On Balance Volume

The On Balance Volume is a volume indicators indicator used in Skyrexio Strategy Builder for volume confirmation and institutional activity detection.

Introduction

The On Balance Volume (OBV) is a volume confirmation indicator that provides LONG and SHORT opportunities through accumulation and distribution analysis. This cumulative volume indicator combines price direction with volume to track money flow, making it essential for identifying institutional activity and confirming trend strength in cryptocurrency markets.

How On Balance Volume Works

On Balance Volume (OBV) was developed by Joe Granville and combines price direction with volume to create a cumulative indicator. When crypto price closes higher than the previous close, the day's volume is added to OBV; when price closes lower, volume is subtracted from OBV.

• Cumulative calculation - Running total of volume based on price direction • Volume confirmation - Rising OBV confirms uptrends, falling OBV confirms downtrends • Divergence detection - OBV diverging from price often signals potential reversals • Institutional tracking - Large OBV moves indicate smart money accumulation/distribution • Trend validation - OBV should move in same direction as price for trend confirmation

Volume Psychology: OBV reflects the battle between buyers and sellers by tracking volume flow. Rising OBV shows accumulation (smart money buying), while falling OBV shows distribution (smart money selling). This makes OBV particularly valuable for identifying when institutional players are positioning before major price moves.

Key Characteristics

Attribute	Details
Category	Volume Indicators
Type	Trend Confirmation & Money Flow
Primary Use	LONG/SHORT confirmation and institutional activity detection
Timeframe	All timeframes supported (1m to 1M)
Confirmation	Price action, volume spikes, trend context

Strategy Applications

🟢 LONG STRATEGY (Primary Use)

OBV is excellent for LONG strategies when it confirms accumulation and uptrend strength through rising volume flow.

Base Entry Order (LONG)

Trigger Type: Once per bar close
Bar TF: 1H
First Condition: On Balance Volume
Timeframe: 1H
Operator: Cross Above
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

Additional Entry Orders (LONG)

Additional Entry 1: OBV momentum acceleration
First Condition: On Balance Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

OR

Additional Entry 2: Volume breakout confirmation
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: On Balance Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Take Profit Orders (LONG)

Rule 1: Exit condition - OBV showing distribution signals
First Condition: On Balance Volume
Timeframe: 1H
Operator: Cross Below
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 2: Exit condition - Volume exhaustion at resistance
First Condition: Volume
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (10)
Timeframe: 1H

AND

First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 75

OR

Rule 3: Exit condition - OBV divergence warning
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

AND

First Condition: On Balance Volume
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

Stop Loss Orders (LONG)

Rule 1: Stop loss - OBV confirms trend reversal
First Condition: On Balance Volume
Timeframe: 1H
Operator: Cross Below
Second Condition: Simple Moving Average (50)
Timeframe: 1H

OR

Rule 2: Stop loss - Volume breakdown with price
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

AND

First Condition: On Balance Volume
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 3: Stop loss - Institutional distribution detected
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

AND

First Condition: On Balance Volume
Timeframe: 1H
Operator: Cross Below
Second Condition: Simple Moving Average (20)
Timeframe: 1H

🔴 SHORT STRATEGY (Primary Use)

OBV is equally effective for SHORT strategies when it confirms distribution and downtrend strength through falling volume flow.

Base Entry Order (SHORT)

Trigger Type: Once per bar close
Bar TF: 1H
First Condition: On Balance Volume
Timeframe: 1H
Operator: Cross Below
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

Additional Entry Orders (SHORT)

Additional Entry 1: OBV distribution acceleration
First Condition: On Balance Volume
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

OR

Additional Entry 2: Volume spike with distribution
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: On Balance Volume
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Take Profit Orders (SHORT)

Rule 1: Exit condition - OBV showing accumulation signals
First Condition: On Balance Volume
Timeframe: 1H
Operator: Cross Above
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 2: Exit condition - Oversold bounce with volume
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 25

AND

First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 3: Exit condition - Support level with accumulation
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H

AND

First Condition: On Balance Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Stop Loss Orders (SHORT)

Rule 1: Stop loss - OBV confirms trend reversal
First Condition: On Balance Volume
Timeframe: 1H
Operator: Cross Above
Second Condition: Simple Moving Average (50)
Timeframe: 1H

OR

Rule 2: Stop loss - Volume breakout with price
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

AND

First Condition: On Balance Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 3: Stop loss - Institutional accumulation detected
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

AND

First Condition: On Balance Volume
Timeframe: 1H
Operator: Cross Above
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Advanced Strategy Combinations

Multi-Timeframe OBV Analysis

Setup

Higher Timeframe Confirmation:

