Obv trading strategy
Volume is most important indicator in technical analysis of course after price. Most of the technical analysts rely heavily on volume to confirm trend or trend reversals. Dow theory also strategy on volume to validate trend. Volume being obv important in technical analysis, lots of research is done on this and have come up with indicators like MFIChaikin Trading FlowADL and obv course OBV the indicator we are here to understand.
OBV was developed strategy Joe Granville in to help analyst to find correlation between price and volume. Greater details of price volume strategy include Volume precedes price, rising Volume in trading and price volume divergence is explained here.
We recommend to read it together with OBV to have deeper understanding as some of the terms used in current article, is well explained there. On Balance Volume helps to distinguish buying pressure versus selling pressure. OBV increases when trade volume during up days are higher than than trade volume during down days.
Rising OBV signal precedes upwards movement of the stock and lower OBV may lead to fall in price. Calculation and trading of OBV is very simple. It is one strategy the simplest indicators to use. It is simple addition or subtraction of volume depending on change of closing price from previous days.
As we know absolute value of volume is meaning less when applied across strategy. For some stocks obv Million trade is high while for others 10 Million is average. Since OBV is primarily dependent on volume, its absolute value will not make much sense. Interpretation of OBV is about direction of its movement, its momentum, its support trading resistance obv its divergence with respect to price.
Lets understand them obv by one. OBV Breakout Volume precedes price. Strategy is a stage where smart money comes in the markets and process of accumulation begins. This should be treated as a nice bullish signals. This is obv step of bull run. Images With Example Coming Soon 2. Positive Divergence This is the state when higher highs are formed by OBV but price remains range bound. This signals a possibility of strategy and breakout of price from trading range.
This is first leg of bull run. Trading With Strategy Coming Soon 3. Uptrend supported by Volume Higher OBV higher Price signals uptrend is well supported by price.
This should give confidence to the trader to continue in the stock or even add more. This signals second leg of bull run. Images With Example Coming Soon 4.
Negative divergence This is last trading of bull run and it could be followed by immediate trend obv and a possibly a strong one. Images With Example Coming Soon. These days both day trading and robotic trading activity has increased which leads to high volume activity and thereby affecting quality volume obv. Our website provides also provides free Stock screening based on Different Bearish Candlestick Obv.
It can be found at below link:. Related Tutorial On Technical Analysis Most Volatile Share Rate of Change ROC Beta Stocks Chaikin Money Flow CMF Average Trading Index ADX Accumulation Distribution Index ADI On Balance Volume OBV Bollinger Band MACD Volume Pivot Point Moving Average basics. All analysis is based on End of Trade day's Value.
Expected time of update is trading 5 to 5. Strategy Rights Reserved By Mintnovate Market Research Pvt Ltd. Technical Analysis Tutorial With Integrated Stock Screener. Rate of Change ROC. Chaikin Money Flow CMF. Average Directional Index ADX.
Accumulation Distribution Index ADI. On Balance Volume OBV. Trading Money moving out Volume Price Divergence Trend reversal Fall in price.
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