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Market Breadth Indicator: Average On Balance Volume
Average On Balance Volume (OBV) market breadth indicator is the average OBV value of all liquid stocks for each trading day. On Balance Volume is a cumulative indicator that measures buying and selling pressure. It works by adding volume on up days and subtracting volume on down days.
Given the above definition of the OBV technical analysis indicator, an increasing value in this composite indicates that volume on up days is higher than volume on down days. This signals positive volume pressure (bullish signal) that can be translated into higher stock prices. A decrease in the indicator's value indicates that volume on down days is more important than volume on up days and this is generally considered as a bullish signal.
Example of a trading system applied to S&P 500 Index:
buy = perf(close, 20) <= 0 and perf(GetSeries("_AVG OBV", close), 20) >= 10;
This strategy buys the S&P 500 Index when its prices are flat or moving down and at the same time the market OBV is increasing. This is a translation of the main OBV rule applied to individual stocks.
The volume field is also updated by this market indicator. This field gets the number of stocks that were included in the calculation of the Average On Balance Volume composite for each trading day.
The composite uses a filter to ignore illiquid stocks. The filter consists of discarding stocks with an average trading volume lower than $100000.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
