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The On Balance Volume Index ( OBI ) is a cumulative momentum style indicator which which ties together Volume with price action. The Underlying premise behind this indicator is that 'informed' investors take their positions prior to an extended move.
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There are a number of methods of using this very useful indicator. As shown above, divergence can be used, also as the OBI being a cumulative indicator, you can also look for higher highs and lower lows as confirmation of a trend. Finally, you can also watch for OBI movement occurring prior to the underlying market. Should this occur, this can be read as 'informed' money taking positions prior to the general public. |
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