On Balance Volume
On Balance Volume or On Balance Volume (OBV), was first described by Joe Granville in 1963 (date of establishment is unknown). This indicator at the beginning of its existence, enjoyed great popularity among traders. Its creators claim that this indicator is the key to big profits in the stock market. Joe Granville argued that the driving force on the stock exchanges are the volumes, so he created a light-volume. The initial task was predicting possible indicator of price movements based on the volume. The principle of this indicator is in the order of changes in the volume warn future changes in prices. Creator correctly observed, so the indicator had a very large demand .
Description On Balance Volume Indicator: This indicator is actually a measure of the rate of change of price and volume, based on the principle that changes in indicator data preceded by a change in market prices. Granville this fact is interpreted as follows: if the volume change dramatically, and the price chart major changes not, in a short time price is also not change much.
Why the price is so tied to the volume? Let's analyze the example. Large institutional investors (such as shopping malls, banks, investment funds) invest their money in the purchase, while small investors (individuals) continue to sell. Massive and weighty investment funds to purchase provokes strong change in prices in favor of large investors. But over time this movement connects the whole market "crowd", followed by the reverse process, the price moves in the opposite direction.
Application of On Balance Volume. This indicator does not give clear signals to buy or sell, so it is used to confirm the signals of other indicators. Very important point: the numeric value does not have a strong impact, the only important line direction indicator. Motion Graphics price and the indicator line can determine the strength of a trend and also the availability. If the price chart goes into ascending or descending trend , while the indicator line moves in the opposite direction, it is a signal that the trend is weak and soon it will change direction. If the graph is rising or falling faster than the indicator line, the trend is not confirmed by volume, and therefore, the top of an uptrend or downtrend is low, somewhere close.
The only indicator to signal the opening position is a sharp reversal. It is believed that the change in the trend line indicator is much earlier than the schedule of prices. Here are a few examples. If the schedule of prices continues to move in the direction of the upward trend, and the trend line indicator has changed, you will soon wane and the trend will move in the opposite direction, it is a signal to sell. Accordingly, the turn indicator line in the opposite direction of the downward trend is a signal to buy. But often, the indicator gives a lot of false signals, so before opening a position, wait, for example the three periods, and only if the line of the indicator has not returned to its original position, you can open position.
Note: This indicator should be used only in small time frames, because the large amount of time frames were very different. This can be explained in forex using the "tick" volume, which is different from a simple volume.