Info 1: on balance volume definition
Info 2: on balance, volume works
Info 3: on balance volume vs moving average
Info 4: example of on-balance volume
Opening information:
On balance, the volume occupied two matters. Balance means equal level, then volume means level. On balance volume Current equal level.
This post contains information about what is on-balance volume, how the on-balance volume works and involved in the public market, and what is the difference between the on-balance volume and the moving average, finally one brief example of on-balance volume.
Info 1: on balance volume definition
Mr.Neil is a public Investor, who trades stock and forex Currencies, he has experience for almost 12 years trading the stocks and other securities.
However, his main purpose of trading takes place using the technical tools that he followed over his time in trading.
Moreover, his tools function is based on sum of the trading shares’ level direction as a signal line, which that signal line quite moved through how well certain security would be traded over the period on each day.
If the trading of his bought stock would be a lower value than yesterday’s, the signal line would show it’s a fall. So Mr. Neil always makes the trade on short.
Or if the same stock trading level shows a higher value than yesterday, it would illustrate the signal to him as a sign of a rise in a particular stock. His tool is very simple but very predictable based on his own view of speculating activities.
Here the tool which is used by Mr.Neil is named “On balance volume ” because any of the technical equipment that takes Purpose based on the trading volume trend is called on balance volume.
So take a dive into knowing about the balance volume indicator function and works in the public trading of all securities.
Info 2: how On balance volume works
On balance volume doesn’t represent any of the specific fixed objects or things, instead, it’s a technical indicator that is used for trading purposes by any kind of public Investors.
This indicator’s purpose is to rely on finding the current trading level of certain securities in the public market. In more simple words it finds trading shares happen with equal balance or not.
Suppose the Indicator doesn’t have a purpose of adding and subtracting the current trading volume from the previous day’s volume, which they are not considered a balance volume tool.
Yesterday’s trading volume of the stock was 12 billion and it’s been only shown the traded volume of 10 billion dollars, the Indicator line of on balance volume would fall because of a decrease in the volume when compared to yesterday’s volume, This illustrates a fall in the trend line equal to 2 billion dollars.
On the other hand, the next day the same stock would be traded for 14 billion dollars. This shows an increase of 4 billion dollars when compared to yesterday’s volume of 10 billion. Clearly, this $4 billion rise would be shown as a trend risk in the on-balance volume.
More importantly, their no rules that stock traders or investors alone use the on-balance volume indicator, well equity researchers would also use such indicators to report the daily trading volume to their clients.
It could be used for different kinds of purposes depending on who uses such tools, but the calculation of the sum of the balance volume for each day is the same thing.
Most people confuse the on-balance volume and moving average, so let’s jump into the key difference in it anyway.
Info 3: On balance volume vs moving average
The moving average is like a balance volume technical indicator, but its function is not the same and it could be different. The moving average mainly finds and moves based on the normal move for a certain amount of days.
On the other side, on balance volume would be with purpose for does the traded volume of yesterday would be balanced for today or not. If not how much it’s up or down?
So the balance volume and moving average are not the same indicator but two things are used for different purposes methods by the traders. To make more sense of the balance volume, see one brief example below.
Info 4: example of on-balance volume.
Say you are a trader who traded public securities such as gold and currencies for nearly more than 2 years. For trading the stock technically, you used the Exponential moving average of 12 days to exit and enter the trade.
Then whenever trading the Currencies say you would use the tool of simple movie average, this helps to track the average move of the market over any amount of period.
To conclude here none of the balance Volume Indicators of tools would be used for trading purposes.