On Balance Volume
On Balance Volume (OBV) was developed by Joseph Granville, a well-known technician and market letter writer. It is a cumulative indicator that essentially measures positive and negative volume. It is calculated by adding the total volume on up days and subtracting the volume on down days. The numerical value of OBV is statistically irrelevant, just as it would be with a cumulative advance/decline line. This is because the value of the indicator will be dependent upon when the indicator was first calculated. (i.e. An OBV line started one year ago will look exactly the same over the past year as an OBV line started five years ago, even though the value of the latest plot for each line will be very different.)
With OBV, the key is to look for divergences between price and the OBV line. If both the price and the OBV line are rising, it means that OBV is confirming price, which should be interpreted as bullish. If the price is rising and the OBV line is declining it is bearish. If the price is declining and the OBV line is rising (moving counter-trend to price), it is a bullish indication.
| Function Version |
OBV(y, z) |
y=SMA, z=Offset |
| Indicator Version |
OBVy.z |
Where y is the period of an optional simple moving average which can be applied to OBV.
Where z is the offset. An offset of 1 returns the value from the previous bar instead of the current bar.
Read more about On Balance Volume (OBV) at Investopedia