One of my favorite indicators for trend analysis. We sum the volume from all significant BTC Spot exchanges and subtract the sell volume from the buy volume for a cumulative total. A futures version is also available but spot volume is more consistent for analysis. To follow trends you can buy when sell momentum is decreasing, and sell when buy momentum is decreasing.
Do you have any ideas for monitoring sentiment or open interest across multiple exchanges? Message me and I will try to make it happen.
How does this work though ? Buy volume is the same as sell volume, when one is buying, another one is selling. I don't get the logic behind it.
jaggedsoft
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@BlueChipMutt If the close price is higher than the open price then the volume is counted as positive on each individual exchange, otherwise negative. Pretty much the same way the volume bars get colored red or green on charts, but it's only truly useful when you aggregate all the highest volume exchanges together.
This allows it to analyze the trend at any timeframe, and it's kind of similar to the "Price Volume Trend" (PVT/VPT) or "On Balance Volume" (OBV) indicators, only it's taking into account all of the most significant markets. With On-Balance-Volume, the indicator increases or decreases based on whether price simply made a new high or low, not considering the extent of the move into its calculation. With Price-Volume-Trend, the indicator moves based on how big of a percentage shift was made in price. And with this indicator, the value moves based on the difference in buying vs selling pressure. It's considered selling volume if the price is decreasing and buying volume if the price is increasing, then we compare buying vs selling volume for our final score.
The key difference between this indicator and Price-Volume-Trend is that here we sum the cumulative volume differences depending on the open/close price on each exchange for higher accuracy. Each exchange is reduced to a score of buy volume and sell volume.
Price-Volume-Trend's calculation measures the percentage increase compared to the previous period: On days when the price goes up, we multiply volume by the percentage price increase between today's close and the previous day's close, and add that result to the previous day's value.
I made a chart with PVT and OBV indicators so we can compare. This indicator works better for giving you more informed buy/sell decisions and determining the trend over long periods of time.
BlueChipMutt
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@jaggedsoft, Thanks for the explanation but I still don't get it. If you have a volume bar, it's gonna be either green if price closed higher than the previous bar, or red if price closed lower than previous bar. So for the same bar, how can you make the minus operation between buy volume and sell volume since the exact amount which is bought is also sold ? How come buy volume minus sell volume is not zero every time for each volume bar ?
jaggedsoft
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it's only counting the volume difference between the open and close and multiplying that by the volume. The simplicity of it is why I like it better
So if exchange A has 50m in buying and 60m in selling in a candle, that exchange is counted as -10m towards the total
entropiq
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@jaggedsoft, after reading through the code it seems the only difference between your indicator and OBV is that yours:
1. only looks at significant markets 2. uses hl2 instead of close to determine whether volume is +/- 3. lookback period (dependent on exchange), smoothing, and other minor implementation details
Can you confirm? The differences between your metric and OBV in your example seem extreme given these factors.
jaggedsoft
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@entropiq, I suppose if you could make OBV work as a sum of multiple markets and then plot it as a histogram it would be the same. Cheers!
mljones
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@BlueChipMutt, it's using uptick/downtick to determine if to count that bar as sellers or buyers with this line: "fixvolume(price, vol) => nz(price[0] >= price[1] ? vol : -vol)"
It might be more accurate if you had a way to tell which side had initiated the market order to make each individual trade but that would require tick data that has the aggressor information and that's not easily accessible. The uptick/downtick approach is a pretty good alternative and may even be better since sometimes limit orders are used to aggressively absorb price action.
muddy7
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u wrote:
"One of my favorite indicators for trend analysis."
What are your top 5 sir??
RNavega
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Hi, why did you choose `hl2` as the default source, instead of `close`?
nahuel89p
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What if you try to take into take into account wick lengths and body length instead of just the close > open test? For example, you can have a red candle with a short body, but what if most of that volume comes from a long bullish wick that sets a reversal?