During flat, indicator line moves almost horizontally with slight fluctuations. If the price does not change, then the OBV will not change, but traffic without volumes often ends quickly.

On Balance Volume trading sheet is safer to lead in the direction of trend, which is confirmed by indicator data. Numerical value of indicator does not have a trading value too relative! For example, you can use the analysis of the indicator's behavior relative to its moving average:. Most popular strategies are where indicator On Balance Volume Forex is used to search for divergences: OBV performs this situation much more efficiently than traditional MACD or RSI, because the data for its calculation do not undergo additional mathematical processing.

Turning indicator down is a sell signal, and turning indicator up is considered a signal to buy. In general, indicator can be recommended for use in conjunction with standard trend instruments, as well as indicators of power levels. All trades based on the On-Balance Volume indicator require an increased stock for StopLoss, but probability of realizing its signals is high. Do not forget that indicator OBV on balance volume was created for the stock and commodity markets, which have real data on volume of positions.

On Forex instead of trading volume is used teak, and the positive correlation between such data is shown only for long periods, beginning from D1. Use OBV on timeframes below H1 is not recommended.

On Balance Volume Indicator

It is worth waiting for confirmation of indicator signals for at least periods and only then use them to enter market. Library Trading Indicators Forex on balance volume Forex on balance volume Back in , in his book «New Key to Stock Market Profits» Joe Granville proposed to use the market concept of «cumulative volume» to measure cash flows. Contents Main idea of indicators Mathematics and parameter Trading signals on balance volume How to use on balance volume indicator?

Several practical notes Idea of the authoring tool OBV on balance volume indicator is based on fundamental principle that it is the trading volume that is driving force of market. Main idea of indicator The volume theory assumes that a significant change in volume always precedes a price change; this principle is violated only on short-term speculation. Mathematics and parameters The value of on balance volume is definition by incremental total method.

Trading On Balance Volume (OBV)

How to use on balance volume indicator? For example, you can use the analysis of the indicator's behavior relative to its moving average: buy when OBV line crosses MA line from bottom to top.

Several practical notes In general, indicator can be recommended for use in conjunction with standard trend instruments, as well as indicators of power levels. Back to list of indicators. At first, a lot of these transactions will simply cancel each other out.

On balance volume

Price may consolidate and not move appreciably in either direction even though volume is building. Once enough buy orders are in place to outweigh the selling in terms of how much money is on each side , only then will price reverse and go back up. Institutional traders may be more likely to buy when volume is low in a flat or declining market. Volume builds and once the buyers start outbidding the sellers, price will eventually follow.

At this point, institutional traders may begin selling to lock in profits. Many traders who use OBV will be less interested in its value but rather its rate of change to help generate trade ideas.

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If the OBV is moving notably in one direction, it could give credence to the idea that a big move could be coming in that direction in price. This could tell a trader that a bigger move down in price could be forthcoming. The areas are marked below. For traders who want to stay with the trend, one could use the OBV in conjunction with a trend following system. This will provide a basic trend indicator.

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If the moving average is sloped upward, price will be considered in an uptrend and those trading with the trend will be biased toward long trades. In the example below, we see a market in an uptrend as identified by the period simple moving average.

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On the OBV chart below, we see a notable move up, beyond the rate at which price is rising. With the uptrend and rising volume combined with a muted reaction in price, a trader might look further into pursuing this opportunity. Many traders believe that price follows volume. Therefore, if volume or a volume proxy indicator is increasing while the response in price is more muted, some traders may take notice of this divergence as a clue that price may soon follow. Similarly, when price is moving but volume is low, traders may take this as an indication that the market may be ready to consolidate.

OBV capitalizes on this idea by keeping a running tally of volume when price moves up or down.