Volume Indicators
OBV, Accumulation/Distribution, Chaikin Oscillator -- using volume to confirm or question price moves. Not yet available in the strategy builder.
What are Volume Indicators?
Volume indicators analyze how much trading activity accompanies a price move. Price tells you what happened. Volume tells you how much conviction was behind it. A price breakout on heavy volume is a different signal than the same breakout on thin volume.
Volume indicators take raw volume data and transform it into something more readable -- cumulative totals, oscillators, or weighted averages that reveal whether buying or selling pressure is dominant.
The Indicators
OBV (On-Balance Volume)
A running cumulative total that adds the full candle's volume when the close is higher than the previous close, and subtracts it when the close is lower. The absolute OBV number is meaningless -- what matters is the direction of the OBV line. If OBV is trending up, buying pressure is dominant. If it is trending down, selling pressure is dominant.
AD (Accumulation/Distribution)
Similar to OBV but more nuanced. Instead of adding or subtracting the entire volume, AD weights the volume by where the close falls within the candle's high-low range. If the close is near the high, most of the volume is counted as buying. If the close is near the low, most is counted as selling. If the close is in the middle, the volume contribution is close to zero.
This weighting means AD can disagree with OBV. A candle that closes slightly higher but near its low would add to OBV (because close > previous close) but subtract from AD (because the close is near the bottom of the range). AD captures intra-candle positioning that OBV ignores.
ADOSC (Chaikin A/D Oscillator)
The difference between a fast EMA and a slow EMA of the AD line. It turns AD into an oscillator that crosses above and below zero. When ADOSC is above zero, the short-term AD trend is stronger than the long-term trend (accumulation is accelerating). When below zero, distribution is accelerating.
Default parameters are fast=3 and slow=10. ADOSC is noisier than the raw AD line but more responsive to changes in buying and selling pressure.
Reference Table
| Indicator | Display | Output | Key Parameters |
|---|---|---|---|
| OBV | Separate panel | Cumulative line | none |
| AD | Separate panel | Cumulative line | none |
| ADOSC | Separate panel | Oscillator (zero line) | fast (3), slow (10) |
How to Use Volume Indicators
Trend confirmation
When the price is trending up and the volume indicator is also trending up, this confirms that buying pressure supports the move. When they diverge -- price rising but volume indicator falling -- the move may lack conviction. This does not guarantee a reversal, but it means fewer participants are driving the rally.
Divergence
The same divergence concept applies here. If the price makes a higher high but OBV or AD makes a lower high, volume is not confirming the new price extreme. This is a warning sign, not a trade signal -- it means the rally is happening on less participation than the previous one.
Breakout confirmation
A price breakout above resistance accompanied by rising OBV (or AD) adds conviction. A breakout on flat or declining volume indicators is more suspect -- fewer participants are driving the price through the level.
Common Mistakes
Reading OBV's absolute value
An OBV of 1,000,000 is not "better" than an OBV of 500. The absolute number depends entirely on the starting point and the volume levels of the asset. Only the slope and direction of the OBV line carry meaning. The same applies to AD.
Trusting volume indicators on forex
Since forex spot markets use tick volume (not actual traded volume), volume indicators on forex pairs are approximations. They can still provide useful information about market activity, but the signals are less reliable than on stocks where volume data comes from a centralized exchange.
Where to Go Next
OBV (On-Balance Volume) -- the simplest volume indicator, with divergence examples.
Momentum Indicators -- the divergence concept explained in depth.
Volatility Indicators -- measuring the size of price moves (complementary to volume).