What is on balance volume in stock market?
On balance volume is (OBV) a communicative indicator developed by market writer speaker Joseph Granville. It was first introduced in Joseph 1964 book. The concept is to measure both positive or negative volume on the theory that change in volume predict price movement.
How to calculate on balance volume?
Calculation of each day's OBV
Positive price change
Perior OBV +current volume=new OBV
Negative price changes
Prior OBV-current volume =new OBV
If stock price close higher the days OBV is positive, and if it closes lower on balance volume negative.Audi whose price increases by one quarter point is given the same weight as one whose price increases by 6 points. In both case the on balance volume is given a positive marks. Each days positive entry is added to the previous commutative total and negative integers are substracted.
on balance volume is believed to turn police when the communicative lines moves high as price move lower especially the price forms a new low.a bearish divergence results when price move higher but on balance volume moves lower this is especially comparing if price level reaches a new high.
OBV is a useful indicator of buying and selling pressure over time. However it serves best as a confirming indicator or when it is independently confirmed by other formations , notably candlesticks.Considering the assignment of all volume as either positive or negative regardless of the degree of change in price, each suggestions change in OBV is neither as realiable as other Western signals nor as strong a reversal indicator as many candlestick formation.
The chart of Reliance tracks on balance volume below the price over six months. The price change watch sideways for next few months and then begin moving up.
OBV has two' drawbacks
First it define oscillation as either positive or negative even when the direction is very slight.second because it is a commutative indicator its current level very is based on the starting points.
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