Daytrading With On-Balance Volume
by D.W. Davies
Where is the smart money going? Here's how you can find out.
On-balance volume (OBV) is a momentum indicator that relates price change to volume. It has proven itself over and over again as an important market trading tool for the intermediate-term investor. It is particularly useful for spotting accumulation or distribution during periods of price consolidation.
Most intermediate-term investors include a study of OBV in their research of a potential stock buy or sell. However, it can also be a great aid in the rough-and-tumble world of daytrading the emini stock index futures.
First, a little background on OBV. The indicator was developed by the technical analyst and market guru of yesteryear, Joe Granville. He presented a detailed account of this valuable market tool in his New Strategy Of Daily Stock Market Timing For Maximum Profits. It is from this book we get the trading maxim "Volume precedes price."
FIGURE 1: USING OBV TO TRADE THE OPENING. Breakouts, breakdowns, and divergences in the OBV give indications of where the smart money is going.
...Continued in the January 2004 issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the January 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2003, Technical Analysis, Inc.
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