On Balance Volume Technical Analysis Indicator – Using Price Movement

On Balance Volume (OBV) utilizes volume to confirm price developments. The calculation for On Balance Volume is given underneath

  • On days when the nearby is greater than the open (i.e. stock posted a gain) then the volume for that day is added to the running OBV total.
  • However, when the nearby is not exactly the open (i.e. stock posted a misfortune), then the volume for that day is subtracted from the running OBV total.

Generally speaking, increases in volume when prices rise is bullish. Therefore an increasing OBV is bullish. When volume increases and prices decrease this is bearish: A decreasing OBV is generally considered bearish. As a confirmation tool, if price and the OBV indicator are rising together, this is bullish. When prices and the OBV are moving downward, this is considered bearish.

When prices move higher or lower on low volume, the On Balance Volume technical analysis indicator will hardly move. This can signal weak participation by traders and is called a divergence. The price development was not confirmed by volume and therefore is viewed by traders as a questionable move in which they are unlikely to join in.

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Volume is one of the main parts of technical analysis, arguably second only to price. To learn how to interpret volume clicks the Volume Analysis link.

Trading is risky. Trade only with money you can afford to lose. Past performance of technical analysis indicators is not indicative of future performance.

Using the On-Balance Volume

what is obv? On-balance volume was the most widely utilized stock market tool for several decades now. It is a technical analysis indicator that was designed and completely intended to connect the relationship of two important aspects of a stock market which are the price and its volume. This indicator is based primarily on a running cumulative total volume.

This indicator will treat the volume as an or more when it is an up day and a minus on a down day. This would simply means that an up day is the place where the closing of the current day is higher than the closing of the previous day. When this happens, the volume will be added. Yet, when it happens that the previous day’s closing is higher than the current day, then it will be considered a down day with the volume correspondingly subtracted from the cumulative total.

Actually, this technical analysis indicator is a tool to confirm price development. The concept is based on the premise that volume will be higher on trading days where the price moves in a positive direction. And volume will accordingly diminish when prices moves negatively.  It is therefore logical that when prices are going up so will the OBV and when prices will make another upward run so does again will the OBV. However, if OBV fails to pass its previous day high, then it would propose a down day or a weak day.