On Balance Volume OBV

On Balance Volume OBV

In J. Granville goes back to the standard indicators of counting On Balance Volume (OBV). Basis of considerations of Granville's attempt to create a trend follower, which can provide the basis of price movements and trading volume of the specific statements involved in this trend to strength and weakness and therefore the possible reversal movements. Annam basic indicator approach is that the existence of a larger trading volume trend in direction than in the opposite direction. Specifically, ie at an existing upward trend with increasing days Basiswertkurs the corresponding trading volume greater than on days with falling underlying instrument. The interpretation of an existing downtrend should open up.

The technical analyst can now observe a situation in which the underlying indicator and not behave as described above can be speculated on a corresponding reversal. As an example, a basic value of the actual chart, it is assumed following downtrend intact, but is now characterized by increasing volume on days when the price rises and falling volume on days when the stock market losses. There is a change in the commitment of the market participants to observe that, in combination with other factors (an indicator should never be used as the sole criterion of trade!) Lead to the emergence of a new uptrend.

The calculation of the OBV is in comparison to many other indicators, in fact, easy to understand: There is a continuous summation of the trading volume. In the event of rising prices, the current trade volume is added to the indicator of previous day's value is deducted in the other case. There are no parameters which need to be considered as solely the volume as a measure of the commitment of the players is important.


As already mentioned, On Balance Volume is assumed that a healthy trend is accompanied by a correspondingly high trading volume. Based on this market early tentative conclusions based on any existing convergences and divergences between the baseline and indicator course. Confirmed the indicator over the base value is assumed by a healthy trend, bearish or bullish divergences suggest, however point to a weakening of existing trends and a possible trend reversal. A bullish divergence is characterized by the fact that the underlying security marked new lows, however, the indicator no longer. The current downtrend is weakening, it can be speculated on a trend reversal. A bearish divergence on the other hand you can make if the underlying share is still rising to new highs, however, marked the course of the indicator no more new highs. The uptrend is losing strength, a possible reversal of the trend direction can be assumed. It goes without saying that the concept showed up (like all Trenddfolgeindikatoren) can only deliver good results in phase trend, in sideways makes no sense to use.

When the OBV chart technical analysis can be used, however, the entire range of known standard tools like trend lines, support and resistance lines, trend channels, etc.. Since there is a trend leading indicator approach formation resolutions often take place earlier than in the underlying. Is also on the crucial point of criticism on the On Balance Volume concept will be noted at this point, namely ignoring the scale of the price change. A minimal increase in the underlying asset or loss thus has the same effect as an extreme price jump or slip, since only the volume of trade is considered.

It should be noted in conclusion that there are several concepts of refinement. Is best known in this context, the safe use of moving averages, this generally reduces the number of false signals, but weakens the other hand, the trend of OBV from leading character, since "built in" a time delay. When Average Balance Volume (ABV) is a simple moving average indicator is calculated on the mother, a different approach by J. Granville itself provides for the use of an exponential moving average with a calculation period of 21 days. As a concrete trading signals here, the intersections between the indicator and the signal line may be used (buy signal indicator for greater signal line sell signal is analog). Another possibility is the extension of the concept of looking at a parent unit of time here dar. trading signals can be filtered in so far as the parent unit of time to confirm the trade orientation of the subordinate unit of time must.