On Balance Volume
(On Balance Volume - OBV)
This technical indicator was created by Joseph Granville. On Balance Volume is designed for visual indication of the correlation between changes in price and volume accompanying the change. Calculation of indicator values are held as follows: if the current bar close above the previous close, the value of the volume of the current bar is added to the previous value OBV; if the current bar closing below the previous one - the current amount is subtracted from the previous value of the On Balance Volume.
The principle of using OBV based on the assumption that a change in direction OBV are leading to a price chart. This means that the change in the direction of the curve On Balance Volume is usually presages the turn of the prevailing trend. This is because the growth OBV means "bull" infusion of funds into an instrument of powerful market players. Subsequently, the perk in the market as smaller speculators, who continue to push the price in the same direction as that of provoking further rapid growth.
Change the OBV trend in rising or falling, usually followed by a breakthrough. Since OBV breakouts are often preceded by breakthroughs in the price chart - should be open long positions on a break up, but short on a break down.
Calculation
If the current closing price higher than the previous, then:
OBV (i) = OBV (i - 1) + VOLUME (i).
If today's closing price below the previous one, then:
OBV (i) = OBV (i - 1) - VOLUME (i)
If the current closing price is equal to the previous one, then:
OBV (i) = OBV (i - 1)
Where:
OBV (i) - the value of the On Balance Volume in the current period;
OBV (i - 1) - the value of the On Balance Volume in the previous period;
VOLUME (i) - the amount of the current bar.
