Top financial market analysts often live and die by the mantra that volume always precedes price, and the same goes for crypto assets like bitcoin and the rest of the altcoin market.
An indicator designed to detect early changes in volume could suggest that although altcoins are rallying in the larger crypto market, a surprise crash could soon take crypto investors by surprise.
Understanding the Credit Volume: The Smart Money Indicator
The idea was popularized mainly by market analyst and author Joe Granville in his 1970s book, New Strategy of Daily Stock Market Timing for Maximum Profit.
In the bestseller, Granville stated that the price of assets does not rise until demand exceeds supply and that demand and volume are measured – “so volume must precede price”.
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This was so important to Granville’s market analysis that he later developed a tool and a technical analysis indicator called “On-Balance Volume”.
The indicator – often referred to as the “smart money indicator” – was developed to detect volatility at an early stage, which can help to predict price movements much earlier than with other indicators.
Some indicators are considered to be lagging indicators, such as the MACD, which only provide signals in retrospect. But the OBV indicator is a leading indicator that gives early signals.
It makes trading such signals riskier, but the tool works with chilling accuracy.
Click on the picture for a full version.
The altcoin market could signal a major sell-off ahead as the whales prepare for the dump
In the graph above of the total altcoin market cap, one can see the OBV rising before the downtrend resistance breakout, suggesting that “smart money” was taking a position before the breakout occurred.
The OBV breakout occurred in late December, causing the indicator to trend upwards. Later, in mid-January, price followed volume and broke the downtrend resistance.
And as the saying goes, the volume preceded the potential price explosion that caused the altcoin market to rebound by over 50% in less than 30 days.
However, the same tool could now signal that “smart money” – either wealthy whales or institutional investors – could dump altcoins on retail investors who buy the outbreak in anticipation of further uptrends.
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Instead, the OBV indicator can signal that the rally has ended and a distribution is taking place. OBV has predicted that a deep decline could be imminent now that the indicator is in another downtrend and shows a negative correlation with the largest FOMO candle on the altcoin chart.
If the early signal of the rally is an indication, the early signal that a sell-off will surprise crypto investors cannot be ignored.