The On Balance Volume (OBV) and Relative Strength Index (RSI) Breakout Filter is a strategy that combines volume and momentum indicators to identify potential breakout opportunities. OBV measures buying and selling pressure by adding volume on up days and subtracting it on down days. RSI measures the speed and change of price movements. By looking for breakouts in both OBV and RSI, traders aim to confirm the strength and sustainability of a potential price breakout. This filter is designed to increase the probability of successful breakout trades by adding confluence.

When It Helps

This filter is particularly useful in trending markets or when a stock is consolidating before a potential breakout. It helps traders:

• Confirm price breakouts with volume and momentum.

• Filter out false breakouts by requiring confirmation from both OBV and RSI.

• Identify potential entry points with higher probability.

• Avoid entering breakouts that lack underlying strength.

The OBV and RSI breakout filter works best when the RSI is confirming the price action and the OBV is confirming the volume. If the price breaks out, but the RSI is overbought, or the OBV is not confirming with increased volume, it could be a false signal.

How To Try

Most trading platforms, like TradingView, offer OBV and RSI as built-in indicators.

1. Add the OBV indicator to your chart.

2. Add the RSI indicator to your chart.

3. Identify potential price breakouts on the chart.

4. Confirm the price breakout by looking for a corresponding breakout in both OBV and RSI. A breakout in OBV is often defined as price moving above a recent high. A breakout in RSI is often defined as RSI moving above 70 or below 30.

5. Consider entering a trade when both OBV and RSI confirm the price breakout.

Key Settings

While default settings are a good starting point, consider adjusting the RSI length. A shorter period (e.g., 9 or 10) may be more sensitive to recent price changes, while a longer period (e.g., 14 or 20) may provide a smoother, more stable reading. The OBV settings are generally left at their default values. Experimenting with these settings on historical data can help you find what works best for your trading style and the specific assets you trade. There are no specific inputs to the OBV indicator.

Tips & Risks

• Discipline is Key: Stick to your trading plan and avoid impulsive decisions based on a single indicator.

• Consistency Matters: Use the OBV and RSI breakout filter consistently across different trades to build a reliable track record.

• Manage Risk: Always use stop-loss orders to limit potential losses.

• Avoid FOMO: Don't chase breakouts that are already extended. Wait for a pullback or consolidation before entering.

• Paper Trade: Practice with the filter on a demo account before using real money.

Quick Checklist

• Add OBV and RSI indicators to your chart.

• Identify potential price breakouts.

• Confirm breakouts with OBV and RSI.

• Set appropriate stop-loss orders.

• Maintain trading discipline.