On Balance volume is an alternative way of studying the
volume of a security. It depicts volume as a running total and thereby tracks
the amount of volume flowing into and out of a security.
The On Balance Volume (OBV) value is calculated using the
actual volume figures for each period. When the security closes higher than the
previous period's close the volume for that period is added to the OBV total,
and is considered up volume. If the security closes lower than the previous
period's close then the volume for that period is subtracted from the OBV total,
and is considered down volume. If the close is exactly the same, there is no
change to the OBV total. A running total is kept by adding or subtracting the
result from the current total.
Since it is a running total, the actual value of the OBV
indicator is irrelevant except in relationship to itself. The direction of the
OBV line is the thing to watch. This indicator will often confirm underlying
strength or weakness of a price trend. For example, while the security may be
rising, a top may be signalled by a declining OBV.
SYNTAX OBV(Data Array)
Data Array _ This specifies the data array being monitored to
determine whether the security has increased or decreased in value.
The following formula obtains the value of OBV using the
closing price data array:
In the above example:
Data Array = C
A more useful application of this example could be:
This formula checks to see whether or not the OBV is in a
short term up trend. This is achieved by ensuring the OBV is presently above the
15 period moving average of the OBV.
Looking at Figure 3.28, we can see the OBV indicator at the
base of the chart.
Figure 3.28 _ OBV Indicator
Construct formulas for the following:
1. The OBV increasing over the last 3 periods:
article is a snippet from the
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