On Balance Volume (OBV)
Beyond the volume spike, a number of calculated volume signals aid in interpreting the trend. First among these is on balance volume (OBV). This is among the most popular of volume indicators, and it provides the greatest value when the indicator moves opposite the direction of price. This forecasts weakness in the prevailing trend. OBV was first introduced by Joseph Granville.3
OBV calculates the daily levels of accumulation and distribution in volume. In a day when prices move upward, that day’s volume is added to the previous sum of volume; and when the day’s price declines, that day’s volume is subtracted. This is a simple equation, but it also points out a flaw in OBV. The calculation makes no distinction between ...
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