• Daily: OBV trend direction (accumulation vs distribution)

• 4H: OBV momentum and moving average position

• 1H: OBV execution signals and volume confirmation

• 15M: Precise entry timing with volume spikes

Execution

LONG Entry: Daily OBV rising + 4H OBV > MA(20) + 1H OBV cross above MA(20) SHORT Entry: Daily OBV falling + 4H OBV < MA(20) + 1H OBV cross below MA(20) Stop Loss: OBV trend reversal on execution timeframe

Institutional Activity Detection

Setup Process:

1. Monitor OBV for unusual volume accumulation/distribution

2. Look for OBV divergences from price action

3. Confirm with volume spikes and price breakouts

4. Execute when institutional activity becomes clear

Execution:

• Base Order: OBV institutional signal detection

• Additional: Volume confirmation and price follow-through

• Take Profit: OBV momentum exhaustion or reversal

• Stop Loss: False institutional signal or trend reversal

OBV Divergence Strategy

Bullish Divergence

Setup: Price makes lower lows while OBV makes higher lows Signal: Accumulation despite price weakness Entry: OBV crosses above MA(20) with volume confirmation Target: Previous swing high or resistance level

Bearish Divergence

Setup: Price makes higher highs while OBV makes lower highs Signal: Distribution despite price strength Entry: OBV crosses below MA(20) with volume confirmation Target: Previous swing low or support level

Risk Management Guidelines

Position Sizing

Strategy Type	Position Size	Conditions
OBV Trend Following	Standard	Clear OBV trend with volume
OBV Divergence	Reduced (75%)	Counter-trend signals
High Volume Confirmation	Increased (125%)	Strong institutional activity
Low Volume Periods	Reduced (50%)	Weak confirmation signals

OBV Reliability Factors

High Reliability

✅ Strong volume confirmation with OBV signals ✅ Clear trend direction on multiple timeframes ✅ OBV divergences confirmed by price action ✅ Institutional activity patterns visible

Low Reliability

❌ Low volume periods with weak OBV signals ❌ Choppy, ranging markets with unclear trends ❌ OBV signals without price confirmation ❌ Mixed signals across timeframes

Best Practices

For LONG Strategies

1. Accumulation confirmation - Ensure OBV is rising with price

2. Volume validation - Look for volume spikes confirming OBV signals

3. Trend alignment - Trade with the overall OBV trend direction

4. Divergence opportunities - Use bullish OBV divergences for entries

For SHORT Strategies

1. Distribution confirmation - Ensure OBV is falling with price

2. Volume validation - Look for volume spikes confirming OBV signals

3. Trend alignment - Trade with the overall OBV trend direction

4. Divergence opportunities - Use bearish OBV divergences for entries

Common Mistakes to Avoid

• Ignoring volume - Trading OBV signals without volume confirmation

• Wrong timeframe - Using OBV on timeframes with insufficient volume data

• Lagging signals - OBV can lag price action, use with leading indicators

• False divergences - Confirm OBV divergences with price action before trading

Market Conditions Analysis

Market Type	LONG Strategy Effectiveness	SHORT Strategy Effectiveness
Uptrend	🟢 High (accumulation confirmation)	🟡 Medium (distribution signals)
Downtrend	🟡 Medium (accumulation signals)	🟢 High (distribution confirmation)
Ranging	🟡 Medium (support/resistance)	🟡 Medium (support/resistance)
High Volume	🟢 High (clear signals)	🟢 High (clear signals)
Low Volume	🔴 Low (unreliable signals)	🔴 Low (unreliable signals)

Related Indicators

Indicator	Relationship	Link
Volume	Direct input for OBV	Volume
Accumulation/Distribution Line	Similar money flow concept	Accumulation/Distribution Line
Chaikin A/D Oscillator	Momentum version of A/D	Chaikin A/D Oscillator
Volume Oscillator	Volume trend analysis	Volume Oscillator

Conclusion

On Balance Volume is a powerful volume confirmation indicator that works equally well for both LONG and SHORT strategies. Its strength lies in identifying institutional accumulation and distribution patterns that often precede major price movements.

Key Takeaways

• PRIMARY USE: Trend confirmation through volume flow analysis

• SECONDARY USE: Divergence detection for reversal opportunities

• ALWAYS: Confirm OBV signals with actual volume and price action

• REMEMBER: OBV is most reliable when supported by strong volume

Success with On Balance Volume requires understanding that it's a cumulative indicator that tracks the flow of volume based on price direction. Use it to confirm trends, identify institutional activity, and spot potential reversals through divergence analysis.

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