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'''On-balance volume''' ('''OBV''') is a [[technical analysis]] indicator intended to relate price and volume in the [[stock market]]. OBV is based on a cumulative total volume.<ref name="Granville" /> | |||
==The formula== | |||
: <math> | |||
OBV = OBV_{prev} + \left\{ \begin{matrix} | |||
volume & \mathrm{if}\ close > close_{prev} \\ | |||
0 & \mathrm{if}\ close = close_{prev} \\ | |||
-volume & \mathrm{if}\ close < close_{prev} | |||
\end{matrix} \right. | |||
</math> | |||
Because OBV is a cumulative result, the value of OBV depends upon the starting point of the calculation. | |||
==Application== | |||
Total [[volume (finance)|volume]] for each day is assigned a positive or negative value depending on prices being higher or lower that day. A higher close results in the volume for that day to get a positive value, while a lower close results in negative value.<ref>[http://www.oxfordfutures.com/futures-education/tech/on-balance-volume.htm ''On Balance Volume ( OBV )'']. 22 September 2007.</ref> So, when prices are going up, OBV should be going up too, and when prices make a new rally high, then OBV should too. If OBV fails to go past its previous rally high, then this is a negative [[divergence]], suggesting a weak move.<ref>[http://financial-edu.com/on-balance-volume-obv.php OBV Behaviorial Limitations and Formulas] at Financial-edu.com.</ref> | |||
The technique, originally called "continuous volume" by Woods and Vignola, was later named "on-balance volume" by [[Joseph Granville]] who popularized the technique in his 1963 book ''Granville's New Key to Stock Market Profits''.<ref name="Granville">Joseph E. Granville, ''Granville's New Strategy of Daily Stock Market Timing for Maximum Profit'', [[Prentice Hall|Prentice-Hall, Inc.]], 1976. ISBN 0-13-363432-9</ref> The index can be applied to stocks individually based upon their daily up or down close, or to the market as a whole, using breadth of market data, i.e. the advance/decline ratio.<ref name="Granville" /> | |||
OBV is generally used to confirm price moves.<ref>[http://www.investopedia.com/terms/o/onbalancevolume.asp What Does On-Balance Volume Mean]</ref> The idea is that volume is higher on days where the price move is in the dominant direction, for example in a strong uptrend more volume on up days than down days.<ref>[http://stockcharts.com/education/IndicatorAnalysis/indic-OBV.htm StockCharts.com article on On Balance Volume]</ref> | |||
== Similar indicators == | |||
Other price × volume indicators: | |||
* [[Money flow]] | |||
* [[Price and volume trend]] | |||
* [[Accumulation/distribution index]] | |||
== See also == | |||
* [[Dimensional analysis]] — explains why volume and price are multiplied (not divided) in such indicators | |||
== References == | |||
{{Reflist}} | |||
{{technical analysis}} | |||
[[Category:Technical indicators]] | |||
[[Category:Dimensional analysis]] | |||
Revision as of 00:25, 4 September 2012
On-balance volume (OBV) is a technical analysis indicator intended to relate price and volume in the stock market. OBV is based on a cumulative total volume.[1]
The formula
Because OBV is a cumulative result, the value of OBV depends upon the starting point of the calculation.
Application
Total volume for each day is assigned a positive or negative value depending on prices being higher or lower that day. A higher close results in the volume for that day to get a positive value, while a lower close results in negative value.[2] So, when prices are going up, OBV should be going up too, and when prices make a new rally high, then OBV should too. If OBV fails to go past its previous rally high, then this is a negative divergence, suggesting a weak move.[3]
The technique, originally called "continuous volume" by Woods and Vignola, was later named "on-balance volume" by Joseph Granville who popularized the technique in his 1963 book Granville's New Key to Stock Market Profits.[1] The index can be applied to stocks individually based upon their daily up or down close, or to the market as a whole, using breadth of market data, i.e. the advance/decline ratio.[1]
OBV is generally used to confirm price moves.[4] The idea is that volume is higher on days where the price move is in the dominant direction, for example in a strong uptrend more volume on up days than down days.[5]
Similar indicators
Other price × volume indicators:
See also
- Dimensional analysis — explains why volume and price are multiplied (not divided) in such indicators
References
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- ↑ 1.0 1.1 1.2 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 ( OBV ). 22 September 2007.
- ↑ OBV Behaviorial Limitations and Formulas at Financial-edu.com.
- ↑ What Does On-Balance Volume Mean
- ↑ StockCharts.com article on On Balance Volume