trend will probably continue. Slope of price WMA turns negative but slope of OBV WMA stays positive (divergence). Do not forget that indicator OBV (on balance volume) was created for the stock and commodity markets, which have real data on volume of positions. On Balance Volume trading sheet is safer to lead in the direction of trend, which is confirmed by indicator data. In case the price surges, then falls, after which rises again to a higher high, but the OBV marks a lower high, this produces a bearish divergence, thus, a reliable signal to go short. If a trading instrument closes without change from the prior day, the OBV will also remain unchanged. Sometimes, on a falling trend, one can observe a peak in volume this means that the market «removes» StopLoss volumes and pending orders and then goes down. The look-back period of 233 is my standard parameter for long-term analysis. Look at the black circle on the chart. Therefore, the On Balance Volume indicator almost always shows main reversals of the trend.
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Another winning trade from our on-balance volume trading strategy. The WMA was almost flat in this chart. Main Idea Of OBV Indicator, the volume theory assumes that a significant change in volume always precedes a price change; this principle is violated only on short-term speculation. This example also highlighted the dangers of using this on-volume balance trading strategy mechanically. This daily chart of Walgreen Company (WAG on nyse) shows a flat market. The volume of this instrument during that day is added to the OBV.
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