Crypto Academy Season 4 [ Advanced course ] week 2: Crypto Trading With Volume Indicator

Good day steemians, here's my entry with respect to the crypto task assigend by crypto professor @kouba01

1. Explain the volume indicator in your own words.

2. Use a platform other than Tradingview to present the volume indicator on a chart and show how to configure its parameters by justifying your choices. (Screenshot required)

3. What is the link between Volume and Trend and How to use volume to predict a trend reversal? (Screenshot required)

4. How to use the volume to have a signal confirmation? (Screenshot required)

5. How does the volume reflect the evolution of prices in the charts and why does the volume sometimes anticipate the price? (Screenshot required)

6. Is it better to use the volume indicator alone or use it in parallel with another indicator when trading? Justify your answer

7. The volume indicators are multiple, choose one of them to briefly explain its usefulness in crypto trading.

8. Conclusion:

1. Explain the volume indicator in your own words.

The volume indicator consists of a serie of horizontal bars or histogram plotted to represent the quantity of an asset or instrument traded within a particular time period. Volume indicators are represented visually on almost all trading platforms. The volume bars are computed mathematically with respect to information generated via trading activities across different exchanges. The basic use of the volume indicator is to spot the level of trading activity going on in an instrument, i.e a long horizontal bar indicates a high level of trading activity in the current period while a short horizontal bar conversely indicates low level of trading activity in the period. Using the sizes of the bars, it's visually easy to discover pairs with high Liquidity.

The volume indicator by defualt comes with a red and green color. The green horizontal bar tells us that the current trading volume is higher than the previous close and the Red bar tells otherwise(current trading volume is lower than previous close (with respect to the timeframe selected and candlestick close).

In using the volume indicator, time-frames and periods matter. I.e if I'm trading on the 4 hourly timeframe then one bar in the Volume indicator shows traded quantity of the asset within 4 hours.

2. Use a platform other than Tradingview to present the volume indicator on a chart and show how to configure its parameters by justifying your choices

For this task, ill be making use of the binance platform
In order to configure the volume indicator to chart upon launching the binance platform. First navigate to the trade tab and select the advanced option to get full access to trading tools.

• Next, click on the indicator icon as illustrated below
  
  
  
• In the search bar, search for volume and click it
  
  
  
• The volume indicator has been successfully incorporated to chart
  
  
  
  In order to customize the indicator. you may choose to add a moving average with your preferred choice of length according to your trade style.
  In order to do this, click the settings icon nested within the volume indicator menu to bring out the options.
  
  
  

I've enabled the sma and set the length period to a period of 50. This means that ill be able to see the closing price of the last 50 periods

3. What is the link between Volume and Trend and How to use volume to predict a trend reversal?

Volume indicator plays a very important role in prediction of market movements. Since the volume indicator measures the bearish and bullish pressures existent in an instrument/asset pair, it plays an important role in assisting traders determine if the existing trend In a market will be sustained or will result to a reversal with respect to the volume. By comparing and contrasting volume bars against candlesticks in a particular time period, traders are able to tell the strength of a trend and avoid getting whiplashed by fakeouts in a weak trend.

In explaining the relationship between volume and trend, an important factor to note as explained by the crypto professor @kouba01 is that

• The volume should increase on the direction of the current market trend (uptrend or downtrend).
  Volume gives a very strong depiction of the market trend so if a market is going through an uptrend, the volume should also increase as price increases in conformity with the trend and whenever price makes a pullback to the downside in an existing uptrend then the volume indicator should decrease. This is depicted in the BTC/USDTasset pair below.
  
  
  Image taken from binance
  

We observe that the market trend is clearly defined as an uptrend as price makes a serie of higher high and lows. We see that the volume also confirmed the trend as we observe higher bars in the trading period indicating increasing activities of buyers in the market and as market goes through corrections and pullbacks we notice the volume bar decreases.

Also, in a downtrend. The volume should also increase during downward movements and decrease during pullbacks or rebounds. This is depicted in the BTC/USDT asset pair below

Image taken from binance

We observe that the market trend is clearly established as a downtrend and price makes a series of lower highs and lows. The volume bar also confirmed the strength of the trend as we notice the volume increased during the downward movement and decreased during the next upward corrective movement.

One mistake beginners often make is to assume that volume bars only increase during an uptrend and decrease during a downtrend

Trend Reversals

Volume plays a key role in spotting Reversals. As the asset price as depicted by the candlestick and the volume bars are cross analysed. It's expected for the volume to confirm with the market movements however, there are certain situations where they don't always depict the same thing and this occurs during volume divergences.

