Hey traders in today's Post we'll be covering the
on-balance volume indicator and how you
can use it in your trading strategies
let's get started so first what exactly
is the on-balance volume indicator and
how does it work
the on-balance volume or obv for short
was created in the early 1960s by joseph
granville
it works on the theory that volume
precedes price movement
here's how it's calculated if the close
of a price bar is higher than the close
of the previous price bar
of time and add it to the previous value
of the unbalanced volume indicator
if the close of a price bar is lower
than the close of the previous price bar
then we take the volume from that period
of time and subtract it from the
previous value of the unbalanced volume
however if a price bar closes at the
exact same location as the previous
price bar
meaning it has closed neither higher or
lower
than the value of the on-balance volume
remains exactly the same
all right let's go through a
step-by-step example of this
here we have a chart with five candles
with the volume of each candle plotted
below
in blue here's exactly how the on
balance volume would look as each of
these candles form on the chart
the very first candle is a bullish
candle and has a volume
of 100 so the value of the on balance
volume here
would simply be 100 the second candle is
also a bullish candle meaning it closed
above the previous candle
this candle has a volume of 150 so we
would add 150 to the previous value
of the on balance volume which would
give us a new value
of 250 the third candle is a doji candle
meaning it closed at exactly the same
location as the previous candle
this candle has a volume of 50 but if
you remember from before
when a candle closes at the exact same
location as the previous candle
the value of the on-balance volume
remains unchanged
so it would remain at 250.
the fourth candle is a bearish channel
meaning it closed below the previous
candle
this candle also has a volume of 50 so
we would subtract 50 from the previous
value
of the on balance volume giving us a new
value of 200.
the final candle is a bearish candle
with a volume
of 150 so we would subtract 150 from the
previous value of the on balance volume
giving us a final value of 50.
it's important to remember that the
unbalanced volume is a cumulative
indicator
meaning that it derives its current
value from previous values
what this means for you is that you
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