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On Balance Volume (OBV)

Technical Indicators

 

 

On Balance Volume (OBV)

The On Balance Volume (OBV) indicator, developed by Joe Granville, measures the strength of the prevailing trend and provides alerts to possible breakouts. On Balance Volume (OBV) is calculated as continuous consecutive sum of volumes. If the current period’s close is higher than the previous period’s close, the current period’s volume is added to the previous period’s OBV. On the other hand, if the current period’s close is lower than the previous period’s close, the current period’s volume is subtracted from the previous period’s OBV. An unchanged close is neither added nor subtracted from the OBV value.

The formula for the OBV indicator is:

On Balance Volume (OBV)

 

The OBV is a lower technical study. The OBV does not need any input parameters for its calculation.

The OBV shows upward momentum if the new high or low is greater than the previous one. On the other hand, downward momentum is evident if the new high or low is lower than the previous one. A change from upward to downward momentum signals a trend reversal may be on the horizon. If the OBV stagnates for more than 3 periods, it is considered to be in a sideways market and the previous trend has changed from either bullish or bearish to neutral.