Before I have told you that volume does play an important role in price changes and the meaning of the changes. If the price changes and the volume is high compared to the usual then there’s a great chance the the price will go on changing in the same direction – volume increases in the direction of the trend. If the volume expands in case of trend-direction price movement then it may also contract in case of countertrend movements.
But like I have also mentioned before – volume is not the main indicator of a trend or change of trend, price is. And volume can mainly be used to confirm the visuals seen in the price. If the volume doesn’t confirm with price changes then there’s a good chance that the trend doesn’t have a power to go on.
OBV – On balance volume is a technical indicator worked out by Joe Granville. It means that if today the volume is 50000 and tomorow the volume is 35000 and the price went higher then the OBV is 85000. However, if the the day after the volume is 100000 and the price goes down then the OBV is now 85000-100000= - 15000. If the price doesn’t change in day at all, then also OBV is kept unchanged. This information can again be daily put to a chart. OBV chart basically shows us that if the the chart line is moving down the market is bearish – meaning the volume is bigger on falling days. And vice versa with bullish. If the price and OBV are both going up it’s a good indicator that the prices might keep increasing. And vice versa, again. If the price is going up and OBV is going down, then it shows that the buying activity is low and trend reversal or sideways price movement can be expected. The difference between OBV and price is called divergence (it is also applied to all other situations where one indicator goes in one and the other in the opposite direction).
OBV can often suggest a price move before it actually happens, but again, be sure to wait for confirmation from the other side.
