On Balance Volume

On Balance Volume (OBV) indicator was first described by Joe Granville in 1963 in his book Granville's New Key to Stock Market Profits. This indicator measures buying and selling activity and based on that defines positive and negative volume flow. The divergences between OBV and price can be used to predict market movement and confirm price trends.

 

If the indicator price is higher than the previous indicator price then:
OBV = Previous OBV + Volume

 

If the indicator price is lower than the previous indicator price then:
OBV = Previous OBV - Volume

 

If the indicator price equals the previous indicator price then:
OBV = Previous OBV (no change)

 

According to Joe Granville, Close price should be used as indicator price.

 

Methods of use:

During a ranging market watch for a rising or falling On Balance Volume:
1.Rising OBV warns of an upward breakout.
2.Falling OBV warns of a downward breakout.
A rising On Balance Volume confirms an up-trend and a falling OBV confirms a down-trend:
1.Bullish divergence between OBV and price warns of market bottoms.
2.Bearish divergence between OBV and price warns of market tops.

 

OnBalanceVolume_ind