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17 views1 page

Document 001

Uploaded by

NøthîñgLîfè
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The On-Balance Volume (OBV) indicator is a momentum-based technical analysis tool that

combines price and volume data to predict changes in stock price. OBV is particularly useful for
identifying buying and selling pressure and potential trend reversals. Here are some primary use
cases:

1. Trend Confirmation

Bullish Trends: When OBV and price both rise, it confirms a bullish trend, indicating that buyers
are consistently coming into the market with volume support.

Bearish Trends: Similarly, if both OBV and price are declining, it suggests a bearish trend with
selling pressure confirmed by volume.

2. Identifying Divergences

Bullish Divergence: If OBV starts rising while the price remains flat or is declining, it may signal
that buying pressure is increasing, hinting at a possible upward reversal.

Bearish Divergence: Conversely, if OBV falls while price rises, it indicates potential selling
pressure, suggesting the upward price trend might be weakening.

3. Spotting Accumulation or Distribution Phases

Accumulation: A rising OBV without a corresponding price increase could indicate accumulation,
where smart money is buying before an anticipated price increase.

Distribution: A declining OBV without a significant price decrease may show distribution, where
large players are selling before an expected price drop.

4. Breakout Confirmation

OBV can help confirm a breakout from a support or resistance level. If price breaks through a
resistance level and OBV spikes up, it confirms the strength of the breakout.

Similarly, during breakdowns, if OBV falls sharply, it confirms the strength of the down move.

5. Timing Entries and Exits

OBV can be used to fine-tune entry and exit points by watching for OBV trend changes relative
to price, particularly after periods of consolidation.

The OBV indicator works best when used alongside other technical analysis tools or indicators
to provide confirmation, as it alone may not account for external factors impacting stock price.

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