Babe Ruth hit 714 home runs without steroids or modern training methods. NASA put men on the moon in 1969, when computers were the size of auditoriums. And heck, we still don’t really know how the Egyptians built the pyramids.
The point of all this is that sometimes “old fashioned” ways of doing things are best. Warren Buffett built his investment empire that way, and Jesse Livermore — perhaps the greatest stock trader of all time — never used any calculation that couldn’t be done by hand.
So with all this in mind, this week’s episode is about On-Balance Volume, or OBV, which is a simple but effective momentum indicator that helps predict future price movements. It was invented in 1963 — six years before the moon landing — and yet scores of successful traders still swear by it. Watch this video to find out why.
In this episode, you’ll learn:
- The “big idea” behind OBV — this is crucial! (1:03)
- How OBV is calculated (1:22)
- What critics cite as the limitations of OBV (2:28)
- How to add OBV to your custom stock charts (3:25)
We also take an in-depth look at a real stock chart with an OBV overlay so you can see how it relates to and predicts price movements.
OBV may be simple, but that doesn’t mean it doesn’t work. One problem with modern traders is that they over-analyze things and rely too heavily on super-complex computer models. Why not go with what’s proven? And that’s OBV.
CEO, Wealthpire Inc.
P.S. Next week we’ll look at Engulfing Lines. These are bullish and bearish reversal patterns on candlestick charts that are easy to spot — if you know how to look!