On-Balance Volume OBV: Definition, Formula, and Uses as Indicator

Bearish divergence between OBV and price warns of market tops. Bullish divergence between OBV and price warns of market bottoms. A support level in crypto is when the price of a crypto asset stops depreciating because of increased suppl… After that, you have to find support and resistance levels and mark them properly. Then analyze if the current trend is correlating with the trend for the underlying asset.

Other technical indicators, such as MACD, RSI, and ADV, are also needed for such analysis. Joseph Granville is the founder of on-balance volume metric. According to him, volume defines how the financial markets work, and the price movements occur based majorly on volume. Granville believed that the price eventually sees a huge spike if the market volume of an asset experiences a sharp increase.

  • Therefore, the relative value, or trend direction, of On Balance Volume is more important than its numeric value.
  • When the security closes higher than the previous close, all of the day’s volume is considered up-volume.
  • If the price is rising and the OBV line is declining it is bearish.
  • The use of both price and volume provides a different perspective from price or volume alone.

When both the OBV and the close of the price bars are showing lower lows, there is a high possibility that the downtrend is there to stay. Technical analysis supporters make use of its numerous indicators to improve the efficiency of their trading forex trading vs stock trading strategies. In our article, you’ll find out the main features of the OBV indicator, ways to calculate and implement it, common limitations, and much more. A doji is a trading session where a security’s open and close prices are virtually equal.

Formula for Calculating On-Balance Volume

The indicator is monitored to forecast the trade direction and near-term price changes in stocks. The chart below shows an instance of divergence with the on-balance volume indicator. Marked with orange lines in about the middle of the chart, you can see where price continues to rise to a new high while the OBV indicator turns to the downside with a decline in volume. On Balance Volume is available in SharpCharts as an indicator. After selecting, OBV can be positioned above, below or behind the price plot of the underlying security.

What is the best volume indicator?

  • VWAP.
  • Volume-Weighted Moving Average (VWMA)
  • Money Flow Index (MFI)
  • Accumulation and distribution indicator.
  • Klinger Oscillator.
  • On Balance Volume (OBV)
  • Other volume indicators.

If price went down, then that day’s volume is subtracted from the OBV total. The OBV value is then plotted as a line for easy interpretation. On Balance volume is primarily used to confirm or identify overall price trends or to anticipate price movements after divergences.

What is the On-Balance Volume indicator and how to use it on Tuned?

On Balance Volume is based on the cumulative total volume and relates changing prices to volume. Volume on an up period is added to the total, while volume on a down period is subtracted. This indicator’s definition is further expressed in the condensed code given in the calculation below. Once a trend has been established, it remains until it is broken. This happens when a downward trend changes to an upward trend and vice versa, or when a trend changes to a choppy, sideways movement for more than three days.

BBY broke its downtrend line in early September and OBV confirmed with a trend line break a week later. These coincident signals indicated that positive and negative volume were in harmony with price. Bullish and bearish divergence signals can be used to anticipate a trend reversal. These signals are truly based on the theory that volume precedes prices. A bullish divergence forms when OBV moves higher or forms a higher low even as prices move lower or forge a lower low.

Key Takeaways

The information provided by StockCharts.com, Inc. is not investment advice. Trading and investing in financial markets involves risk. During a trading range, if the OBV is rising, accumulation may be taking place—a warning of an upward breakout. Future value is the value of a current asset at a future date based on an assumed rate of growth over time. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.

What is the best lagging indicator?

Some general examples of lagging indicators include the unemployment rate, corporate profits, and labor cost per unit of output. Interest rates can also be good lagging indicators since rates change as a reaction to severe movements in the market.

The action you just performed triggered the security solution. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. The OBV is an efficient momentum indicator that can be implemented by investors in several ways. OBV works best when testing around major highs and lows to measure for possible breakouts and breakdowns. This strategy works on the basis of crossovers of RSI at different period and OBV at different periods .

What is the On-Balance Volume Indicator (OBV)?

The on balance volume can be easily calculated, depending on the closing price. The close of the price bar is higher than the close of the previous price bar. I have applied my Better Divergence On Any Indicator logic to scan 3 different indicators and up to 6 different assets at one time.

on balance volume indicator

Trading or investing requires a clear understanding of the coin or stock and its underlying value. Calculates the On-Balance Volume from the series of closing stock prices and trade bitcoin lifestyle review volume. If the security’s price movement precedes OBV movement, a “non-confirmation” has occurred. Non-confirmations can occur at bull market tops or at bear market bottoms .

Trading VolumeThe volume of trade is the overall measure of the number of securities, shares or contracts traded during a particular trading day. The aim of monitoring the OBV is to predict the probable direction of near-term price changes. The Relative Strength Index is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions. Volume analysis is the examination of the number of shares or contracts of a security that have been traded in a given period. Full BioPete Rathburn is a freelance writer, copy editor, and fact-checker with expertise in economics and personal finance. An offset of 1 returns the value from the previous bar instead of the current bar.

Ranging breakouts

Before making an investment decision, you should rely on your own assessment of the person making the trading decisions and the terms of all the legal documentation. In case the price stays within the support and resistance lines, but the OBV indicator is declining, this may be a sign of the upcoming downward price breakout. In case the price fluctuates within support and resistance levels, but on-balance volume starts to grow, this may be the sign of the upcoming upward price breakout. Stocks can easily breakout or breakdown when OBV lags price behavior, but the divergent action waves a red flag that predicts whipsaws until the price turns to meet OBV or OBV turns to meet the price. This testing behavior tracks the second phase of the action or reaction resolution cycle.

on balance volume indicator

It should be noted that the absolute OBV, in any case, is not important. Rather it is the OBV line that will determine the trends of the market. OBV(i-1) — is the indicator value of the previous period. This website is using a security service to protect itself from online attacks.

on balance volume indicator

Can be adapted to others as well For this example, I used an initial 1$ account, using always full capital on each trade, together with a 0.1% commission/fees for each deal, on Coinbase broker. This is a long only strategy tickmill broker review The components for the inside of the… The on-balance volume formula depends on different scenarios. Because OBV is a cumulative result, the value of OBV depends upon the starting point of the calculation.

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