The theory behind OBV is based on the distinction between smart money – namely, institutional investors – and less sophisticated retail investors. As mutual funds and pension funds begin to buy into an issue that retail investors are selling, volume may increase even as the price remains relatively level. Eventually, volume drives the price upward. At that point, larger investors begin to sell, and smaller investors begin buying.
from .investopedia.com
check this Eurusd graph
and look how smart money started to drive price down and when the disparate mass followed them and took the price to the smart money buying price
the smart money started buying leaving the disparate mass closing their selling trades or maybe raising their stop losses
There is no inherent issue with not knowing what the “smart money” is doing, you just have to make sure you’re not doing the opposite. Smart money just means big money, and as long as you don’t keep buying when price keeps falling, or keep selling when price keeps rising, you will not be trying to go against the “smart” (big) money.
70% of traders are losing money
it is because they do the opposite of what big money is doing
it is easier than done to say
but as long as it is you who ventured and made this statement then maybe you should elaborate and tell us how a retail trader should follow the big money
this way that 70% of losing traders will decrease significantly , everybody will be making money and you might get a nobel prize
Part of the point I wanted to make was that there is no such thing as smart money. There is just big money. Alright, plus us, the private retail traders - and as a group we definitely don’t possess smart money.
But the smart money is only smart in the sense that it is big. When the big banks etc. buy a currency, they buy with so much capital that they make the price go up. So it looks like they were smart enough to see in advance that price was going to rise. If some money goes into some other currency but price doesn’t rise, then the amount of money committed must have been insignificant globally.
So much for all that. But a more sinister use of the expression “smart money” is to convince us lot to buy something because the smart money is going into it, and as soon as the dumb money realises what a good deal this really is, they will put money in and the price will rise. So we are tempted to buy something whose price is not rising because some money we can’t see or evaluate has allegedly been ploughed in. Well, that’s just fantasy-land as sold to the gullible by the greedy.
OBV was one of the Contrary indicators I used to use on my Long term charts of the Dow in the 90’s - As far as I know - there is no OBV figure available of Forex - or do you Know of one ?
On balance volume (OBV) uses volume to predict security price movements in advance. Like other volume-based indicators, such as the negative volume index, Klinger volume oscillator, and money flow index, it will work only on markets with exchange volume associated with them.
Also from them a note:
Like the negative volume index, on balance volume is designed to determine when the “smart” money and “not-so-smart” money are active. It is believed that the money that predominantly moves markets – institutional funds – are most active on low volume days while retail traders and investors are most active on high volume days. (The assumption is that retail traders tend to be more reactive to whipsaw movements in the market than larger investors.)
The key here is “Exchange Volume”. - in FX often the smart money is the CB
did you see the chart i have posted
somebody lowered the price just to raise it when the moment is good for buying while the moving average representing retail traders started to fan our downward
retail traders should be aware of these maneuvers
Here is a relatively recent but extreme example of a CB overtly influencing FX.
This action had a major impact on many brokers some of whom went bust as a result.
It also had an impact on retail traders, some of whom posted on this forum.
Central Bankers are good at what they do, in democracies they are independent from the Gov, they like numbers, they meet and discuss numbers and make decisions based on those numbers.
I suppose that getting to know the numbers helps get to know how the CB’s are thinking.
One tiny point - the candle down is a gap - SL’s were thus gapped, the lesson is to see how the gap closed eventually - price went back to catch the sells not matched.
Edit: not old sells, new sells set at where the unmatched sells were - happens.
City forex broker and West Ham sponsor goes bust as clients suffer huge losses from Swiss currency bombshell Alpari UK applies for insolvency after clients rack up huge losses.
Tom, it wasn’t lack of money, it was impossible to fight the market.
They took on the cap in 2011, later came EU QE - it became like a pressure cooker - add to
QE the tendency for the market to buy CHF as safe haven - something had to give, the market was buying and the SNB had to give.
(For learners; QE is Quantitive Easing, a fancy term for a CB printing money and thus diluting the currency therefore effectively devaluing - the ECB started QE as a reaction to EuroZone down turn, a means to stimulate economic activity)
From Yahoo: Abandoning the ceiling was probably due to the expected easing by the European Central Bank, or ECB, at its next policy meeting on January 22. Among other things, the easing could include sovereign bond buying. If it’s implemented, the move would increase the demand for safe-haven currencies—including the Swiss franc.
I was in a CHF trade prior to the debacle. By sheer luck I applied an old SL exhorted by J. Livermore - a time stop - the trade was going nowhere so time to exit.
OBV
