Modified OBV Indicator: What It Is and How to Use It
The classic On Balance Volume (OBV) indicator is a favorite among traders, but a few modified versions exist to provide enhanced or smoother signals. If you’ve come across the Modified OBV indicator, you’re likely wondering how it differs from the original—and whether it’s worth using in your trading strategy.
This guide explains the concept, differences, and application of the modified OBV indicator.
What Is the Modified OBV Indicator?
The Modified OBV is a variation of the standard OBV formula. While classic OBV uses the full daily volume based on price movement (close up/down), the modified version may:
- Use percentage-based volume changes
- Include weighted averages or smoothing filters
- Apply logarithmic scaling to compress volume spikes
- Use candle body size or volatility as a multiplier
These variations aim to reduce noise and provide cleaner signals for breakout or trend setups.
Classic OBV vs. Modified OBV
| Feature | Classic OBV | Modified OBV |
|---|---|---|
| Calculation | Cumulative raw volume | Adjusted or smoothed volume behavior |
| Smoothing | No | Often includes moving averages |
| Signal Lag | May be noisy | Aims to reduce lag and false signals |
| Availability | Built-in across all platforms | Available via custom scripts or tools |
Where to Find the Modified OBV Indicator
- TradingView: Search for custom scripts like “OBV Smoothed,” “Weighted OBV,” or “OBV with EMA” in the public library
- MetaTrader (MT4/MT5): Look for custom OBV indicators in community forums
- NinjaTrader / Thinkorswim: Some versions available through plugins or custom code
How to Use Modified OBV in Trading
Just like the standard OBV, you can use the modified version to:
- Confirm price breakouts
- Spot bullish/bearish divergence
- Track volume momentum trends
Additional Use Case:
- Combine modified OBV with moving average crossovers to define trends more clearly
- Use it with volatility indicators to reduce whipsaws in choppy markets
Example Strategy
- Modified OBV rising above its own 20-period EMA
- Price approaching resistance zone
- Entry: Breakout candle + OBV-EMA crossover
- Stop: Below breakout level
- Target: Recent high or Fib extension
This setup adds volume validation with built-in filtering from the modified OBV.
Final Thoughts
The modified OBV indicator is a useful evolution of the classic OBV, especially if you’re looking for less noisy and more filtered volume signals. While it’s not a magic tool, it can refine your trading edge when used alongside price action and confirmation tools.
Try it on demo charts and test different variations to find what best suits your strategy.
FAQs
1. Is the modified OBV better than the original?
It depends on your style. Modified OBV may offer smoother signals, but can lag more.
2. Can I use modified OBV on free platforms?
Yes, especially on TradingView through community scripts.
3. Is it suitable for intraday trading?
Yes. Smoothed OBV indicators can help filter intraday noise.
4. Does modified OBV repaint?
No, unless it’s built with future-looking logic (check script settings).
5. Should I combine it with classic OBV?
No need to use both—choose one based on how clean or responsive you want your volume signal to be.
