As we can see in the figure the upward trend is supported by volumes, so much so that the prices, in point 2, reach a new maximum compared to point 1, confirmed by the oscillator.
In point 3 instead the new maximum is not confirmed by the oscillator which, as easily visible, remains below the previous maximum.
In point 4 we confirm that something has gone wrong, so much so that the indicator has values much lower than the maximum of previous prices, and indeed the upward trend leaves room for the downtrend.
The volume indicator – On Balance Volume
In technical analysis, among the indicators of volume, the best known is the OBV (On Balance Volume), by Joseph Granville, which offers a first approximation on the pressure of buyers and sellers.
The formula for calculating the on-balance volume is very simple, in fact it is enough to cumulate the volumes of the various days. In particular:
• if the closure is positive then the volume is added
• if the closure is unchanged, do not add anything
• if the closing is negative then the volume is subtracted
The following chart shows the DAX index and the on-balance volume: