Bull Market Detection 01 | AICoin and Bitget Research Institute: Analyzing Key Indicators of the Bull Market, How to Buy the Dip and Sell the Top
AICoin and Bitget jointly conducted a backtest of the OBV indicator, and the results showed good performance in bullish markets, along with a related usage guide.Author: AICoin
In the frequently volatile cryptocurrency market, investors often face the challenge of bottom-fishing and peak-escaping. To assist investors in seizing key opportunities during a bull market, AICoin Research Institute and Bitget Research Institute have jointly conducted a series of classic strategy studies aimed at helping users make informed decisions through in-depth analysis of core indicators, avoiding blind operations.
In this study, we focus on an important indicator that is widely used but often overlooked: OBV (On-Balance Volume). OBV combines trading volume with price changes, providing another perspective for interpreting market trends. Its uniqueness lies in the fact that OBV does not solely rely on price changes but also considers changes in trading volume, providing signals for potential trend reversals. Both AICoin and Bitget platforms support the OBV indicator in their candlestick charts to assist investors in investment analysis.
Overall, OBV has the following classic uses: confirming trends, peak-escaping and bottom-fishing, and judging the behavior of major players. OBV is often used in conjunction with moving averages for market predictions, with price moving averages to find key breakout points, and with volume moving averages to identify institutional entry.
1. Usage Methods
(1) Confirming Trends
- Uptrend: OBV rises as the price increases, indicating strong bullish sentiment;
- Downtrend: OBV falls as the price decreases, indicating strong bearish sentiment;
(2) Judging Major Player Behavior
1. Major Players Pumping and Dumping
When the OBV line rises sharply, it indicates that buying power is about to be exhausted, and major players are pumping up to escape, which is considered a sell signal. If this occurs in the later stages of a trend, the effect is more pronounced.
2. Major Players Pressing Down
When the price falls but OBV rises, it indicates strong buying pressure, suggesting that major players are buying on dips, and the price may stop falling and rebound.
3. Major Players Washing Out
When the OBV line rises slowly but the price fluctuates violently, it indicates that buying power is gradually increasing, which can be seen as a buy signal.
(3) Using in Conjunction with Other Indicators
1. Using with Moving Averages
Moving averages can be simple moving averages, and specific moving averages and parameters can be adjusted according to personal charting habits. Taking EMA52 + OBV as an example:
● When OBV rises while the price remains above the EMA52 moving average, it is considered a bullish trend;
● When OBV falls from a high point while the price drops below and stays below the moving average, it is considered a bearish trend.
2. Breaking Key Support and Resistance
- Buy Signal: Breaking through resistance or retracing without breaking support while OBV breaks through, considered a bullish signal;
- Sell Signal: Falling below support or rising without breaking resistance while OBV falls below, considered a bearish signal.
3. Using with Trading Volume
a. Trading Volume
After OBV consolidates for a period, breaking through MAOBV while trading volume increases is a good buying opportunity.
b. Volume Moving Average
Volume moving averages can be MA10 and MA40, and specific parameters can be defined according to personal habits.
- Buy Signal: OBV rises, and the 10-day moving average crosses above the 40-day moving average.
- Sell Signal: OBV is in a non-trending state, and the 10-day moving average crosses below the 40-day moving average.
2. Peak-Escaping and Bottom-Fishing
1. Bottom-Fishing ------ OBV Divergence
Description: The price makes a new low, while OBV fails to make a new low.
Interpretation: Selling pressure weakens, and the downward force in the market is insufficient, usually indicating that the price may reverse upwards, which can be seen as a signal. OBV demonstrates strong capabilities in identifying bottom-fishing signals. When the price is in a downtrend, if OBV does not make a new low, known as "low divergence," this usually indicates that the downward momentum is weakening, and a bottom-fishing opportunity may arise.
2. Peak-Escaping ------ OBV Divergence
Description: The price makes a new high, while OBV fails to make a new high.
