Volume Indicators

What are Volume Indicators?

The Volume Indicator is a technical indicator that is used to identify divergences between the price and the volume. If a currency pair is experiencing an uptrend, but the volume is decreasing, it could indicate that the trend is losing steam, and a reversal could be on the horizon. Similarly, if a currency pair is experiencing a downtrend, but the volume is increasing, it could indicate that the trend is losing momentum, and a reversal could be imminent.

What is the On-Balance Volume?

Balance Volume (OBV) is a type of volume indicator used to measure the strength of buying and selling pressure in the market. It was developed by Joseph Granville in the 1960s and has since become a popular tool among traders.

OBV is based on the idea that the volume of trading activity can provide insight into the direction of the price trend. The basic concept behind OBV is that when the volume of trading activity increases, it suggests that buyers or sellers are becoming more active, which can indicate a shift in the direction of the trend.

On-Balance Volume Calculation

OBV is calculated by adding the volume of trading activity to a running total when the price of the asset closes higher than the previous close, and subtracting the volume when the price closes lower. This creates a cumulative line that can be used to track the trend of the asset's price as well as the strength of buying and selling pressure.

When the On-Balance Volume is Used?

OBV can be used in several different ways in Forex trading. One common approach is to look for divergences between OBV and the price of the asset. If the price is trending upward but OBV is trending downward, it may indicate that the trend is losing momentum and could reverse.

Another way to use OBV is to look for trend line breaks. If the OBV line breaks through a trend line, it may indicate a potential trend reversal or a change in the strength of buying or selling pressure.

OBV can also be used in conjunction with other technical indicators to confirm signals or to identify potential trades. For example, if OBV is trending upward and the Relative Strength Index (RSI) is also trending upward, it may indicate a strong uptrend in the asset's price.