Volume-Based Indicators Explained
OBV, VWAP and More
An educational overview of volume-based indicators, covering On-Balance Volume, VWAP basics, accumulation/distribution concepts, and their limitations.
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This final unit of the Volume & Indicators group returns to volume, first introduced in this group's opening unit, exploring two specific indicators built from volume data: On-Balance Volume (OBV) and VWAP (Volume Weighted Average Price), along with the related accumulation/distribution concept.
This overview introduces four areas covered in this unit: On-Balance Volume, VWAP basics, accumulation/distribution concepts, and when volume indicators may be less useful.
This is general educational content. It does not suggest that any volume-based indicator, on its own, provides a guaranteed trading signal.
Recap: The Tick Volume Caveat
As covered in this group's opening Volume Analysis unit, spot forex trading platforms generally display tick volume — a count of price changes — rather than actual traded volume, given the decentralized structure of the forex market. This caveat applies directly to every indicator covered in this unit, since OBV and VWAP are both built from volume data.
Two Different Approaches to Volume
OBV and VWAP take different approaches to incorporating volume: OBV builds a cumulative running total based on whether price closed higher or lower, while VWAP calculates an average price weighted by volume over a period, rather than a simple average based on time alone.
What's Covered in This Unit
- On-Balance Volume (OBV) — a cumulative volume indicator developed by Joseph Granville.
- VWAP basics — a volume-weighted average price calculation.
- Accumulation/distribution concepts — a related but distinct volume-flow approach.
- When volume indicators may be less useful — an important closing perspective, particularly relevant given the tick volume caveat for forex.
🔖 Summary
This unit explores two volume-based indicators — On-Balance Volume (a cumulative running total) and VWAP (a volume-weighted average price) — along with the related accumulation/distribution concept, all subject to the tick volume caveat for spot forex covered in this group's opening unit. This closes out the Volume & Indicators group before the Technical Analysis module's final group on patterns and practical frameworks.
Frequently Asked Questions
Does the tick volume caveat from the earlier unit apply here?
Yes, since OBV and VWAP are both built from volume data, the tick volume vs. actual volume distinction for spot forex applies directly to both indicators.
How do OBV and VWAP differ in approach?
OBV builds a cumulative running total based on up/down closes, while VWAP calculates a volume-weighted average price over a period.
Does this unit recommend using these indicators as standalone signals?
No, consistent with the rest of this group, this unit emphasizes appropriate context and limitations rather than standalone use.
What closes out this Volume & Indicators group?
This unit's final lesson on when volume indicators may be less useful, after which the Technical Analysis module moves to its final group on patterns and practical frameworks.
Risk Warning
Trading forex and CFDs involves significant risk and may not be suitable for all investors. You may lose all of your invested capital. Please ensure you fully understand the risks before trading.
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