On Balance Volume Indicator Explained: Best OBV Trading Strategy (Forex) 2021

Hey traders in today's Post  we'll be covering the

on-balance volume indicator and how you

can use it in your trading strategies

let's get started so first what exactly

is the on-balance volume indicator and

how does it work

the on-balance volume or obv for short

was created in the early 1960s 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 than 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 unbalanced volume indicator

if the close of a price bar is lower

than 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 unbalanced 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

than the value of the on-balance volume

remains exactly the same

all right let's go through a

step-by-step example of this

here we have a chart with five candles

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

the very first candle is a bullish

candle and has a volume

of 100 so the value of the on balance

volume here

would simply be 100 the second candle is

also a bullish candle meaning it closed

above the previous candle

this candle has a volume of 150 so we

would add 150 to the previous value

of the on balance volume which would

give us a new value

of 250 the third candle is a doji candle

meaning it closed at exactly the same

location as the previous candle

this candle has a volume of 50 but if

you remember from before

when a candle closes at the exact same

location as the previous candle

the value of the on-balance volume

remains unchanged

so it would remain at 250.

the fourth candle is a bearish channel

meaning it closed below the previous

candle

this candle also has a volume of 50 so

we would subtract 50 from the previous

value

of the on balance volume giving us a new

value of 200.

the final candle is a bearish candle

with a volume

of 150 so we would subtract 150 from the

previous value of the on balance volume

giving us a final value of 50.

it's important to remember that the

unbalanced volume is a cumulative

indicator

meaning that it derives its current

value from previous values

what this means for you is that you