On Balance VolumeOn Balance Volume (OBV) indicates market momentum. Introduced by Joseph Granville, it’s a simple indicator that compares price and volume:
- The volume is positive if the closing price is higher than the previous close
- The volume is negative if the closing price is lower
- The volume is ignored if the price doesn’t change
Rising and falling trendsOBV trends are established in the following ways:
- There’s an upwards trend if peaks are rising and troughs are also rising
- A downwards trend starts with falling peaks and troughs
- An upwards trend is broken by a downwards trend
- A downwards trend is broken by an upwards trend
BreakoutsThe breakout signals with OBV are straightforward:
- Buy long at the start of a rising trend
- Sell short at the start of a falling trend
- Hold your position until the trend ends
Non-confirmationIf the price rises or falls before the OBV does, this is a non-confirmation. This can happen at the top of bull markets and at the bottom of bear markets.
OBV is calculated by adding the current trading volume to the previous OBV value if the closing price rises, subtracting the volume if the price falls, and doing nothing if the price remains the same.
If CLOSE( J ) > CLOSE( J – 1 )
OBV (J) = OBV( J – 1 ) + VOLUME( J )
else if CLOSE( J ) < CLOSE( J – 1 )
OBV (J) = OBV( J – 1 ) – VOLUME( J )
OBV (J) = OBV( J – 1 )
J is the current interval
VOLUME is the trading volume for an interval
CLOSE is the closing price for an interval
You can find more information about technical indicators in the MetaTrader 4 User Guide. Select Help > Help Topics > Analytics > Technical Indicators.