Posts Tagged ‘OBV Indicator’
Are you afraid of SPDR’s?
The SPY ETF is a fund composed of funds. What I mean is that this fund gives you a composite of all the different market sector funds, called SPDR’s, and lets you trade on it. Of course, as with all funds, its’ owners align the prices from time to time when they need to be adjusted to fit the fair value of the composite. It is on its way up, as the Fibonacci Fan shows that it is straight on its main line, and it has passed successfully its’ last resistance yesterday. What makes this an attractive opportunity is the BUY signal shown by the OBV-EMA 3,1,C where the OBV crosses the EMA 3 upwardly. See the Chart below.
This is the way the Chart looks:
published by MetaStock (www.equis.com)
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The OBV-EMA 3 method used on the S&P 500
Here it is. A lot of you wanted to know about how the method I wrote in my Advanced Tutorial on the OBV-EMA 3 trading method worked on the S&P 500. Well, it doesn’t. The S&P 500 is a true index and as such has NO Volumes on it and therefore no ON BALANCED VOLUME or OBV. However, to circumvent this problem, I have here used the S&P 500 large-cap futures, the SP, and the continuous version offered by eSignal that takes care of the seasonal endings of futures in general. Below you have the result and it is indeed bullish, though not to a strong extent. On the short term the MOM and RSI seem to be high and maybe ready for a respite. But I do believe that the short sideways that may be will be very short and the buyers will be back after a relatively short time no doubt. This means for the world that a wait and see attitude is to be taken about financial considerations in general and the world’s stock markets in particular.
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OBV and a trading strategy
OBV seems to be one of the better volume-based indicators,it is used to show how volumes behave in relation to price changes.. When tested against the classic “buy and hold” strategy, it left it behind in the dust. Testing over a 72 year period on the Dow Jones Industrial Average showed that the specific strategy I will explain, assuming a long long long-term commitment, will derive over 1 million percent better results than “buy and hold”. This may not be as profitable in stretches of a year or less, but I do see that there is a place for it in shorter time-frames of, lets say, a few months or so (weekly and daily charts).
Simply overlay the OBV (available on most system) on the 3-day EMA of the next day’s closing. When the OBV crosses this EMA line from below to above it, buy or cover short. If the OBV crosses the next day’s closing 3-day EMA going down to below it, then sell or sell short(enter). Below is an example of the method working in a relatively short-term period.
This is the way the Chart looks:
