On Balance Volume indicator.
Balance volume plays a huge role in Forex trading and can only be measured using specialized technical tools.
One of which is the balance volume indicator, or in its original name “On Balance Volume”.
Its usefulness can only be assessed when applied in real trading.
This tool has been familiar to traders in the foreign exchange market for over 50 years, but despite constant changes in market trends, it has not lost its relevance and can be useful to any Forex trader.
It is no wonder that the indicator can be found in the kit of most standard trading platforms.
The indicator's primary objective is to promptly identify discrepancies between price and market volumes. In this case, a discrepancy is clearly visible on the chart, warning of a possible trend reversal.
Using On Balance Volume
The On Balance Volume indicator is not a trend forecasting tool; it follows the existing trend, so it is not recommended to use it as a signal to open trades.
Its main task is to confirm a trend or show the probability of its reversal, thereby giving the trader the opportunity to close an existing position in time.
Price and market volumes are always closely related; an increase in volumes always confirms an existing trend, and, conversely, a decrease in volumes in most cases leads to a market reversal.
For example, there is an upward trend in the market, and the number of transactions is constantly growing. This indicates that most buyers are satisfied with the current price and want to acquire the asset quickly.
But then the price approaches the overbought zone and trading volumes drop sharply, a new trend begins, players try to quickly sell the previously purchased asset, thereby increasing volumes, as a result, the situation repeats itself again, but in the opposite direction.
The Balance Volume indicator can be installed almost immediately on the selected currency pair chart. The only settings you need to adjust are the thickness and color of the displayed line and the price value; by default, this indicator is 0.
Trades are opened when there is a clear movement in a downward or upward direction.
This tool is suitable for use in trading on long and medium-term time frames; it is advisable to use at least one other Forex trend indicator .
