On Balance Volume (OBV)

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technical_indicators:on_balance_volume_obv [2019/06/24 19:38]
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technical_indicators:on_balance_volume_obv [2023/07/09 20:47] (current)
jayanthi [Conclusion]
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 ====== On Balance Volume (OBV) ====== ====== On Balance Volume (OBV) ======
  
-===== Introduction ​=====+===== What Is On Balance Volume (OBV)? ​=====
  
-On Balance Volume (OBV) measures ​buying and selling pressure ​as a cumulative ​indicator, adding ​volume on up days and subtracting ​it on down days. OBV was developed by Joe Granville and introduced in his 1963 book //​Granville'​s New Key to Stock Market Profits//. It was one of the first indicators to measure positive and negative volume flow. Chartists can look for divergences between OBV and price to predict price movements or use OBV to confirm ​price trends.+The On Balance Volume (OBV) is an indicator that assesses a security'​s ​buying and selling pressure ​by analyzing ​cumulative ​volume. It adds volume on days when the price rises and subtracts ​it on days when the price declines
  
-===== Calculation ​===== +OBV was originally developed by Joe Granville, and he first explained it in his 1963 book //​Granville'​s New Key to Stock Market Profits//. The OBV is noteworthy because it was among the earliest metrics to track the inflow and outflow of volume. By comparing the OBV with price action, analysts can detect divergences that may forecast future price shifts, or they can use the OBV to confirm existing price trends. 
 + 
 +===== How Is OBV Calculated? ​===== 
  
 The On Balance Volume (OBV) line is simply a running total of positive and negative volume. A period'​s volume is positive when the close is above the prior close and is negative when the close is below the prior close. ​ The On Balance Volume (OBV) line is simply a running total of positive and negative volume. A period'​s volume is positive when the close is above the prior close and is negative when the close is below the prior close. ​
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 {{:​technical_indicators:​on_balance_volume_obv:​obv-1-wmtexam.png|Table 1  -  On Balance Volume}} {{:​technical_indicators:​on_balance_volume_obv:​obv-1-wmtexam.png|Table 1  -  On Balance Volume}}
  
-===== Interpretation ​===== +===== How Do You Interpret OBV? ===== 
  
 Granville theorized that volume precedes price. OBV rises when volume on up days outpaces volume on down days. OBV falls when volume on down days is stronger. A rising OBV reflects positive volume pressure that can lead to higher prices. Conversely, falling OBV reflects negative volume pressure that can foreshadow lower prices. Granville noted in his research that OBV would often move before price. Expect prices to move higher if OBV is rising while prices are either flat or moving down. Expect prices to move lower if OBV is falling while prices are either flat or moving up.  Granville theorized that volume precedes price. OBV rises when volume on up days outpaces volume on down days. OBV falls when volume on down days is stronger. A rising OBV reflects positive volume pressure that can lead to higher prices. Conversely, falling OBV reflects negative volume pressure that can foreshadow lower prices. Granville noted in his research that OBV would often move before price. Expect prices to move higher if OBV is rising while prices are either flat or moving down. Expect prices to move lower if OBV is falling while prices are either flat or moving up. 
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 The absolute value of OBV is not important. Chartists should instead focus on the characteristics of the OBV line. First, define the trend for OBV. Second, determine if the current trend matches the trend for the underlying security. Third, look for potential support or resistance levels. Once broken, the trend for OBV will change and these breaks can be used to generate signals. Also, notice that OBV is based on closing prices. Therefore, closing prices should be considered when looking for divergences or support/​resistance breaks. Finally, volume spikes can sometimes throw off the indicator by causing a sharp move that will require a settling period. The absolute value of OBV is not important. Chartists should instead focus on the characteristics of the OBV line. First, define the trend for OBV. Second, determine if the current trend matches the trend for the underlying security. Third, look for potential support or resistance levels. Once broken, the trend for OBV will change and these breaks can be used to generate signals. Also, notice that OBV is based on closing prices. Therefore, closing prices should be considered when looking for divergences or support/​resistance breaks. Finally, volume spikes can sometimes throw off the indicator by causing a sharp move that will require a settling period.
  
