Using On-Balance Volume to Assess Trend Strength and Build Trading Rules

Summary

The document explains On-Balance Volume (OBV), a cumulative indicator that adds volume when the close rises and subtracts it when the close falls. It describes volume as a way to assess whether price moves and breakouts have support, and walks through how OBV values are derived from successive closes. The indicator is available in MetaTrader 5, so the article focuses on interpreting it and outlining rules for automated use.

Four simple approaches are presented: compare current OBV with its prior value to judge direction; compare it with the average of the previous four values to gauge strength; and pair OBV changes with higher highs in an uptrend or lower lows in a downtrend. The article then outlines blueprints for coding these ideas as MQL5 Expert Advisors. It is introductory material rather than a validated strategy: the rules are deliberately simple, no performance evidence is provided, and the author advises testing and adapting them before use.

Key ideas

• OBV adds volume on sessions when the close rises and subtracts it when the close falls.
• Comparing current and prior OBV values gives a simple indication of its direction.
• Comparing OBV with the average of its previous four values is offered as a basic strength rule.
• The article pairs OBV movement with higher highs or lower lows to assess trend moves.
• The proposed rules are educational examples and require testing before practical use.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.