Understanding ON BALANCE VOLUME indicator

Overview

On balance volume (OBV) is a momentum indicator, the calculation of which relates volume to price change. OBV was developed by Joe Granville. .OBV provides a running total of volume and shows whether this volume is flowing in or out of a given security. OBV attempts to detect when a financial instrument (stock, bond, etc.) is being accumulated by a large number of buyers or sold by many sellers. Volume is the driving force behind the market, so OBV is designed to project when major moves in the markets would occur and measures the positive and negative volume flow. OBV helps in projecting when major moves in the markets would occur

Calculation

On Balance Volume is calculated by adding the day's volume to a cumulative total when the security's price closes up, and subtracting the day's volume when the security's price closes down.

• If today's close is greater than yesterday's close then:

OBV = Yesterday’s OBV+ Today’s Volume (considered up volume)
Up volume occurs when a stock finishes a day of trading at a level higher than its open, meaning that the trading volume for the day was more bullish than bearish.


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