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The main principles of using volume indicators:
- When volume decreases it means that there is less interest, so it may be time for a reversal or price consolidation.
- When volume increases it means that there is more interest, so it may strengthen the prevailing trend or a new trend may appear.
- Sometimes gradual decreasing in volume is accompanied by rapid price movements.
- Volume highs signal that it may be time for a reversal.
On Balance Volume — OBV
1) If the current close price is above the preceding one, that is C( i ) > C(i — 1), then:
OBV(i) = OBV(i-1) + Volume (i)
2) If the current close price is below the preceding one, that is C( i ) < C(i - 1), then:
OBV(i) = OBV(i-1) - Volume (i)
wnere
C( i ) - current Close;
C(i - 1) - Close of the previous bar;
Volume (i) - current bar volume.
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The main signals for OBV:
- If a new price high is confirmed by a new On Balance Volume (OBV) indicator high it means that the bullish (upward) trend is strong;
- If a new price bottom is confirmed by a new On Balance Volume (OBV) indicator bottom it means that the bearish (downward) trend is strong;
- Bullish divergence (bearish convergence) warns of the weakness of the downtrend (uptrend) and possible reverse;
- A breakout of the trend line drawn on the On Balance Volume (OBV) indicator warns of a breakout of the trend line on the price chart.
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© 1998—2008 «Alpari» |
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