On-balance volume

On-balance volume ( OBV ) is an indicator in chart analysis that relates price and volume in exchange trading . OBV stands for the calculation of the cumulative total volume when trading a fungible asset or index on the stock exchange .

history

This indicator was introduced in a course by Woods and Vignolia in 1946 and was originally called cumulative volume . Joseph Granville made the technique known under the name on-balance volume with his 1963 book Granville's New Key to Stock Market Profits .

calculation

{\ displaystyle OBV_ {t} = OBV_ {t-1} + \ left \ {{\ begin {matrix} Trading volume & \ mathrm {if} \ Closing price_ {t}> Closing price_ {t-1} \\ 0 & \ mathrm {if } \ Closing price_ {t} = Closing price_ {t-1} \\ - Trading volume & \ mathrm {if} \ Closing price_ {t} <Closing price_ {t-1} \ end {matrix}} \ right.}

The trading volume of each day is shown as a positive or negative value depending on the development of the closing price compared to the closing price of the previous day. This value is added to the OBV of the previous day, so that a lower (higher) closing price leads to a decreasing (increasing) OBV compared to the previous day. It follows that the OBV rises when the prices of the asset or index in question rise and falls when they fall.

interpretation

The calculation shows that maxima and minima in the trend of the price development of OBV and price are reached at the same time. If OBV and price extremes move in parallel, this is interpreted as confirmation of the current price trend. This is a common use of the indicator.

If OBV only reaches a lower maximum than the previous one, while the price reaches a maximum that is the same or higher than before, this is referred to as a negative deviation. This is considered a bearish signal because more volume was achieved when prices fell than when prices rose. Conversely, the reaching of higher minima of the OBV when the price continues to fall is a signal for an onset of a bull market .

Resistances can be used as leading indicators in the OBV chart as well as in the price chart. These breakthroughs are understood as signals that the trend in OBV is reversing and can generate further signals for the price of the asset or index under consideration.

weaknesses

The on-balance volume reacts with a delay to strong changes in volume. For example, trading volume peaks mean that the OBV as a cumulative value then goes through an adjustment period during which the informative value is limited. If the trading volume was high in the past and then decreased, the development of the OBV is subdued and it becomes more difficult to detect changes in the direction of the indicator. If the trading volume suddenly increases, the OBV changes significantly even with only slightly changed prices. There are more complex trading volume price indicators today that take volatility into account and accordingly do not exhibit this weakness.

Other indicators

Other trade volume price indicators:

Individual evidence

^ ^A ^b Joseph E. Granville, Granville's New Strategy of Daily Stock Market Timing for Maximum Profit , Prentice-Hall, Inc. , 1976. ISBN 0-13-363432-9

↑ On-Balance Volume ( Memento of the original from December 11, 2011 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice. . April 25, 2012. @1@ 2

↑ On Balance Volume (OBV) . September 22, 2007.

↑ On Balance Volume (OBV) . April 25, 2012.

↑ OBV (On Balance Volume) . April 25, 2012.

↑ Investopedia explains 'On-Balance Volume - OBV' . April 25, 2012.

↑ Investopedia explains 'On-Balance Volume' at Stockmarketwatch. April 25, 2012.

^ On Balance Volume (OBV) from Financial-edu.com. April 25, 2012.

↑ OBV (On Balance Volume) at Swissquote.ch. April 25, 2012.