On-Balance Volume (OBV)
On-Balance Volume (OBV) is a technical analysis indicator used to measure the positive and negative flow of volume in a security. It is calculated by taking the difference between the total volume of a security on up days and the total volume of a security on down days. The OBV is a cumulative indicator, meaning that it adds up the positive and negative volume to arrive at a total. The OBV is used to measure the strength of a trend and to confirm price movements. It is also used to identify divergences, which can be used to predict future price movements.
History of On-Balance Volume
On-Balance Volume was developed by Joseph Granville in the 1960s. Granville believed that volume was the most important factor in determining the direction of a security’s price. He argued that when volume increases, it indicates that the market is becoming more bullish, and when volume decreases, it indicates that the market is becoming more bearish. Granville’s theory was that if the volume of a security is increasing on up days and decreasing on down days, then the security is likely to continue to move in the same direction. Granville’s theory was later refined by other technical analysts, and the OBV indicator was born.
Comparison Table
| Indicator | Calculation | Interpretation |
|---|---|---|
| On-Balance Volume | Difference between total volume of a security on up days and total volume of a security on down days | Measures the strength of a trend and confirms price movements |
Summary
On-Balance Volume (OBV) is a technical analysis indicator used to measure the positive and negative flow of volume in a security. It is calculated by taking the difference between the total volume of a security on up days and the total volume of a security on down days. The OBV is used to measure the strength of a trend and to confirm price movements. It was developed by Joseph Granville in the 1960s and has since been refined by other technical analysts. For more information about On-Balance Volume, you can visit Investopedia, The Balance, and other financial websites.
See Also
- Relative Strength Index (RSI)
- Moving Average Convergence Divergence (MACD)
- Bollinger Bands
- Average Directional Index (ADX)
- Price Volume Trend (PVT)
- Accumulation/Distribution Line (ADL)
- Chaikin Money Flow (CMF)
- Force Index (FI)
- Volume-Weighted Average Price (VWAP)
- On-Balance Volume Ratio (OBVR)
