What is the On-Balance Volume? The On-Balance Volume (OBV) represents the running total of volume and as such it shows in what way volume can influence price momentum of a given asset. The OBV increases or decreases during each trading day in dependence on whether the price closes higher or lower compared to the close during the prior day /02/15 · 22 Step #1: Chaikin Volume Indicator must shoot up in a straight line from below zero (minimum ) to above the zero line (minimum +). 23 Step #2: Wait for the Volume Indicator Forex to slowly pullback below the zero line. The price needs to remain above the previous swing low /12/10 · On-balance volume (OBV) is a technical trading momentum indicator that uses volume flow to predict changes in stock price. Joseph Granville first developed the OBV metric in the book
On-Balance Volume: The Way To Smart Money
On Balance Volume OBVdeveloped by Joe Granvilleis a momentum indicator that relates volume to price change. In other words, the OBV offers information regarding the strength of price movements.
So, the OBV increases or decreases during each day in correlation on whether the price closes higher or lower compared to the close during the previous day. The main assumption is that On Balance Volume movements precede price changes. As the volume is the main fuel behind the market, OBV is designed to anticipate when major moves in the markets would occur.
The numerical value of OBV is statistically irrelevant. The trend of the on-balance-volume plotted line. In other words, strong upward trends on balance volume trading strategy have a corresponding on balance volume trading strategy in trading volume and strong downward trends should be fueled by decreasing volume.
The relationship of the OBV line in conjunction with the market trend — in other words, we compare the trend of the OBV with the trend of the traded instrument. Potential support and resistance levels on OBV chart and on the price chart. Here is the most important rule you must follow: we always follow the direction of the On Balance Volume. We always trade in the direction of the OBV. By now, I hope you are convinced about the leading powers of the OBV.
While, lagging indicators RSIStochastic Oscillatormoving averagesBollinger BandsCCI etc. Divergences, both bullish and bearish, can signal to traders that a price reversal could be on the cards. As we previously mentioned, we always follow the direction of the On Balance Volume indicator and we always trade in the direction of the OBV.
Most common way to use On Balance Volume is to scan for divergences. Divergences occur when price movement is not confirmed by the OBV, indicating a potential reversal.
On the contrary, it occurs frequently and is useful only when used in conjunction with other indicators or price action. We can clearly see that the price on balance volume trading strategy making higher highs, but the OBV is making lower highs, suggesting a possible reversal of the price.
Traders cannot make a decision to enter short on the market solely on this divergence. We must use other instruments, oscillators to confirm our entry. In this example, a close of the price below the lower trend line of the upwards channel is a valid signal and short positions should be taken once the price closes below the trend line.
Once the trend line was broken, the market momentum moved to the downside, confirmed by the movement of the OBV. In this way, we filter many false signals and avoid entering the market at the wrong time.
My personal preference is to add a long-term moving average on the on-balance-volume, not on the price chart, for several reasons:. When the OBV is above the moving average, it is advised to take only long positions, in the direction of the main trend. When OBV is below the moving average, only short positions should be considered.
Keltner Channel is a combination of an exponential moving average and the Average True Range indicator. Keltner Channel uses the Average True Range to determine the channel distance. Keltner Channel indicator is used by traders who want to trade in the direction of the prevailing trend on the market. The Keltner Channel slope is simply the direction of the channel plotted on the chart.
Now that we know the market direction, we just have to confirm it with the on-balance volume indicator. Above we have a On balance volume trading strategy Jones Index OBV chart on the minutes timeframe.
In this example, we have almost 3 weeks of price action. We have different market cycles: uptrend, sideways price action and finally a downtrend, on balance volume trading strategy.
During this period, we had 7 relevant crossovers between the volume balance indicator and the EMA. Out of the 7 crossovers, we took only 4 signals. The next two crossovers were ignored because the price was traded inside the Keltner Channel. When the price is inside the channel, this signals market indecision. So, a crossover between the OBV and the EMA at that time was not relevant. The next 2 signals were also ignored. The first one was invalid because the price was traded on balance volume trading strategy the Keltner Channel.
We search for symmetry between the Keltner Channel and EMA plotted on the OBV. As you can see, you can filter a lot of noise with this system, and enter only on relevant movements. This setup helped us not to trade during the market range which occurred in the middle of the period. There is a very high degree of risk involved in trading. Past results are not indicative of future returns.
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On Balance Volume: What It Is and How to Use It ��
, time: 7:02On-Balance Volume - Explanation and Interpretation - Forex Strategy
What is the On-Balance Volume? The On-Balance Volume (OBV) represents the running total of volume and as such it shows in what way volume can influence price momentum of a given asset. The OBV increases or decreases during each trading day in dependence on whether the price closes higher or lower compared to the close during the prior day /08/03 · The on balance volume strategy shows the upcoming change in trend direction. As soon as a signal appears, it can signal that the trend may change direction soon. When a reversal occurs after a long uptrend and the price starts falling, we may look to sell an asset. After a reversal from a downtrend to an uptrend, we may look to buy an asset /10/15 · On-balance volume is a technical analysis indicator intended to relate price and volume in the market. OBV is based on a cumulative total volume. I was using this indicator for my personal trading over long time and its a very effective indicator. then i came across through a blog where i found this strategy and start using this over 3 weeks now
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