On-Balance Volume - OBV Indicator
On Balance Volume Definition
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.
For more information how to set the indicator in the terminal please click here
How to Use On Balance Volume
The On-Balance Volume line is used for trend confirmation or possible turning points identification purposes.
- 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.
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.
How to use On-Balance Volume in trading platform
Use indicators after downloading one of the trading platforms, offered by IFC Markets.