Search Trending Videos Explaining Forex Event Driven Trading Techniques, On Balance Volume Indicator Explained: Best OBV Trading Strategy (Forex).
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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Forex Event Driven Trading Techniques, On Balance Volume Indicator Explained: Best OBV Trading Strategy (Forex).
Specifying a Spike
Even if price is increased contrasted to current previous background does not indicate that you have on your own a real spike. As we reviewed in last week’s short article, price frequently speeds up ideal ahead of trendlines, just to strike, as well as turn around. These aren’t spikes, but instead just typical market habits. Newer investors are most likely to perplex this with spikes. So before you also CONSIDER getting in a long or brief profession attempting to “adhere to the flows” make damn sure you do not have a trendline dead ahead. That’s called chasing price, not assuming like an investor.
A real spike includes a minimum of one single bar with large range at the start of the movement.
I generally describe 5 minute bars when I state this. Smaller bars piled in addition to each other in a parabolic movement aren’t spikes. They are just aggressive trends. Please make certain you are covering this idea initially a leading before reading onward.
If you discovered anything from the info that we just reviewed above, spikes need some form of info surprise in order to work as a driver for the movement. Only after that, based upon that catalyst, can we after that start to evaluate the longevity of the movement.
However to sit below as well as provide my very own statement of belief of thinking behind spike continuation versus failure is generally useless. I would probably be below for weeks. As well as “summing it up” does little, as well. The summary over needs to obtain you relocating the ideal direction because regard. However from a technological perspective, that’s one more tale, one which we clarify via a few concepts now.
What is a base as well as quote currency?
A base currency is the first currency listed in a foreign exchange set, while the second currency is called the quote currency. Foreign exchange trading always entails selling one currency in order to get one more, which is why it is quoted in pairs the price of a foreign exchange set is just how much one unit of the base currency is worth in the quote currency.
Each currency in both is listed as a three-letter code, which tends to be created of two letters that stand for the area, as well as one representing the currency itself. As an example, GBP/USD is a currency set that entails buying the Terrific British extra pound as well as selling the US buck.
So in the example listed below, GBP is the base currency as well as USD is the quote currency. If GBP/USD is trading at 1.35361, after that one extra pound is worth 1.35361 dollars.
If the extra pound rises against the buck, after that a solitary extra pound will certainly be worth extra dollars as well as both’s price will certainly raise. If it drops, both’s price will certainly decrease. So if you think that the base currency in a pair is most likely to strengthen against the quote currency, you can get both (going long). If you think it will certainly deteriorate, you can offer both (going short).
To maintain things ordered, a lot of service providers split pairs right into the following groups:
Major pairs:
Seven money that compose 80% of international forex trading. Includes EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD as well as AUD/USD
Minor pairs:
Much less frequently traded, these commonly feature significant money against each other rather than the US buck. Includes: EUR/GBP, EUR/CHF, GBP/JPY
Exotics:
A major currency against one from a little or arising economy. Includes: USD/PLN (US buck vs Polish zloty), GBP/MXN (Sterling vs Mexican peso), EUR/CZK
Regional Pairs:
Sets identified by area such as Scandinavia or Australasia. Includes: EUR/NOK (Euro vs Norwegian krona), AUD/NZD (Australian buck vs New Zealand buck), AUD/SGD
Final Verdict:
Matching different kinds of trading to a person’s personality type is definitely no warranty for forex trading success. Nevertheless, discovering a trading design that’s well fit to your personality type can aid brand-new investors discover their feet as well as make the ideal moves in the market. Just take the quiz as well as answer the 15 inquiries truthfully to disclose which trading design is the ideal suitable for you.
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Financial Disclaimer:
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