Is the OBV a Good Indicator For Trading BNB?

Let's see if the OBV indicator is suitable to beat the market!

Trading with the On-Balance Volume (OBV) indicator

The On-Balance Volume OBV is a technical indicator that combines price and volume to give insights into the momentum of a market.

When the OBV line increases, it means that the volume is pushing the price up. A decrease in the line indicates that the price is losing momentum and likely to go down. Adding a moving average to the OBV can generate buy and sell signals, with an upward cross indicating a buy signal and a downward cross indicating a sell signal.

Due to the moving average we have added and how it generates signals through crossovers, the OBV acts as a trend-following indicator.

As a result it works well when there is a clear trend. However, when the trend is not clear and the market is ranging, the OBV will send a lot of fake signals.

Best OBV Strategy for BNB

At Cryptohopper, we strive to bring you the best settings for each technical indicator, including the OBV, to help you make informed trading decisions.

In our backtest from 2018-01-01 to 2023-04-13, we found that the following settings for the OBV worked best for trading BNB:

• Chart period: 4 Hours

• Period: 16

In this case, these settings brought returns of 3,280%, which is actually worse than the buy-and-hold strategy's 3,410% returns. At least the maximum drawdown for this strategy is 64%, which is slightly less than the buy-and-hold strategy's 83% drawdown.

Because the returns are worse than the buy and hold, and a lot worse than other strategies we showcased for BNB, the OBV is not optimal when combined with the moving average. So you won’t see this as a strategy on Cryptohopper.

Based on this test, we can conclude that not all technical indicators work as well on their own in the cryptocurrency market.

Maybe the OBV could work well with another technical indicator like the Williams %R. However, further testing would be required.

Disclaimer: Past performance does not guarantee future success, as the way the market fluctuates can change at any time.