Following from part one of volume we move on to On Balance Volume (OBV).
OBV was first developed by Joseph Granville. He believed that volume was the driving force behind markets and developed OBV to forecast when major moves would occur based on volume changes.
OBV is an indicator of momentum, measuring changes in volume to determine price direction.
OBV provides more information than the volume histograms typically found at the bottom of the charts.
This particular indicator is a leading one, while some traders will trade on OBV alone, it isn't recommended.
Always support your ideas with additional TA for confluence.
Following from part one of volume we move on to On Balance Volume (OBV).
OBV was first developed by Joseph Granville. He believed that volume was the driving force behind markets and developed OBV to forecast when major moves would occur based on volume changes.
OBV is an indicator of momentum, measuring changes in volume to determine price direction.
OBV provides more information than the volume histograms typically found at the bottom of the charts.
This particular indicator is a leading one, while some traders will trade on OBV alone, it isn't recommended.
Always support your ideas with additional TA for confluence.
Key Points of the Lesson
UTILITY
Provides the running total of trading volume ⇒ volume flow in/out of the trading pair
Useful to monitor the health of a trend.
Useful to estimate a possible break from the range.
IMPLEMENTATION
Default settings on Tradingview.
Monitor OBV as the trend progresses ⇒ volume should follow the trend, check for divergences.
Monitor OBV at the edges of ranges ⇒ volume leads price.
PRACTICAL EXAMPLE
TIPS & TRICKS
Leading indicator, powerful with confluence.
Possible to look for patterns in OBV.
Can be used across all time frames ⇒ 4h is the recommended time frame.
OBV calculations (not needed to implement):
Current OBV = previous OBV + current candle volume (if the current candle closing price is higher than the previous candle).
Current OBV = previous OBV - current candle volume (if current candle closing price is lower than the previous candle)
Current OBV = previous OBV (if current candle closing price equals the previous candle)
TAKE HOME MESSAGE
Monitor the health of a trend, help identify tops/bottoms.
Estimate break from a range.
Powerful leading indicator with other confluence.