On-balance volume (OBV) is a technical analysis indicator intended to relate price and volume in the stock market.[1] OBV is based on a cumulative total volume.[2]
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.[3] 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.[4]
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.[2] 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.[2]
OBV is generally used to confirm price moves.[5] The idea is that volume is higher on days where the price move is in the dominant direction, for example in a strong uptrend there is more volume on up days than down days.[6]
Similar indicators
Other price × volume indicators:
See also
- Dimensional analysis — explains why volume and price are multiplied (not divided) in such indicators
References
External links
