On Balance Volume or OBV Indicator
On Balance Volume or OBV indicator is a well-known technical analysis indicator, which analyses the changing trends of a stock with respect to its changing volume. OBV was introduced by Joe Granville and is one of the first volume-based indicators to measure positive and negative volume flow. It is a simple indicator which is calculated by adding or subtracting current volume to/from previous OBV.
Current volume is added when the current price is higher than the previous and is subtracted when the current price is lower than the previous.
On Balance Volume is based on the principle that volume precedes trend. The indicator is represented as a running average. Increasing OBV suggests that there is a strong upward trend with increasing trading volume on up days and decreasing OBV suggests that there is a strong downtrend with increasing volume on down days. Divergences are more important; when the OBV line is dropping and the price is still moving upwards, then weakening of trend (and possible reversal) is identified. With on balance volume indicator, the numerical value or high/low positions are not important; only the trend/direction is important.
On Balance Volume indicator is a simple indicator and thus suits all traders--both beginners and experienced. Many traders use a 20 period moving average of OBV to find reversals. Divergence signals are generated when the OBV line crosses the MA line.
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OBV = OBV (Previous) +/- Current Volume
Current volume is added when the current price is higher than the previous and is subtracted when the current price is lower than the previous.
On Balance Volume is based on the principle that volume precedes trend. The indicator is represented as a running average. Increasing OBV suggests that there is a strong upward trend with increasing trading volume on up days and decreasing OBV suggests that there is a strong downtrend with increasing volume on down days. Divergences are more important; when the OBV line is dropping and the price is still moving upwards, then weakening of trend (and possible reversal) is identified. With on balance volume indicator, the numerical value or high/low positions are not important; only the trend/direction is important.
On Balance Volume indicator is a simple indicator and thus suits all traders--both beginners and experienced. Many traders use a 20 period moving average of OBV to find reversals. Divergence signals are generated when the OBV line crosses the MA line.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by NobleTrading at
9:22 AM
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