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With thousands of stocks listed in the stock exchange for trading, how does a trader go about his stock selection? I am not refering to the fundamental approach where the trader studies the fundamentals of the company, and research the performance results of the company, check its price-earnings ratios or check its balance sheets and turnover and its dividend yield. By and large among those successful traders who really make their living off by trading professionally in the stock markets, their preferred method seems to be the technical analysis approach. By this, they use charting, and technical indicators applied to the stocks. They will devise filters or explorations, to scan for stocks that meet some selected indicators to show that the stocks are beginning to move or have started to move. Professional traders who trade for a living have an array of trading tools to help them, but one of the most common tools they use to good effect is the indicator called On Balance Volume. Popularised by Joseph Granville, the On Balance Volume or OBV in short is actually cumulative volume, where the underlying principle is that similar OBV should support equivalent price. By using this indicator, short term traders will be able to identify when there is a difference in this setting, or where OBV has outbreak already but price has still lagged behind, giving rise to the situation where an impending price jump is expected. But how large is the impending jump? If there is indeed an OBV outbreak, and by inference the price should follow in the next few trading sessions, one must also ensure that the impending jump is of sufficient size to warrant a good margin of profit attractive enough for him to trade. Added to this trading indicator, traders add yet another trading stipulation to nail those giant moves. We know in Elliot wave theory that the 3 and 5 waves of any stock are the impulsive and strong waves up. I have seen much success from traders who scan their stocks with an OBV outbreak and are in their impulsive 3 and 5th waves which are their longest and strongest waves. Armed with this understanding, when a stock is found to have just undergone an OBV Outbreak upwards and is moving within either its 3rd or 5th wave, you have an excellent candidate that will probably run away in price, and letting you reap a handsome profit within a short trading period. Learn About Stock Trading, Trading CFD, Contract for Difference and much more! Start Trading Now! Click Here
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