I am using volume indicator in my trading. But it is very simple and not comfortable to follow all the time. I started using other volume indicators. As a result found On Balance Volume indicator as a very useful volume indicator. After testing indicator I decided to share trading with OBV method in Article contest.

Note: OBV is suitable for trading stocks and does not work well with currency pairs!

What is On Balance Volume Indicators?
OBV was developed by Joseph Granville in 1960s. He found that when volume increases while price stays stable later price jumps. And vice versa happens when volume drops while price stays on the same level. 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.
Investopedia says:
The theory behind OBV is based on the distinction between smart money – namely, institutional investors – and less sophisticated retail investors. As mutual funds and pension funds begin to buy into an issue that retail investors are selling, volume may increase even as the price remains relatively level. Eventually, volume drives the price upward. At that point, larger investors begin to sell, and smaller investors begin buying.”

OBV implements three rules while calculating the indicator but we do not need to know it. You can find the rules and method in internet if you want.
How OBV works?
OBV values does not matter. It can be positive or negative. We are looking to how it behaves. if it is rising, falling and if it shows divergence with the price.
Here is the daily chart of Anglo American PLC with OBV indicator applied.
How to trade OBV?
OBV will mostly move in convergence with the price. But in most cases OBV will show divergence before price changes and gives good signal of upcoming trend change.
When we analyze daily chart of Anglo American PLC we can see how volume moves in convergence and divergence with the price. As you can see OBV changes before price changes direction. Using OBV traders can surf the trend and now when to close the trades.

OBV divergence works well in trading stocks and can give signals very often.

Here is the chart of APPLE. You can see how price follows divergence of OBV.

CONCLUSION: OBV is very strong indicator to trade stocks. Traders may improve their strategy by integrating this technicanl indicator to their strategy. I personally do not trade stocks, that why I do not use it. But I will definetly include this indicator in my strategy when I start trading stocks.
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