OBV On Balance Volume Indicator Explained Simply & Understandably. // tutorial trading strategy indicator beginners day secrets video chart patterns youtube stocks settings john swing daily chart rsi stochastics macd technical scalping basics how to use david moadel
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welcome to looking at the markets with David Modell today I'm going to give you
a brief and easy introduction to the obv or on balance volume indicator so here
we go developed in the 1960s by Joseph
Granville the on balance volume or obv indicator is based on the idea that
volume is just as important as whether a period or candlestick closed green or
red the obv indicator only Rises a lot when a period or candle closes green
meaning above the previous periods close with heavy volume if the volume is light
the obv indicator won't rise a lot even if the stock's price went up a lot
similarly the obv indicator only Falls a lot when a period or candle closes red
meaning below the previous periods close with heavy volume if the volume is light
the obv indicator won't fall a lot even if the stocks price went down a lot the
idea is that the stocks price action will follow where the volume flow is
going in other words volume precedes price it's just a theory but it makes
for a unique and interesting indicator to add to your toolbox a divergence
between the direction of the obv indicator and the direction of the price
action of the candlesticks might possibly indicate the future direction
of the stocks price and there are a couple of examples of that this is a
daily candlestick chart of the price action of Ford stock alright each
candlestick represents one day of price action and here's the obv and this is
from stockcharts.com so I want to give them credit alright so
we can see examples of a divergence right over here alright
we've got the price action going up all right you've got a higher high here but
at the same time you've got a lower high on the obv or on balance volume
indicator ah all right price action going up obv indicator going down and
the which one turned out to be right the candlestick direction or the obv
indicator direction well we can see that the candlestick direction that this was
a head-fake all right it looked like it was gonna go up but it went down quite a
bit and so the divergence here in this case showed that the the on balance
volume told the truth here and so in this case it looks like volume proceeded
price doesn't always work but it worked in this case here's another similar
example with the daily candlestick chart of sprint stock and we can see the
unbalanced volume indicator just going down down down it's not making higher
highs here it's just it's starting and then going down making lower highs lower
highs lower highs all the way down and there were times here where it looked
like Sprint was that the stock was gonna recover and start going up like over
here started going up and you might have gotten optimistic here you might have
wanted to buy it but if you checked the lower highs on the on balance volume
indicator you might have known better than to buy here because it looks like
once again the price came after the volume in other words volume proceeded
price the obv indicator told the truth more than the head-fake on the
candlesticks here all right and it happened quite a few times here
were it looked like it was going to start going up but like for example over
here you can see the candlesticks making higher highs here but look at the obv
indicator alright it went up and then right back down alright
also we can see it for example over here looks like it was going to go up but we
see lower highs in the OB the indicator and we saw what happened afterwards
alright it's kind of subtle alright it's not gonna be very very obvious you have
to kind of look for it and it does not always work but it's a really unique and
interesting indicator if you want to place more emphasis on volume in your
trading the obv indicator is best used not in isolation but rather in
conjunction with other indicators as well as your own judgment and common
sense so feel free to add this to your toolbox of indicators alright this was
just an introduction but I hope that give you an idea of what the unbalanced
volume or obv indicator is all about so please give this video a thumbs up leave
comments and subscribe to my youtube channel if you haven't done that already
and if you'd like to get some help with indicators trading investing putting
together a plan for your trading or investing because you definitely need
one you can email me at any time my email address is David Modell at
gmail.com thank you so much for watching and listening and I'll talk to you again
soon