I just found out that the OBV indicator is a tool used to track accumulated buying and selling power. This is really useful if used correctly.

Let's start from the beginning: it is said that confirming a price trend requires trading volume support as well. But there aren't many good volume analysis tools. OBV is one of the popular indicators because it measures accumulated buying and selling strength quite accurately. It helps confirm trends and indicates potential reversal points well.

The OBV indicator is a volume-based indicator developed by Joseph Granville in 1963. According to his book, he believed that trading volume is the real driving force behind price movement. Just imagine, if the price goes up but no one is buying, it won't be sustainable.

Its working method is quite simple: if the closing price is higher than before, the trading volume is added; if the closing price is lower, the volume is subtracted; if the price remains the same, it doesn't change. This way, we can see how much buying and selling pressure has been accumulated in an asset and use it to follow the movements of large investors who often buy or sell in large quantities at once.

What I like about the OBV indicator is that it can effectively detect divergence. For example, if the price hits a new high but OBV doesn't rise accordingly, it’s a warning sign that the uptrend may be ending. Conversely, if the price drops but OBV doesn't fall as much, it suggests the downtrend might reverse into an uptrend.

In actual trading, using OBV should be combined with other indicators. It shouldn't be used alone. I often pair OBV with Moving Averages (MA) to confirm trend breakouts or with Bollinger Bands to identify more precise reversal points.

For example, if the price moves below the 25 EMA and OBV continues to decline, it indicates a strong downtrend. But when OBV stops making new lows, and the price starts to rise and breaks above the EMA, that’s a buy signal. Set your stop loss at the previous low.

Or in the case of a stock that keeps rising to new highs but OBV doesn't follow, that divergence should be watched carefully. When the price hits the upper Bollinger Band and then drops with a large red candle, that’s a sell signal. Set your stop loss at the previous high.

In reality, the OBV indicator is a very helpful tool if you understand its principles and use it wisely alongside other tools. It’s not just about looking at price trends. Incorporating volume analysis makes price predictions much more accurate. Give it a try— it might help you trade better.