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On-Balance Volume - OBV Indicator

What is On Balance Volume Indicator

On-Balance Volume (OBV) is a cumulative volume-based tool intended to show the relation between the amount of deals and asset’s price movements.
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How to Use OBV Indicator

The On-Balance Volume line is used for trend confirmation or possible turning points identification purposes.

Trend confirmation:

  • An uptrend in prices is confirmed if the line is rising;
  • A downtrend in prices is confirmed if the line is falling.

Divergence pattern analysis:

  • Rising OBV line along with decreasing prices indicates the downtrend may be weakening to a bullish reversal;
  • Falling OBV along with rising prices indicates the uptrend may be weakening to a bearish reversal.
OBV Indicator

On-Balance Volume (OBV) Indicator

On-Balance Volume Formula (Calculation)

In each trading period, the On-Balance Volume indicator is calculated depending on its value in the previous trading period: if the current closing price is above the previous one, then the current volume is added to the OBV, and if it is below - the current volume is subtracted from the OBV. If the current closing price is unchanged, then the on-balance volume remains unchanged.


OBV(t) = OBV(t-1) + Vol, if C(t) > C(t-1);
OBV(t) = OBV(t-1) – Vol, if C(t) < C(t-1);
OBV(t) = OBV(t-1), if C(t) = C(t-1),

where:
t – current period;
t-1 – previous period;
C – close price;
Vol – volume.

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Forex Indicators FAQ

What is a Forex Indicator?

Forex technical analysis indicators are regularly used by traders to predict price movements in the Foreign Exchange market and thus increase the likelihood of making money in the Forex market. Forex indicators actually take into account the price and volume of a particular trading instrument for further market forecasting.

What are the Best Technical Indicators?

Technical analysis, which is often included in various trading strategies, cannot be considered separately from technical indicators. Some indicators are rarely used, while others are almost irreplaceable for many traders. We highlighted 5 the most popular technical analysis indicators: Moving average (MA), Exponential moving average (EMA), Stochastic oscillator, Bollinger bands, Moving average convergence divergence (MACD).

How to Use Technical Indicators?

Trading strategies usually require multiple technical analysis indicators to increase forecast accuracy. Lagging technical indicators show past trends, while leading indicators predict upcoming moves. When selecting trading indicators, also consider different types of charting tools, such as volume, momentum, volatility and trend indicators.

Do Indicators Work in Forex?

There are 2 types of indicators: lagging and leading. Lagging indicators base on past movements and market reversals, and are more effective when markets are trending strongly. Leading indicators try to predict the price moves and reversals in the future, they are used commonly in range trading, and since they produce many false signals, they are not suitable for trend trading.

Use indicators after downloading one of the trading platforms, offered by IFC Markets.

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