ON BALANCE VOLUME
It is a volume based indicator. The volume is drawn together with the change in prices. Its history goes back to the 1960s. It was invented by Joseph Granville.
If the last close of the price is greater than the previous closing, the entire trading volume of that day is considered to belong to the buyers of the instrument in question. If the last close is less than the previous closing, all transaction volume on that day is considered to belong to the sellers. Acting on this assumption, obv does not make much sense at first, but when examined carefully, surprising results emerge.
Many indicators have specific reference levels, but no reference can be used in OBV. The zero line seen in Obv does not work because the indicator takes a constantly rising value according to the calculation. When you examine it, you will see that many charts are already above zero value.
It can also be interpreted with the moving averages on the price chart. In other words, good results are obtained when trend indicators and volume are used together. We will cover this topic in detail in trading strategies.
Obv can be used to buy and sell signals from a moving average that is thrown on it, as well as to identify trend reversal places by drawing trends, such as trend studies on the price chart.
Conflicts create reliable buy and sell signals.
The buy-sell signals coming from the 10-period simple moving average over the Obv are clearly seen in the graph below.
Trend lines drawn on the Obv can show us trend turning points.
As seen in the chart, the trend line drawn on the price chart broke the obv trend without breaking. Here, the situations that occur in the technical analysis method used to understand the subject are shown, of course, there are cases where these systems do not occur. When these situations arise, we will not only trade according to these, we will also receive confirmation from other indicators.
In the graph below we see an interesting use of obv.
While the price is falling from the left side where the blue line begins, the blue line drawn on the hill corresponding to the obv is breaking up obv, the price is still down after this break, but the obv is above the first reference, this structure is typical of the rising trends, the volume increase while the price is increasing, the volume It shows its downfall.
If you pay attention, the price has already broken the obv trend without breaking the declining trend, which is the dotted line, and the structure formed afterwards shows us the strength of the price movements. The above structure is one that I specifically look for in the graphics.
Utilized resources;
Süleyman Ayata, Reference Line Application Book, Technical Indicators.
AUTHOR:
Ali Erkan TANACIOĞLU
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