This example will show how to use the On Balance Volume indicator by drawing and applying analysis of trend lines. Trend lines make it easier to follow trends as they show levels of support and resistance that can be useful in examining the pace of the trend. Trend lines are one of easiest tools to use for technical analysis. This example shows how to use trend lines with On Balance Volume to make it act as a leading indicator. The buy and sell signals given on the On Balance Volume panel can come sooner than the signals from similar trendlines established on the price chart. Let us begin.

Trading Strategy

The strategy is one in which trendlines will provide buy and sell signals. Because many traders will use price trendlines to generate buy and sell signals, we will use OBV trendline crosses as our starting point in a buy and sell analysis. We will look for OBV trendline crosses followed by price trendline crosses, therefore hopefully beating other traders to the punch. If a price trendline is crossed before the OBV trendline then an assessment of the OBV indicator will be necessary to see if one should act on the price trendline signal.