On Balance Volume

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On Balance Volume (OBV)

In 1963, Joe Granville developed On Balance Volume (OBV), which was one of the earliest and most popular indicators to measure positive and negative volume flow.

OBV uses the change in closing price from one interval to the next to value the volume as positive or negative. It does this by maintaining a moving cumulative total volume figure, which is adjusted by either adding the current intervals' volume to the cumulative amount if the interval closes higher than previously, or by subtracting the current volume from the cumulative amount if the interval closes lower.

The formula can be expressed as follows:

obvformula.png

The change in the plotted OBV graph is relative to the direction of the price movement for the current interval, and its amplitude is determined by the volume (number) of trades.

The actual numbers used to plot the OBV are largely irrelevant, the important consideration is the trend that becomes apparent from the plot.

Using the OBV

In normal circumstances the OBV line will tend to track the price chart, and a trend line drawn on the price chart will appear similar when drawn between the same dates on the OBV chart.

However, when the OBV line fails to move in the same general direction as the price chart, it is an indication that a price divergence may exist. This may result in a trend reversal.

User Settings

The On Balance Volume chart is displayed in its own indicator window below the price chart.

There are no user defined parameters for the OBV calculation.

The Style selected for the plot can be one of the following: Solid, Dashes, Dots, Points, Histogram or Step.

The plot can be set to be inverted or logarithmic. When either of these settings is turned on, a small Log and/or Inv icon will appear in the OBV's scale (Y-axis).

Once the style is selected the Color, Weighting and Visibility can also be controlled from this page.

The Scale's display is controlled from the Scale Settings and Scale Appearance tabbed pages.

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