buying or selling pressure is dominating over time by analyzing closing prices.
The calculation of OBV is straightforward:
- If today’s close is greater than yesterday’s, today's volume is added to OBV.
- If today’s close is less than yesterday’s, today's volume is subtracted from OBV.
- If today’s close equals yesterday’s, OBV remains unchanged.
OBV reacts solely to closing prices, disregarding intraday fluctuations. A rise in OBV indicates buying pressure, even if a day's trading shows a downward trend.
Analyzing Volume and OBV Together
Combining Volume with OBV provides a comprehensive view of market dynamics, allowing traders to gauge both immediate and long-term market sentiments.
- Confirmed Uptrend: Rising OBV, high volume, and increasing price signal strong institutional accumulation and momentum.
- Accumulation Zone: Rising OBV with low volume and stable prices suggest quiet accumulation by institutions, often preceding breakouts.
- Distribution Phase: Falling OBV with high volume and declining prices indicate smart money selling followed by panic selling.
- Divergence Patterns: Discrepancies between OBV and price trends can signal potential bullish or bearish reversals.
- Breakout Confirmation: Rising OBV, spiking volume, and price breaking resistance confirm strong market movements.
Real-world Application: BTC/USDT
In a recent analysis, Bitcoin (BTC) was observed consolidating near $120,000. Despite a flat OBV, suggesting a pause in institutional buying, the absence of aggressive selling points to a market at equilibrium. A rise in OBV on green days could indicate a bullish resurgence.
Enhancing Analysis with Other Indicators
Integrating Volume and OBV with indicators like VWAP, RSI, MACD, and Bollinger Bands can provide deeper insights into market trends and potential reversals. For instance, a rising OBV with RSI in oversold territory often marks significant market bottoms.
For a more detailed exploration of these strategies, visit the full article on Bitfinex.
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