Trading in the volatile world of cryptocurrency necessitates a structured approach and well-planned strategy. Since cryptocurrencies typically have a low correlation to economic fundamental data and other markets, technical analysis and crypto-specific news remain the main drivers for analyzing cryptos.
Most analysts would agree that there is no “perfect” trading strategy. However, there are many methods that are well suited to those interested in trading cryptocurrencies. You simply need to pick out the strategy best suited for the market direction and your trading style.
Today we will be covering crypto trading strategy based on the combination of the On Balance Volume (OBV) Indicator and Keltner Channel.
Understanding the OBV Indicator
The On Balance Volume Indicator is a momentum indicator that uses volume flow to forecast the upcoming changes in the crypto price.
The OBV indicator adds volume on up days and subtracts volume on down days. When the crypto closes higher than the previous close, all of the day’s volume is considered as up-volume. When the crypto closes lower than the previous close, all of the day’s volume is considered as down-volume.
Working of OBV indicator
The OBV indicator can be used for identifying trend confirmation, breakouts, and divergences.
- Whenever both the price and OBV make higher highs and higher lows, it points to trend continuation of the upward trend.
- Whenever both the price and OBV make lower highs and lower lows, it points to trend continuation of the downward trend.
- When the crypto seems to be trading within a range and the OBV is rising, it points to the possibility of accumulation and the potential for an upward breakout.
- When the crypto seems to be trading within a range and the OBV is falling, it points to the possibility of distribution and the potential for a downward breakout.
- When the crypto is making higher highs but the OBV fails to make higher highs, it points to a negative divergence. The upward trend is likely to stall or fail in such scenarios.
- When the crypto is making lower lows but the OBV fails to make lower lows, it points to a positive divergence. The downward trend is likely to stall or fail in such scenarios.
The figure below shows how the OBV indicator confirms the continuation of an uptrend.
BTCUSD – OBV Indicator and Trend Confirmation
Understanding Keltner Channel
Keltner Channels is a volatility-based indicator and is used for identifying trends and for identifying overbought and oversold levels during a flat trend.
Keltner Channels are a combination of two indicators: the exponential moving average (EMA) and the average true range (ATR). Keltner Channels consists of three separate lines – middle band (center line), Upper band, and Lower band.
BTCUSD – Keltner Channels – Components
The middle line is an exponential moving average (EMA) of the price. The upper and lower bands are typically set two times the Average True Range (ATR).
Working of Keltner Channels
Keltner Channels is typically a trend following indicator and lag price action.
- The direction of the Keltner Channels indicator indicates the direction of the price movement. When the channel moves lower, there would be a downtrend. In the same vein, when the channel moves higher, an uptrend occurs.
- When the channel moves sideways, the trend would be flat.
- When the channels reverse up and break above the upper trend line, it indicates the start of an uptrend.
- When the channels reverse down and break below the lower trend line, it indicates the start of a downtrend.
Crypto trading strategy based on OBV Indicator and Keltner Channel
Today’s crypto trading strategy focuses on using the OBV Indicator in conjunction with the Keltner Channel for accurate entry and exit.
Buying Rules
A buy signal is generated when the price action hits the upper band of the Keltner Channel from the middle band, and the OBV indicator makes higher highs. Traders typically close their existing buying positions when price action moves below the middle band and reaches near the lower band of the Keltner Channel.
BTCUSD – Buy Criteria Using OBV Indicator and Keltner Channels
As you can see from the chart of BTCUSD, the crypto started moving higher once the buy criteria were fulfilled.
Selling Rules
A sell signal is generated when the price action moves down from the upper band and moves below the middle band of the Keltner Channel, and the OBV indicator makes lower lows. Traders typically close their positions when price action moves above the middle band and reaches near the upper band of the Keltner Channel.
ETHUSD – Sell Criteria Using OBV Indicator and Keltner Channels
As you can see from the chart of ETHUSD, the crypto started moving lower once the sell criteria were fulfilled.
As you can see, using the OBV Indicator in conjunction with the Keltner Channel can help you trade cryptos better. Using the two indicators in tandem can help avoid false signals and create profitable trading.
Happy trading!
— Trades of the Day Research Team