On Balance Volume Indicator Explained: Best OBV Trading Strategy (Forex)

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In today’s Trading Beacon video, we’ll be talking about the On Balance Volume Indicator (or OBV indicator for short.) We’ll also explain how to integrate the On Balance Volume Indicator into your Forex Trading Strategy, both by using an OBV divergence strategy and also other forms of market analysis.

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In today’s video we’ll be covering the On Balance Volume indicator, and how you can use it in your trading.

So first, what exactly is the on balance volume indicator, and how does it work?
The on balance volume indicator, or OBV for short, was created in the early 1960’s 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 then the close of the previous price bar, then we take the volume from that period of time and add it to the previous value of the on balance volume indicator.
If the close of a price bar is lower then 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 on balance 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, the value of the on balance volume remains exactly the same.

Alright, let’s go through a step by step example of this.
Here we have a chart with 5 candles on it, 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.

It’s important to remember that the on balance volume is a cumulative indicator, meaning that it derives it’s current value from previous values.
What this means for you is that you shouldn’t become overly concerned with the absolute value the indicator is displaying; It’s far more important to pay attention to the overall trend and movement of this indicator, as opposed to one particular value.

It’s also worth noting that when there is a large unnaturally high spike in volume, this can throw the value of the indicator off for a while. For example, here we have a huge spike in volume on a single day, which caused the on balance volume to sharply increase. This does not necessarily indicate that an uptrend is about to start. So if you see a huge spike in volume, it’s generally a good idea to give the indicator a period of time to settle before factoring it into your trade decisions.

Alright, now let’s cover how to use the on balance volume indicator in your trading strategies.

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DISCLAIMER:
Foreign exchange trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts. Past performance is not indicative of future results. The information presented today is not meant for use in live trading.
This video is not a recommendation to anyone on how to spend or invest their money. Take all videos as my own opinion, as entertainment, and at your own risk. I do not assume any responsibility or liability for any errors or omission in the content of this channel. This content is for educational purposes only, and is not tax, legal, financial or professional advice. Any action you take on the information in this video is strictly at your own risk. TradingBeacon.com and all individuals affiliated with this channel assume no responsibilities for your trading and investment results.

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