OBV and RSI & Moving Average Crossover CFD Best CFD Strategy
This learn cfd tutorial will show an example of a Best CFD Strategy that swing traders can use to come up with a profitable CFD Best CFD Strategy. Based on the popular stocks strategy, where stock investors use volumes to predict cfds price direction, based on the concept "Volumes always precede cfd price", in cfd market, there is no central clearing house where volumes are aggregated, so in we use an indicator that will estimate the volumes. This cfd indicator is known as On Balance Volume.
This cfd indicator is then combined with RSI & Moving Average Crossover Best CFD Strategy to form a CFD Best CFD Strategy. The Indicator settings are:
- 5 & 7 LWMA, Linear Weighted Moving Averages
- RSI 14
- OBV
Time-frame: 4 H Chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV is in an upward cfd trend-line or it has broken downwards trend-line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV is in a downward cfd trend-line or it has Broken upward Trend-line
Exit Trading Signal
OBV cfd trend line is broken
RSI gives an opposite trading signal - 50 center-mark cross over
You can read more about writing a Best CFD Strategy rules Writing Best CFD Strategy Rules and Generating Signals
You can also Read about other CFD Strategies: Strategies List
Examples of How to generate Signals with This Best CFD Strategy
Before looking at example below, using the 138 pips and 177 pips profit examples, you need to learn the concept of volumes precedes cfds price and On Balance Volume technical indicator.
On Balance Volume indicator uses volumes to measure the money flowing into a cfd instrument or money flowing out of a cfd.
OBV indicator most popularly used for stocks analysis. The concept behind On Balance Volume is that Volume precedes cfds price always and when it comes to analyzing the direction of a financial instrument whether a stock or a cfd instrument nothing is more crucial to this analysis as understanding the volumes that are flowing in and out of a cfd. These volumes can be in terms of money, in CFD because charts moves in ticks data, the more money in a cfd instrument the more the ticks data, therefore volumes in CFD will measure number of tick data participating in a cfd.
On Balance Volume acts as a leading technical indicator giving a one an idea of how much buying pressure or selling pressure is moving into a cfd. And because volumes precedes cfds price then this can be used as a good trading technical indicator to show the general investor sentiment.
For a CFD Best CFD Strategy a one requires indicators are calculated differently. For examples our Best CFD Strategy is based on
RSI - momentum cfd indicator
MA - direction based cfd indicator
OBV - volume based technical indicator
A Best CFD Strategy like this give a good overall picture of the cfd market movement by taking into account 3 different calculation techniques as opposed to using 3 oscillators that give signals based on the same calculation method.
The OBV will measure the tick volume of cfd, for every candlestick. If you use the 1 hour chart timeframe, then the volumes will measure the total volume for the 1 hour. If you use day charts then the volume will measure the total volumes for cfd for the whole day.
However, the volumes technical indicator does not show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish Candlesticks and Red for Bearish Candles.
This is where the On Balance Volume comes in and adds a direction to the volumes and shows the overall direction that the volumes are flowing, whether into or out of a cfd.
Volume Precedes CFDs Price
Volumes always precede cfds price, this makes volumes a leading technical indicator. Knowing how to interpret this helps a trader make better decisions when it comes to predicting where the cfd market direction is going to be moving to next.
When the volume rises it shows that money is starting to flow into a cfd. Because volumes will precede the cfds price, the next thing is that the value of a cfd instrument will then go up. When the OBV is going up it shows there are more buyers buying a cfd than the sellers selling it.
When the volume falls it shows that money is starting to flow out of a cfd. Because volumes will precede the cfds price, the next thing is that the value of a cfd instrument will then go down. When the OBV is going down it shows more trading volume is going short than long.
Subsequently when a downward cfd trend line of the OBV is broken it shows that sellers are starting to take profit and close their cfd orders.
Likewise when the upwards cfd trend line of the OBV is broken it shows that the buyers are starting to close their long positions and take their profits.
Because the On Balance Volume will add direction to the volume and form a general direction, a trader can compare the two, the cfds price direction and the OBV direction. The direction of these two should correspond but when there is a disconnect between these two then one should pay attention to know when to exit the cfd market or when to open an order.
On Balance Volume is a leading indicator & a trader using this indicator can avoid entering a market when it is too late. This Indicator is also a good indicator to show when to take a profit early enough before the cfd market takes away all your profit.
CFD Indicator Formation
The OBV is the cumulative addition and subtraction of volume based on cfds price direction.
Upward direction - adds volume/ cfd trading indicator moves upward
Downward direction - subtracts volume/ cfd trading indicator moves upward
Sideways market/Range market - technical indicator moves Sideways
Because cfds price moves in a zigzag manner, the OBV trading indicator will also form in a zigzag manner
CFD Price Trend-lines
Most Traders will use these to generate buy and sell cfds trade signals.
For our Best CFD Strategy we shall use the OBV indicator to confirm these buy sell cfd signals from cfds price trend-lines.
We shall draw a Trend-line on both the cfds price and Indicator. If both give the same signal we buy or sell depending on the direction.
This strategy will be used to determine 2 things.
Continuation of the current market direction
Reversal of the current market direction