-===== Divergences =====+===== How Do You Read OBV Divergences=====
  
 Bullish and [[:​glossary_b#​bearish_divergence|bearish divergence]] signals can be used to anticipate a trend reversal. These signals are truly based on the theory that volume precedes prices. A bullish divergence forms when OBV moves higher or forms a higher low even as prices move lower or forge a lower low. A bearish divergence forms when OBV moves lower or forms a lower low even as prices move higher or forge a higher high. The divergence between OBV and price should alert chartists that a price reversal could be in the making. ​ Bullish and [[:​glossary_b#​bearish_divergence|bearish divergence]] signals can be used to anticipate a trend reversal. These signals are truly based on the theory that volume precedes prices. A bullish divergence forms when OBV moves higher or forms a higher low even as prices move lower or forge a lower low. A bearish divergence forms when OBV moves lower or forms a lower low even as prices move higher or forge a higher high. The divergence between OBV and price should alert chartists that a price reversal could be in the making. ​
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 {{:​technical_indicators:​on_balance_volume_obv:​obv-7-vlobedd.png|Chart 5  -  On Balance Volume}} {{:​technical_indicators:​on_balance_volume_obv:​obv-7-vlobedd.png|Chart 5  -  On Balance Volume}}
  
-===== Trend Confirmation ===== +===== How Do You Use OBV for Trend Confirmation===== 
  
 OBV can be used to confirm a price trend, upside breakout or downside break. The chart for Best Buy (BBY) shows three confirming signals as well as confirmation of the price trend. OBV and BBY moved lower in December-January,​ higher from March to April, lower from May to August and higher from September to October. The trends in OBV matched the trend in BBY.  OBV can be used to confirm a price trend, upside breakout or downside break. The chart for Best Buy (BBY) shows three confirming signals as well as confirmation of the price trend. OBV and BBY moved lower in December-January,​ higher from March to April, lower from May to August and higher from September to October. The trends in OBV matched the trend in BBY. 
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 {{:​technical_indicators:​on_balance_volume_obv:​obv-8-azosteps.png|Chart 7  -  On Balance Volume}} {{:​technical_indicators:​on_balance_volume_obv:​obv-8-azosteps.png|Chart 7  -  On Balance Volume}}
  
-===== Conclusion ​=====+===== The Bottom Line =====
  
-On Balance Volume (OBV) is a simple indicator that uses volume and price to measure buying ​pressure ​and selling pressure. Buying pressure is evident when positive volume exceeds negative volume and the OBV line rises. Selling pressure ​is present ​when negative volume exceeds positive volume and the OBV line falls. ​Chartists ​can use OBV to confirm the underlying trend or look for divergences that may foreshadow a price change. As with all indicators, it is important to use OBV in conjunction with other aspects of technical analysis. It is not a standalone indicator. OBV can be combined with basic [[:​chart_analysis:​chart_patterns|pattern analysis]] or to confirm signals from [[:​technical_indicators:​introduction_to_technical_indicators_and_oscillators#​momentum_oscillators|momentum oscillators]].+On Balance Volume (OBV) uses volume and price to measure buying and selling pressure. Buying pressure is evident when positive volume exceeds negative volumeand the OBV line rises. Selling pressure ​occurs ​when negative volume exceeds positive volumeand the OBV line falls. ​Analysts ​can use OBV to confirm the underlying trend or look for divergences that may foreshadow a price change. As with all indicators, it'​s ​important to use OBV in conjunction with other aspects of technical analysis. It'​s ​not a standalone indicator. OBV can be combined with basic [[:​chart_analysis:​chart_patterns|pattern analysis]] or to confirm signals from [[:​technical_indicators:​introduction_to_technical_indicators_and_oscillators#​momentum_oscillators|momentum oscillators]].
  
 ===== Using with SharpCharts =====  ===== Using with SharpCharts ===== 
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 </​code>​ </​code>​
  
-For more details on the syntax to use for OBV scans, please see our [[docs>scans:​indicators#​on_balance_volume|Scanning Indicator Reference]] in the Support Center.+For more details on the syntax to use for OBV scans, please see our [[https://​support.stockcharts.com/​doku.php?​id=scans:​indicators#​on_balance_volume|Scanning Indicator Reference]] in the Support Center.
  
 **Note**: For the purposes of scanning, daily volume data is incomplete during the trading day. When running scans with volume-based indicators like OBV, be sure to base the scan on the "Last Market Close."​ Examples of other volume-based indicators include Accumulation/​Distribution,​ Chaikin Money Flow, and the PVO. **Note**: For the purposes of scanning, daily volume data is incomplete during the trading day. When running scans with volume-based indicators like OBV, be sure to base the scan on the "Last Market Close."​ Examples of other volume-based indicators include Accumulation/​Distribution,​ Chaikin Money Flow, and the PVO.
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 ===== Further Study ===== ===== Further Study =====