OBV Indicator

Introduction to OBV Indicator

OBV is an abbreviation for On Balance Volume. OBV is an indicator which uses volume flow to forecast stock price changes based on a total volume cumulatively. In other words, On Balance Volume (OBV) uses volume to predict forward movements in prices of stock. On-Balance-Volume only works on markets with associated exchange volumes like other volume-based indicators,
 
It operates by maintaining a running count on length, in line with a particular security or a pair of currency. When there is an increase in the price of a stock, the volume is added to the running total which constitutes the On-Balance-Volume number. As the protection price declines, the volume is subtracted from the total which constitutes the Price By Volume statistic.

Who developed the OBV Indicator?

As mentioned in the earlier, OBV is a trading indicator used to get an idea of where most market forces are heading. To achieve this, we use a simple method where the positive volume is added to the current OBVs value by subtracting the negative volume. Consider the ratio of a closing that is lower than the previous closing and the difference between the two in terms of total assets.
 
If a price chart shows a clear upward or downward trend, you can use the OBV indicator to confirm the continuation of the trend. If price development and OBV trend take opposite directions, a price reversal is to be expected. Nevertheless, if used correctly, trend traders have the chance to enter the market ahead of everyone else.
 
Since OBV is designed to measure both Positive and Negative flow Volumes at the current price of a security. When using On Balance volume, you must know the number can vary greatly from zero to something big and can be positive or negative. It depends on how the indicator behaves. You will also need to learn about the relationship between Balance Sheet Volume and other indicators. Other includes Balance Sheet Rate, Balance Sheet Level and Balance Sheet Ratio.
 

What does the On-Balance-Volume tell you?

OBV works on estimates which are based on the price to volume divergences. Hence, it informs you of:
 
First, Bullish Divergence.
 
You can expect upward movements where the market activity decreases and only increases the same time. Accordingly, the price will display lower lows for a bullish divergence while the indicator reveals higher lows.
 
Second, Bearish Divergence.
 
This will be identified when the price continues to rise while the OBV indicator declines at the same time. If the market has higher elevations and on-balance demand has lower elevations – this is a symbol of a Bearish Divergence.
 
Third, confirming the Trend.
 
See whether the OBV line is moving in the same direction as the price to check the trend direction. If the On-Balance Volume increases as price rises, you can confirm an upward trend and move the volume to support price growth.
 
Finally, determine the Potential Breakdown and or Breakout from the oscillating market. 
 
Look out for a surging or plunging OBV indicator value during varying market conditions. This is because an increasing OBV line can alert potential breakouts as accumulation continues.

Other Indicators that Work Like the On-Balance Volume?

Other Volume-based Indicators that works like OBV inludes:,
– Money Flow Index
– Negative Volume Index
– Klinger Volume Oscillator
– Price-Volume Trend
– Accumulation/Distribution Index, etc.
Only two of these Indicators will be examined.
 
Price and Value-Demand Trend is volume-based indicator also known as Price-Volume Trend (PVT). PVT blends price and market volume to create a composite exchange proxy for both variables. The indicator is designed to calculate the volume of the demand over a given interval (usually daily) by the percentage change in price.
 
Accumulation/Distribution index is a cumulative indicator. It uses volume and price to assess the accumulation or distribution of stock. The indicator aims at detecting divergences between the stock price and the quantity flow. This gives insight into how strong a trend is. If the price rises but the indicator drops, this indicates buying or accumulating volume may not be enough to support the price rise. Also, a price decline may be forthcoming.

How is the On-Balance-Volume Calculated?

The OBV provides a running total of the trading volume of an asset. It indicates whether that volume flows into or out of a security or currency pair in question. The OBV is a cumulative total (positive and negative) of volume. When calculating the OBV, three rules are implemented. These are
 
1. If the closing price of today is higher than the closing price of yesterday, then: Current OBV = Previous OBV + Present volume
 
2. If the closing price today is lower than the closing price of yesterday, then: Current OBV = Previous OBV – the Volume of Today.
 
3. If the closing price today is equal to the closing price yesterday, then: Current OBV = Previous OBV.

What are the best strategies using OBV intraday?

As mentioned in the earlier, OBV is a trading indicator used to get an idea of where most market forces are heading. To achieve this, we use a simple method where the positive volume is added to the current OBVs value by subtracting the negative volume. Consider the ratio of a closing that is lower than the previous closing and the difference between the two in terms of total assets.
 
