Technical assets are used to analyze crypto movements in the market. These are actually very important tools that you need to get more insight into how well certain crypto is performing. The following are two of the best crypto technical indicators.
Distribution or Accumulation Line
The distribution or accumulation line is one of the most popular technical indicators of crypto assets. This is a volume-based technical indicator and is made use of in order to assert the direction of the trend of a crypto asset based on the relationship between its volume of trading and price in the market.
The distribution or accumulation line measures the money flow in and out of a crypto asset. This is made use of to determine if a crypto asset is being distributed or accumulated. Generally speaking, what accumulation implies is the levels of buying of the crypto asset and distribution denotes the crypto asset’s selling levels.
To calculate the distribution or accumulation line, we need 2 metrics i.e.
- Money Flow Volume (MFV)
- Money Flow Multiplier (MFM)
To reach the metric value, these are the formula that you need to keep in mind
- MFM = [(Closing price – Lowest price) – (Highest price – Closing price)] / (Highest price – Lowest price)
- MFV = MFM * volume for that particular period
Now, the distribution or accumulation line is drawn at the Current Period’s MFC + the previous period’s accumulation line. Since this line happens to be a running total, the current accumulation or distribution value is added to the MFC of the next day and likewise, the accumulation line carries on.
Interpretation of this accumulation line is typically done in relation to the movements of the price of the crypto asset. And typical observations are:
- When both the accumulation line and the price move upward, the bullish emotion is most likely to carry on.
- If both metrics face a downwards trend, bearish emotion around the crypto asset is likely to prevail.
What you should know and this is an important point that the A/D line technical indicator is one of the ideal ways to confirm a current trend while also keeping a proverbial eye out for extreme selling or buying pressure. Also, it is advised to never use it as a standalone technical indicator. Leveraging it in line with other technical elements will allow you to be a more effective trader.
On Balance Volume is also referred to as the volume-based technical indicator of crypto assets common in the crypto industry right now. What it does is that it studies the accumulated volume of trading of a crypto coin for a set period of time. To put it in simple terms for the layman to understand, it measures the selling and buying pressure of the coin.
The On balance volume is a cumulative total of the volume of trading of a certain crypto asset. It considers the trading volume of the prior weeks and days and even months. There happen to be 3 easy rules in order to calculate OBV:
- If the price of the crypto closes greater than the closing price of yesterday:
Current OBV = Today’s trading volume + Yesterday’s OBV
- If the price of the crypto asset closes lower than the closing price of yesterday
Current On Balance Volume = Yesterday’s OBV – Today’s volume of trading
- If the price of the crypto asset remains constant, then
Yesterday’s On balance volume = Today’s On balance volume
Interpretation of On balance Volume is often as follows;
An increasing On balance volume means that more crypto buyers around the world are willing to buy the asset at the price of trading. This is a positive indicator of price rallying.
A decreasing On balance volume means pressure of selling is rather high. This is usually found near the maximum highs as traders sell to make profits. This also marks a bearish emotion rolling out in the trading market.