Figure 4 – More trendlines guide trading decisions by giving buy and sell signals.
5. The downswing continues throughout March 7th reaching 1.1870.
- After creating this new low, price heads upward. On March 8th both the price and OBV trendlines are crossed on the highlighted candle, around 1.1900. This is a buy signal for our trading strategy.
6. A new sell signal occurs shortly after as OBV does not continue making higher highs and higher lows. The OBV trendline and the price trend line are crossed generating a sell signal at 1.1950.
7. One needs to redraw the OBV and price trendlines using the new temporary high at 1.1950. Price edges down and on March 10th the trader encounters a situation where the price trendline is broken. The OBV trend line is tested and holds.
- Since the OBV indicator is the starting point for trading decisions we will wait for confirmation from an OBV cross before buying.
- Price reaches a little below the old support at 1.1870 and bounces back. Finally the OBV trendline is broken confirming the activity on the 12th as a change in trend. One buys at 1.1910.
8. The uptrend that follows lasts for five trading days and moves 240 pips.
- On March 14th there is a price, but not an OBV, trendline violation. Since the OBV indicator is guiding the trading decisions the price break is considered “noise.” Patience pays off here and OBV helps one not to get out early.
- As the trend picks up the flat OBV trendline needs to be redrawn.
- On March 20th, the highs stop getting consecutively higher and the OBV trendline crosses. One could sell now or wait for confirmation from price. The price trendline is crossed and either way one sells at around 1.2150.