Volume divergences occur when price keeps making higher highs on a falling volume or when price reaches a low on a rising volume.

When price keeps making highs and volume on the other hand keeps decreasing. It indicates exhaustion in buying pressure and often signals the beginning of a new trend. This condition is depicted in the BTC/USDTasset pair below

On the BTC/USDT daily timeframe we can spot an Initial uptrend as price keep making highs, however a point is reached at which price and volume give different trend, a divergence. We notice how price went bearish for the next couple of days after this.

4. How to use the volume to have a signal confirmation?

Volume indicators also help in validating signal confirmations. Whenever price approaches major levels such as a support or resistance zone. We can often predict a breakout and sieve through fakeouts by paying attention to the volume at this stages.

In the event when price pierced through the resistance, it's important to pay attention to the volume. If this breakout is followed by a high volume, it indicates a valid breakout and price would continue in it's upward direction as shown in the AAVE/BTC asset pair below.

Also when price breaks below the support with a high volume, it portrays a strong downtrend and this price might continue in this direction. This is portrayed in the DOT/USDT asset pair below.

5. How does the volume reflect the evolution of prices in the charts and why does the volume sometimes anticipate the price?

When money gets pumped into a particular market (crypto pair) by people investing in an asset. It causes the price of the asset to soar thereby increasing demand. In this scenario, the volume also increases with respect to price.

In a Downtrend reverse is the case, when price of an asset decreases due to investor concerns, low demands. The volume indicator also confirms the signal indicating strong selling pressures in the market.

6. Is it better to use the volume indicator alone or use it in parallel with another indicator when trading? Justify your answer

Using the volume indicator alone isn't the best thing to do as no skngek indicator would give you a clear accurate result. Also the volume Indicator doesn't give any specific input or output signals that can be directly exploited. There are also cases when the volume suddenly increases but the price of the underlying asset doesn't undergo much changes, this usually occur in Initial Coin Offerings and taking trades off this with the volume indicator alone will result in inaccurate trades and might incur losses. The volume indicator can be paired with indicators such as the Relative strength Index (RSI), Average Directional Index ( or the MACD to filter out false signals and get better confirmation of signals.

Since the volume indicator shows the traded quantity of assets at a time period, it's best to incorporate Indicators that take other trading factors into consideration. This will improve the accuracy of trades taken with the volume indicator.

7. The volume indicators are multiple, choose one of them to briefly explain its usefulness in crypto trading

In tackling this question I'll be talking about the On-balance volume indicator OBV for short.

The OBV indicator is a leading technical Indicator that measures price momentum. This indicator was developed in year 1963 by Joe Granville and it is known as one of the earliest indicators to measure market volume flow. It predicts changes in price using volume flow and changes closely depicts asset price increase and decrease. Whenever there's an increase in price, we notice the OBV also increases and when the price decreases the OBV indicator also follows suit. This is depicted in the SOL/USDT pair below.

Image taken from Tradingview

However there are cases when the price and the OBV go opposite directions as In the case of divergences explained above. This occurrence often signals a reversal in price.

In calculating the On-Balance Volume indicator. We take the

• Previous closing price
• Subsequent On balance volume level
• Current On balance volume level
• Recent trading volume quantity.

In calculating the OBV indicator, The current interval level is added to the OBV level if the current interval close is greater than the last interval close and conversely, the current interval level is subtracted from the OBV amount if the current interval close is less than the last interval close. The OBV amount will remain untouched if the value from the current interval close is the same as that of the last interval close.

Conclusion

Up until now I never fully understood the importance of the Volume indicator, neither did I get the concept but thanks to the crypto professor @kouba01 and @yohan2on and the cryptoacademy. I can say I have apt knowledge of the volume indicator now. I find the breakout confirmation use of the volume indicator to be particularly useful being a breakout trader myself.

Concerning the questions assigned by professor @kouba01 and in adherence to the respective rules highlighted. I've done my research and tried to tackle the advanced course. I was able to learn new things through the course of this task. I'd leave the assessment to the professors.
Thanks to the steemit team for this wonderful learning opportunity once again. It's been nice so far, I'm forever grateful.
Thanks for reading my write up and thanks for your support
Thanks for curating my content :)

Ps: All chart images are taken from binance web unless otherwise stated.