Interpretation: The price is rising, but trading volume has not increased, indicating that bullish power is weakening, usually signaling that the price may pull back, which can be seen as a sell or reduction signal. Similar to capturing bottom signals, when the price makes a new high but OBV does not correspondingly make a new high, a high divergence occurs, which may indicate that the upward momentum is fading, signaling investors to consider exiting. In the top area of a bull market, investors are often easily swayed by market sentiment, and abnormal changes in OBV can serve as a warning, helping investors decide whether to reassess their holding strategies.
3. OBV Indicator Backtesting
This period conducts backtesting on the OBV indicator using three models:
Model 1: OBV Bottom-Fishing and Peak-Escaping Signals in a Consolidating 1h Cycle
Win Rate 20%, Return Rate -0.34%
Model 2: OBV Bottom-Fishing and Peak-Escaping Signals in an Uptrend 4h Cycle
Win Rate 83.33%, Return Rate 68.43%
Model 3: OBV Bottom-Fishing and Peak-Escaping Signals in a Downtrend 4h Cycle
Too few subjects, not included in statistics.
According to AICoin backtesting, the OBV indicator is suitable for upward trends, with many signals and relatively stable win rates and return rates.
Note: The underlying logic of the above strategies is based on OBV + EMA52 moving average.
4. Analysis and Summary
In summary, the OBV indicator has significant application value in the dynamic cryptocurrency market. Investors should flexibly apply OBV strategies based on different market conditions:
- Bottom-Fishing Timing: When the price makes a new low while OBV does not make a new low, forming a bottom divergence signal, this indicates weakened selling pressure and is a good buying opportunity.
- Peak-Escaping Timing: When the price makes a new high while OBV fails to make a new high, forming a top divergence signal, this indicates weakened bullish momentum, and consideration should be given to reducing positions or closing to avoid potential risks.
- Confirming Trends: OBV changes with price trends, effectively discerning market strength and weakness.
Through this joint research, we hope users can master the techniques of using the OBV indicator to capture bottom-fishing and peak-escaping opportunities, enhancing trading efficiency in bull markets. In the future, AICoin and Bitget will continue to collaborate, exploring the application of more classic strategies to provide investors with more valuable market insights, helping them progress steadily in the cryptocurrency market.
About AICoin OBV Indicator and Custom Indicators
(1) AICoin OBV Indicator:
Download and log in to AICoin.
Check the OBV indicator in the indicator library on the candlestick chart page.
(2) AICoin Custom Indicators: Implementing Quantitative Trading for All Coins on Bitget
AICoin's custom indicators allow users to deeply customize based on their trading strategies and risk preferences. Whether tracking market trends, quantifying signals, or setting specific trading conditions, users can easily create indicators that meet their unique needs through simple adjustments!
At the same time, AICoin's custom indicators fully support all coins on the Bitget platform. Whether mainstream coins or emerging hot coins, users can easily apply custom indicators for analysis and trading, ensuring smooth execution in every trade.
Choose AICoin custom indicators to embark on your quantitative trading journey, seize every market opportunity, and achieve more efficient investment returns!
About Bitget OBV Indicator and Copy Trading Products
(1) Bitget OBV Indicator
Download and log in to Bitget.
Switch to OBV view at the bottom of the candlestick chart page, available on both web and mobile platforms.
(2) About Bitget Copy Trading Products: Fearless of Market Changes, Accurately Grasping Bullish and Bearish Trends
Bitget is the first cryptocurrency trading platform to introduce copy trading, officially launched in May 2020. Currently, Bitget supports both spot and contract copy trading, allowing novice traders to review the investment portfolios and historical performance of trading experts, choose to subscribe to strategies that meet their return expectations and risk preferences, and gather top trading experts to share strategies. The platform hosts over 180,000 trading experts and 800,000 copy traders, with over 90 million successful trades.
Disclaimer
This article is for informational sharing only and represents the author's personal views, not the positions of Bitget and AICoin. We do not provide any form of trading advice, including but not limited to specific investment recommendations, buying and selling advice for digital assets, or financial, legal, and tax guidance. The information presented may be inaccurate or incomplete; therefore, please carefully assess the relevant risks before investing. Trading and holding digital assets may face severe price fluctuations, and it is essential to consider whether to participate based on personal financial conditions.
