Technical Analysis

9. A new downtrend starts in both the price and OBV panels.

• There is an OBV trendline violation (dotted red line) on the 21st after two sessions of buying follow a steep fall the day before. The two blue candles do not get close to the downward price trendline. Here we go contrary to our trading strategy and consider the OBV trendline violation a “noise” break and wait for confirmation. Price bounces off the trendline.

10. After the OBV indicator makes a new high, one needs to readjust the OBV trendline. The new trendline is the solid red line. Redrawing the trendline helps avoid a similar situation the next day as OBV bounces of the new higher OBV trendline instead of crossing the older (dotted line) trendline. Having the second trendline will help later as well. A trader needs to adjust trendlines to new developments (while keeping an eye on the old trendlines too).

11. On the 27th, there is another bounce off the OBV trendline.

12. The 28th sees price break its trendline. This move warrants attention, but it seems to come on light volume as the OBV indicator does not reach its trendline. What should one do?

• Patience is very useful here as OBV does not reach its trendline. Price winds up falling again. The trading plan being considered right now is to look at OBV first, with confirmation coming from price.
  
• If one looks deeper our strategy did not help the trader when price dropped on March 23rd during a short position. One could have sold earlier to maximize gains instead of waiting for a trendling cross. However, for this particular trading strategy we are requiring a trader to use patience and to wait for the technical analysis tools to give trading signals. Then again, this is a very limited trading strategy, as its function is to show how to use trendlines with OBV.

13. With the whipsaw price action out of the way, the 29th has a clear price and OBV break that signals the trader to buy around 1.2020.