The Simple Moving Average (SMA) of the On-Balance-Volume (OBV) indicator is a trend-following tool that smoothens the OBV values over a specified period. The SMA of OBV is calculated by taking the average of OBV values over a chosen number of periods, often 10, 20, or 50. Traders use the SMA of OBV to identify trends, confirm the strength of price movements, and spot potential trend reversals. A rising SMA of OBV indicates sustained buying pressure, supporting the prevailing uptrend. Crossovers between the SMA of OBV and the price can be used to generate trading signals. Also, if the price is making new highs, and the SMA of OBV is rising, it can be interpreted as a confirmation of a strong uptrend. Conversely, divergences between the SMA of OBV and price movements may signal potential trend reversals.