If a price chart shows a clear upward or downward trend, you can use the OBV indicator to confirm the continuation of the trend. If price development and OBV trend take opposite directions, a price reversal is to be expected. Nevertheless, if used correctly, trend traders have the chance to enter the market ahead of everyone else.
 
Since OBV is designed to measure both Positive and Negative flow Volumes at the current price of a security.

Key Things to Note about On Balance Volume

Developed by Joseph Granville and presented to the technical analysis community. Balance-of-Volume (OBV) is a popular indicator for measuring buying and selling pressures. If the volume does not increase during a buying trend, this is because the buying pressure eases. When this happens, know that the risk increases that the bull trend is no longer sustainable. Conversely, if traders start buying heavily, the increased volume would push up the OBVs line, which in turn would push up the price.
 
The indicator is the first known indicator to take into account both positive and negative volume flows. OBV focuses on how volume affects the price of a security and is known as one of the most popular impulse indicators. OBV can be used to compare the volume flow and price of an asset over a selected period of time. The equilibrium volume has been used so often that most of us have forgotten the equilibrium volume.
 
This technique records a histogram to show a dominant and significant price level based on volume and price over a given period of time. This shows the volume traded at each level of the asset and the number of shares traded in each security within a given period. It states that volume is the percentage of the volume that is likely to be available for each share traded in a security over a given period of time. Volume is taken into account when an instrument closes higher than the previous close, and not again when it closes lower. Volume is also taken into account as if the instrument is closed lower than the previous closing, but not again.
 
There are a number of Volume-based Indicators that cab used when analysing the Price-to-Volume ratio of the performance of an asset. The PVT is an indicator mainly used to calculate cash flow, while the Dynamic Price Volume Trend Indicator (DPVT) measures dynamics.
 
Most traders will always use the Moving Averages (RSI and MACD) as part of their trading strategy. Basically, you need to understand that the OBV regards the day trade as volume, rather than the price of an asset. If a price has a lower daily value at the end of the day, it is considered to be volume-reducing and vice versa.

Advantages and Disadvantages of OBV

Advantages
 
Hope you are not expecting a very long list? Yet, these advantages seen with OBV are important for your success or otherwise in the market. With OBV, measurement is simple to understand.  As a leading Indicator, OBV can include signs of imminent escape or failure as the market falls sideways and as a composite measure. It can be used to validate the path of the movement.
 
Disadvantages
 
A major limitation of On Balance Volume is that it can produce predictions. But there’s little that it can say about what actually happened in terms of the signals it produces. Due to this, incorrect signals are likely to produce. Thus, it can be controlled by lagging indicators. To search for OBV line breakouts, add a moving average line to the OBV; you can confirm a price breakout if the OBV indicator does a concurrent breakout
 
Another point of warning when using the OBV is that a big volume spike will throw off the tracker for quite some time on a single day. Unexpected results added or withdrawn from an index, or large systemic block trades can trigger the OBV to spike or plunge.

Frequently Asked Questions

On Balance Volume (OBV) and the Accumulation Distribution Line are all combined volume-based metrics. Periodic values are added or subtracted in order to form a map (time series plot) comparable to the underlying security. The difference between these two indicators depends on the close relative. OBV contrasts the closure with the previous closing, while the Accumulation Distribution Line compares the closing with the high-low.

On-Balance Volume increases as volume outstrip volume on down days or modified days. OBV decreases as demand becomes higher on down-days. An upward OBV reflects positive volume pressure that may result in higher prices. In comparison, the decrease in OBV represents negative demand pressure that can predict lower prices.

I’ll go for the Chaikin Money Flow (CMF).  The reason why Chaikin Money Flow is the best volume and the classic Volume Indicator is that it measures the accumulation-distribution of institutions.

Primarily, a stock market metric and the fundamental definition used by Granville to develop the OBV measure according was that when a stock closed higher than its prior regular closing, the overall value of the day is called up-price.

OBV delivers the most accurate reviews on high and low results, making it a good method for assessing breakout and breakdown capacity.it is a basic method that compares the progress of the variable to market behaviour, and notices convergence or divergence relationships.

Computation on average volume is determined by applying the volume of the day to a combined sum as the price of the security ends, and by subtracting the volume of the day when the price of the security closes.

Simply follow the following steps:

          Download Indicator on mq4 in RAR file.

          Extract the download file.

          Go to “File Menu” in the upper left-hand corner of the MetaTrader4, and click “Open Data Folder”

          Open the folder called “MQL4”

          Copy the folder called “Indicators” and paste the downloaded file in the indicator folder.

          Reboot your MetaTrader4

          Voila, you have installed your OBV indicator.