4H LITECOIN OBV TRADING STRATEGYThe only indicators you need are the following:
On Balance Volume or the OBV – The OBV indicator is based on the idea that both the volume and the price activity are equally important. In this regard, the OBV combines both price and volume to show you the total amount of money going in and out of the Litecoin.
The main idea behind the On Balance Volume indicator is that the Litecoin price will follow where the volume flow is going, volume precedes price!
So, if Litecoin price is moving up, we want to see the OBV indicator rising signaling an inflow of money. Conversely, if the Litecoin price is moving down, we want to see the OBV indicator falling indicating an outflow of funds.
We’ll also plot a 20-day moving average which it will be used to differentiate between what is normal volume activity and what it’s abnormal trading activity.
The use of the 20-day moving average can also signal how severe the change in Litecoin price trend may be.
Step #1: Wait for the OBV indicator to enter into a prolonged period of consolidation at the bottom of the window. In other words, what we look for is for the OBV indicator to spend some time in “oversold” territory. Technically the OBV doesn’t show overbought and oversold conditions in the market but, we only use these terms to describe the OBV location on the chart.
The On Balance Volume indicator as the name suggests shows the volume activity, and when we see the OBV consolidating, usually this means the market is in accumulation process.
But what is accumulation?
Very simple, accumulation is the buying up of cryptocurrencies by the professionals. The buying it’s usually done in a manner that doesn’t attract attention on the price chart which is the reason why we use the OBV indicator to spot when the institutional buying happens.
Step #2: Wait for a breakout above the OBV consolidation zone.
When the professionals accumulate a cryptocurrency, it will usually trade sideways. The OBV indicator is the best indicator to outline when Litecoin is being accumulated.
These ranges are deliberately created by the smart money to use fear and panic to shake out weak holders so they can grab as much of the available cryptocurrency at the lowest price.
When all the available supply of a cryptocurrency is exhausted, then the smart money will mark up the Litecoin price or any other cryptocurrency. This process can be best visualized on the OBV indicator when we have a breakout above the consolidation zone created.
The OBV indicator performs better if it’s used in conjunction with other indicators as well as your own judgment and common sense which brings us to the next step of our Litecoin strategy.
Step #3: Buy Litecoin when we close above the 20-day Moving Average.
We’re going to use the 20-day moving average indicator to confirm the OBV readings further.
After the OBV indicator breaks above its consolidation and right away the Litecoin price breaks and closes above the 20-day moving average, we initiate a buy order.
Step #4: Hide the Protective Stop Loss below the most important support level .
Knowing where to place your protective stop loss is as important as knowing when to enter the market. That’s the way you manage risk!
The best strategy to apply in this case is to place your protective stop loss below the most recent support level . If the smart money were really behind this move than the support level should hold. Otherwise, a break below will invalidate our market view, and we better be out of the market than fighting a losing trade.
Step #5: Take Profit when Litecoin price closes below the 20-day Moving Average or according to your trade plan.
We take profits at the first sign that the market is about to reverse. When the litecoin price breaks and closes below the 20-day Moving average, that’s the most appropriate moment we want to take profits or according to your trade plan rules.
