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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 01:25, 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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Template:Technical analysis

  1. 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
  2. On Balance Volume ( OBV ). 22 September 2007.
  3. OBV Behaviorial Limitations and Formulas at Financial-edu.com.
  4. What Does On-Balance Volume Mean
  5. StockCharts.com article on On Balance Volume