Forex Technical Analysis Articles - Volume based indicators - On Balance Volume

Technical Analysis

1. Introduction

2. OBV's Importance

3. Calculation

4. OBV and Price Trendlines

5. EUR/USD Ex.– End of Feb

6. EUR/USD Ex.– 1st Half of Mar

7. EUR/USD Ex.– 2nd Half of Mar

8. Divergence Ex. 1

9. Divergence Ex. 2

10. Fundamental Release

11. Fund. Release Cont.

The On Balance Volume (OBV) indicator has been around for a long time. It was introduced in 1963 as a way to measure positive and negative money flow into securities. The concept behind its usefulness is that “volume precedes price” and therefore an understanding of volume is crucial to understanding the direction of price.

On Balance Volume attempts to add a sense of direction to the standard Volume indicator.

Table of Contents

1. Introduction
We start by introducing the On Balance Volume indicator.

2. OBV’s Importance
On Balance Volume can act as a leading indicator when joined with trendline analysis. OBV’s function is to add a dimension of direction to the normal Volume indicator.

3. Calculation
In this section we describe how OBV is measured, its characteristics and a simple example demonstrating how OBV works.

4. OBV and Price Trendlines
On this page we set up the techniques and strategy that we will use in the EUR/USD example that follows on the next several pages.

5. EUR/USD Ex. – End of Feb
We examine a ranging market and then an upwards trend with trendlines analysis.

6. EUR/USD Ex. – 1st Half of March
Our analysis continues into the next month as we follow the pair using our OBV strategy.

7. EUR/USD Ex. – 2nd Half of March
We finish up our analysis, finishing a full month of following the pair’s movements and generating signals using the On Balance Volume indicator.

8. Divergence Ex. 1
We move onto a new interpretation of On Balance Volume. Studying divergences is useful because it is possible to anticipate reversals if there is a divergence between price action and On Balance Volume.

9. Divergence Ex. 2
We continue looking at divergences using a second example.

10. Fundamental Release
This example shows how a trader following news events can use technical analysis to set up his trades and get a sense of the market before hand.

11. Fundamental Release Cont.
We continue our example of combining technical with fundamental analysis.