The trends in OBV matched the trend onv BBY. During a ranging market watch for a rising or falling On Balance Volume:. The first bullish signal in mid February foreshadowed a nice advance. Creating a properly diversified portfolio can be a difficult proposition, especially when. The chart for Medtronic MDT shows a bearish divergence with volume leading price lower.
On Balance Volume OBV measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days. It was one of the first indicators to measure positive and negative volume flow. Chartists can look for divergences between OBV and price to predict price movements or use OBV to confirm price trends.
The On Balance Volume OBV line is simply a running total of positive and negative volume. A period's volume is positive when the close is above the prior close. A period's volume is negative when the close is below the prior close. If the closing price is above the prior close price then:. If the closing price is below the prior close price then:. If the closing stdategy equals the prior close price kbv. Data in the table above comes from Wal-mart WMT. This number is now used obv trading strategy the volume obv trading strategy to compute positive or negative volume.
The chart below shows Wal-mart with volume and OBV. Granville theorized that volume precedes price. OBV rises when volume on up days outpaces volume on down days. OBV falls when volume on down days is stronger. A rising OBV reflects positive volume pressure that can lead to higher prices. Conversely, falling OBV reflects negative volume pressure that can foreshadow lower prices. Granville noted in tradding research that OBV would often move before price. Expect prices to move higher if OBV is rising while prices are either flat or moving down.
Expect prices to move lower if OBV is falling while prices are either flat or moving up. Obv trading strategy absolute value of OBV is not important. Chartists should instead focus on the characteristics of the OBV line. First define the trend for OBV. Second, determine if obv trading strategy current trend matches the trend for the underlying security. Third, look for potential support or resistance levels. Once broken, the trend for OBV will tradint and these breaks can be used to generate signals.
Also notice that OBV is based on closing prices. And finally, volume spikes can sometimes throw off the indicator by causing a sharp move that will require a settling period. Bullish and bearish divergence signals can be used to anticipate a trend reversal. These signals are truly based on the theory that volume precedes prices.
A bullish divergence forms when OBV moves higher or forms a higher low even as prices move lower or forge a lower low. A bearish divergence forms when OBV moves lower or forms a lower low even as prices move higher or forge a higher high. The divergence between OBV and price should alert chartists that a price reversal could be in the making. The chart for Starbucks SBUX shows a bullish divergence forming in July. On the price chart, SBUX moved below its June low with a lower low in early July.
OBV, on the other hand, held above its June low to form a bullish divergence. OBV went on to break tradihg before SBUX broke resistance. This was a classic case of volume leading price. The second chart shows OBV moving higher as Texas Instruments TXN trades within a range. Rising OBV during a trading range indicates accumulation, which is bullish. The chart for Medtronic MDT shows a bearish divergence with volume leading price lower. The blue dotted lines identify the divergence period. Also notice that OBV broke support during this divergence period.
The uptrend in OBV reversed with the break below the February low. MDT, on the other hand, was still moving higher. The second chart shows Valero Energy VLO with OBV forming a obv trading strategy divergence in April and a confirming support break in May. OBV can be used to confirm a price trend, upside breakout or candle pattern trading system break. The chart for Best Buy BBY shows three confirming signals as well as confirmation of the price trend.
OBV and BBY moved lower in December-January, higher from March to April, lower from May to August and higher from September to October. The trends in OBV matched the trend in BBY. OBV also confirmed trend reversals in BBY. Notice how BBY broke its down trend line in late February and OBV confirmed with a resistance breakout in March. BBY broke its up trend line in late April and OBV confirmed with a support break in early May. BBY broke its down trend line in early September and OBV confirmed with a trend line break a week later.
These coincident signals indicated that positive and negative volume were in harmony with price. Sometimes OBV moves step-for-step with the underlying security. In this case, OBV is confirming the strength of the underlying obv trading strategy, be it down or up. The chart for Autozone AZO straegy prices steategy a black line and OBV as a pink line. Positive volume remained strong throughout the advance. On Balance Volume OBV is a simple indicator that uses volume and price to measure buying pressure and selling pressure.
Buying pressure is evident when positive volume exceeds negative volume and the OBV line rises. Selling pressure is present when negative volume exceeds positive volume and the OBV line falls. Chartists can use OBV to confirm the underlying trend or look for divergences that may foreshadow a price change. As with all indicators, it is important to tradign OBV in conjunction with other bov of technical analysis.
It is not a stand alone indicator. OBV can be combined with basic pattern analysis or to confirm strategg obv trading strategy momentum oscillators. On Balance Volume OBV is available in SharpCharts as an indicator. Obv trading strategy selecting, OBV can be positioned above, below or behind the price plot of the underlying security.
Positioning it behind the plot makes it easy to compare OBV with the underlying security. Chartists can also add a startegy average or another indicator to OBV by selecting Advanced options, which is to the right of the indicator position. Click here for a live chart with On Balance Volume. For the purposes of scanning, daily volume data is incomplete during the trading day. This book covers it all with explanations that are simple and clear. Murphy covers all the major charts patterns and indicators, including OBV.
A complete chapter is devoted to understanding volume and open interest. On-Balance Volume Indicator by Bruce R. On-Balance Volume by Stuart Evens. Daytrading with On-Balance Volume by D. Send us your Feedback! Market data provided by: Interactive Data Corporation. Commodity and historical index data provided by: Pinnacle Data Corporation. The information provided by politikarunet.ru, Inc.
Trading and investing in financial markets involves risk. You are responsible for your own investment decisions. On Balance Volume OBV. And finally, volume spikes can sometimes throw off the indicator by causing a sharp move that will require a settling period. Technical Analysis of the Financial Markets. Sign up for our FREE twice-monthly ChartWatchers Newsletter! Don't Ignore This Chart.
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What is ' On-Balance Volume (OBV)' On-balance volume (OBV) is a momentum indicator that uses volume flow to predict changes in stock price. Joseph Granville.
View example of Forex trading strategies that will show how to use the On Balance Volume Forex indicator by drawing and applying analysis of trend lines.