Do you want to learn how to measure market sentiments before you place a trade?
I helped my friend who joined trading last week with indicators, he was more concerned with OBV indicator.
Having done extensive research with him on various volume indicators, we settled on the on balance volume indicator as the most reliable tool to measure the forces of demand and supply in our trade.
Normally, I always make notes of everything new that I learned about trading and I always share with you all soughts of information that I come across.
In this blog post, you will learn more about how to use the on balance Volume indicator to trade forex, bitcoins, commodities, Indexes and stocks.
Notes and important take aways
1; On balance Volume is used to measure the forces of supply and demand
2; Combining on balance volume with other indicators produces the best results
3; Simple moving averages are used together with the on balance volume
4; Most professional traders use the 20SMA indicator together with the On balance volume
5; Another commonly used simple moving averages is 10 period SMA
6; On balance volume can be used in all the time frames but it works best with the longer time frames.
7; The on balance volume indicator can be used to trade all the markets
Without wasting time, let us roll-up our sleeves and get down to work. But before you do that, get a pen and note down the notes and the key take aways the important notes above.
Are you ready?
Here we go…
What is on balance volume (OBV) indicator?
On balance Volume (OBV) is a Momentum indicator that can be used to predict the direction of the price based on Volume.
You have come across several momentum indicators, right? Well, don’t be surprised when I tell you that this is another momentum indicator.
To be precise, on balance volume is a momentum indicator that was developed by Joseph Granville in his attempt to measures positive and negative volume flow. He latter introduce this indicator to the technical community in 1963 inside the pages of his book, “Granville’s New Key to Stock Market Profits.
The on balance volume (OBV) is a fast indicator and therefore, it should be used with a lagging indicator.
How is On balance volume (OBV) used?
You can set the ten day simple moving average(SMA) together with the on balance volume (OBV) indicator.
Do you know how to use the exponential moving averages( EMA) to measure price action? Of course you know. Well, OBV works in the same principle.
When the OBV crosses the SMA from above, that is an indication that says sell and you should enter a short possition. The opposite is true for a long position.
Different numbers can be employed when setttup the simple moving average depending on the time frame that you want to trade.
Mathematics behind on balance volume
I don’t want the mathematics geniuses in the house to get bored, let me explain this in the language that you understand 🤗 in your mother tongue.
If the closing price today is greater than yesterday closing price, then, current OBV value will be the same as yesterday OBV value plus one.
When today’s closing price is less than yesterday closing price, then, current OBV will be the same as yesterday OBV minus one.
In the situation where today’s closing price is the same as yesterday closing price, then, the value of OBV is the same as yesterday’s OBV.
Why trade with on balance volume indicator ?
Trading with OBV is trading traditionally with the laws of demand and supply, you are buying and selling when volume is in your favour.
Most of the strategies employed in forex should be in conjunction with a volume indicator because you want to be following the trend and not sailing against it.
In most strategies, OBV is used as a supportive indicator, nevertheless, countless strategies have OBV as a leading indicator being supported by other indicators.
Go through your strategies and find a way to add the on balance volume indicator into the mix to improve your trading results.
You can start to trade with hotforex, I recommend this broker because I am trading with them and I am satisfied with their services.
If you have any questions or suggestions, feel free to get in touch with me and I will be ready to answer any of your queries.