On-Balance Volume

On-Balance Volume

Conversely, the investor needs to consider buying an issue that is below the 20 line and is starting to move up with increased volume. Stochastics is used to show when a stock has moved into an overbought or oversold position. Fourteen is the mathematical number most often used in the time mode. Depending on the technician's goal, it can represent days, weeks, or months.

They also pay attention to current price trends and potential price movements. The Volume indicator Forex used to read a volume in the Forex market is the Chaikin Money Flow indicator (CMF). In the Forex market, we don’t have a centralized exchange of total volume because we’re trading over the counter. If we look at any trading platform like TradingView, they have a volume attached to their chart. But, since we don’t have a centralized exchange that volume is coming from the feed that TradingView uses.

For example, if the price is making a higher high but the indicator is making a lower high, the move is weak, and the price may reverse. This volume indicator was created by Gene Quong and Avrum Soudack. The VO is usually displayed as a single line that oscillates around the zero line, but it can also be displayed as bars above and below the zero line. When the indicator is at the zero level, it means that the faster moving average is crossing the slower moving average, as the difference between the moving averages will be zero.

We don’t want to see the volume dropping fast because this will invalidate the accumulation noted previously. When big money steps into the market, they leave a mark as their orders are so big that it’s impossible to hide. When the volume indicator Forex goes straight from below zero to above the zero line and beyond, it shows accumulation by smart money. On the other hand, if the cash flow and trading volumes decrease-- we see a “bearish divergence”, meaning that it will likely be an appropriate time to sell.

Adding one or two of these volume indicators in your analysis tools could be of great help in your trading. At the very least, a volume indicator can help you confirm the validity of a setup before you place a trade or give you an early warning about trades that aren’t progressing well.

If you see a stock finish the trading session at the top of its range for that day in heavy volume, that’s a sign of strength. And if a stock falls but closes well off of the low and the decline comes in light volume, that could indicate supporting action.

What is On-Balance Volume (OBV)?

The premise of stochastics is that when a stock trends upwards, its closing price tends to trade at the high end of the day's range or price action. Price action refers to the range of prices at which a stock trades throughout the daily session. Conversely, if the price has a downward movement, the closing price tends to trade at or near the low range of the day's trading session. Many trend traders use the RSI to capture the last few stretches of a strong trend. For example, a stock with a strong trend and an RSI of 60 likely has a little more way to go before stopping or correcting downward.

• Uptrend is a term used to describe an overall upward trajectory in price.
• Likewise, securities can continue moving lower after an indicator becomes oversold.
• Sometimes OBV moves step-for-step with the underlying security.
• The dynamic momentum index is used in technical analysis to determine if a security is overbought or oversold.

Despite a CCI confirmation, price never broke support and the divergence did not result in a trend reversal. Lambert originally developed CCI to identify cyclical turns in commodities, but the indicator can be successfully applied to indices, ETFs, stocks and other securities.

Typically, this oscillator fluctuates between -0.50 and +0.50 with 0 as the centerline. All stock price movement and volume patterns work together to paint a picture. If a stock moves on low volume then that means that relatively few people are participating in this movement. And if a stock moves on high volume then many traders or investors are involved in that movement and it will be easier to find someone to buy from or sell to.

The second chart shows OBV moving higher as Texas Instruments (TXN) trades within a range. Rising OBV during a trading range indicates accumulation, which is bullish. The fastest way to gauge the liquidity of a stock is by plotting Average Daily Trading Volume (ADTV) and Average Dollar Volume (ADV) indicators on your stock charts.

There are a number of popular configurations for moving averages, but they can be created for any time frame and for any price (closing, high, low, etc). Another thing to keep in mind is that you must never lose sight of your trading plan. Your rules for trading should always be implemented when using indicators. It works on a scale of 0 to 100, where a reading of more than 25 is considered a strong trend, and a number below 25 is considered a drift. Traders can use this information to gather whether an upward or downward trend is likely to continue.

Trend-Spotting with the Accumulation/Distribution Line

If you see that the price of stock rises much stronger that the index value you know that such stock is an excellent bullish opportunity. Bearish stocks are ideal candidates for bearish stocks strategies. You can find bearish stock almost anytime, even in the strong bull market.

Low trading volumes may be an indication of a deteriorating company reputation, which will further affect the stock's returns. It may also be an indication of a relatively new company that has yet to prove its worth. Market makers active in low-volume stocks can use low liquidity to profit. They are aware that the stock's low liquidity means they can take advantage of buyers who are eager to get in and out of the market.

On Balance Volume (OBV) is available in SharpCharts as an indicator. After selecting, OBV can be positioned above, below or behind the price plot of the underlying security. Positioning it behind the plot makes it easy to compare OBV with the underlying security. Chartists can also add a moving average or another indicator to OBV by selecting Advanced options, which is to the right of the indicator position. The chart for Starbucks (SBUX) shows a bullish divergence forming in July.

Conversely, falling OBV reflects negative volume pressure that can foreshadow lower prices. Granville noted in his research that OBV would often move before price.

CCI measures the difference between a security's price change and its average price change. High positive readings indicate that prices are well above their average, which is a show of strength. Low negative readings indicate that prices are well below their average, which is a show of weakness.