On Balance Volume

 

On Balance Volume ("OBV") is a momentum indicator that relates volume to price change. OBV is one of the most popular volume indicators and was developed by Joseph Granville. Constructing an OBV line is very simple: The total volume for each day is assigned a positive or negative value depending on whether prices closed 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. A running total is kept by adding or subtracting each day's volume based on the direction of the close. The direction of the OBV line is the thing to watch, not the actual volume numbers.

On Balance Volume is a running total of volume. It shows if volume is flowing into or out of a security. When the security closes higher than the previous close, all of the day’s volume is considered up-volume. When the security closes lower than the previous close, all of the day’s volume is considered down-volume.

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

If today’s close is less than yesterday’s close then:

OBV = Yesterday’s OBV - Today’s Volume

If today’s close is equal to yesterday’s close then:

OBV = Yesterday’s OBV