OBV and RSI & Moving Average Crossover Indices Trading Best Strategy
This learn indices trading guide will show an example of a Best Indices Trading Strategy that swing traders can use to come up with a profitable Indices Trading Best Indices Trading Strategy. Based on the popular stocks strategy, where stock investors use volumes to predict stock indices trading price direction, based on the concept "Volumes always precede indices trading price", in stock indices market, there is no central clearing house where volumes are aggregated, so in we use an indicator that will estimate the volumes. This stock indices indicator is known as On Balance Volume.
This stock indices indicator is then combined with RSI and Moving Average Crossover Best Indices Strategy to form a Indices Trading Best Indices Trading Strategy. Indicator settings are:
- 5 & 7 LWMA, Linear Weighted Moving Averages
- RSI 14
- OBV
Time-frame: 4 Hour Chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV is in an upward indices trend-line or it has broken downwards trend-line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV is in a downwards trend-line or it has Broken upwards Trend-line
Exit Trading Signal
OBV indices trend line is broken
RSI gives an opposite trading signal - 50 center mark cross-over
You can study more about writing a Best Indices Trading Strategy rules Writing Best Indices Trading Strategy Rules and Generating Signals
You can also Read about other Indices Trading Strategies: Strategies List
Examples of How to generate Signals with This Best Strategy
Before looking at example below, using the 138 pips and 177 pips profit example, you need to learn the concept of volumes precedes stock indices price & On Balance Volume technical indicator.
The On Balance Volume trading indicator uses volumes to measure money flowing into indices or money flowing out of indices.
OBV indicator most popularly used for stocks analysis. The concept behind On Balance Volume is that Volume precedes stock indices trading price always and when it comes to analyzing the direction of a financial instrument whether a stock or a trading instrument nothing is more crucial to this analysis as understanding the volumes that are flowing in and out of indices. These volumes can be in terms of money, in Indices Trading because charts moves in ticks data, the more flow of money in indices the more the ticks data, therefore volumes in Indices Trading will measure number of tick data participating in stock indices trading.
On Balance Volume acts as a leading indicator giving a one an idea of how much buying pressure or selling pressure is moving into a indices. And because volumes precedes stock indices trading price then this can be used as a good trading indicator to explain the general investor sentiment.
For a Indices Trading Best Indices Trading Strategy a one requires indicators are calculated differently. For examples our Best Indices Trading Strategy is based on
RSI - momentum indicator
MA - direction based indicator
OBV - volume based technical indicator
A Best Indices Trading Strategy like this give a good overall picture of the stock indices trading market movement by taking into account 3 different calculation techniques as opposed to using 3 oscillators that give signals based on same calculation technique.
The OBV will measure the tick volume of a indices trading instrument, for every candlestick. If you use the 1 hour chart timeframe, then the volumes will measure the total volume for the 1 hour. If you use day charts then the volume will measure the total volumes for the indices instrument for the whole day.
However, the volumes indicator does not show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish Candlesticks & Red for Bearish Candlesticks.
This is where the On Balance Volume comes in & adds a direction to the volumes & shows the overall direction that the volumes are flowing, whether into or out of indices.
Volume Precedes Indices Price
Volumes always precede indices trading price, this makes volumes a leading technical indicator. Knowing how to interpret this helps a trader make better decisions when it comes to predicting where the stock indices market direction is going to be moving to next.
When the volume rises it shows that money is starting to flow into a indices. Because volumes will precede the indices trading price, the next thing is that the value of indices will then go up. When the OBV is going up it shows there are more buyers buying indices than the sellers selling it.
When the volume falls it shows that money is starting to flow out of indices. Because volumes will precede the indices trading price, the next thing is that the value of indices will then go down. When the OBV is going down it shows more trading volume is going short than long.
Subsequently when a downward indices trend line of the OBV is broken it shows that sellers are starting to take profit and close their stock indices trade orders.
Likewise when the upward trend line of the OBV is broken it shows that the buyers are starting to close their long positions & take their profits.
Because the On Balance Volume will add direction to the volume and form a general direction, a trader can compare the two, the stock indices trading price direction and the OBV direction. The direction of these two should correspond but when there is a disconnect between these two then one should pay attention to know when to exit the stock indices trading market or when to open an order.
On Balance Volume is a leading indicator & a trader using this indicator can avoid entering a market when it is too late. This Indicator is also a good indicator to show when to take a profit early enough before the stock indices trading market takes away all your profit.
Stock Indices Indicator Formation
The OBV is the cumulative addition & subtraction of volume based on stock indices trading price direction.
Upward direction - adds volume/ technical indicator moves upward
Downwards direction - subtracts volume/ technical indicator moves upwards
Sideways market/Range market - technical indicator moves Sideways
Because stock indices trading price moves in a zigzag manner, the OBV trading indicator will also form in a zigzag manner
Indices Price Trend-lines
Most Traders will use these to generate buy and sell stock indices trade signals.
For our Best Indices Trading Strategy we shall use the OBV indicator to confirm these buy sell signals from stock indices trading price trend-lines.
We shall draw a Trend-line on both the stock indices price & Indicator. If both give the same signal we buy or sell depending on direction.
This strategy will be used to determine 2 things.
Continuation of the current market direction
Reversal of the current market direction
