View source for On-balance volume

'''On-balance volume''' ('''OBV''') is a [[technical analysis]] indicator intended to relate price and volume in the [[stock market]]. OBV is based on a cumulative total volume.<ref name="Granville" />

==The formula==

: <math>
OBV = OBV_{prev} + \left\{ \begin{matrix}
volume  & \mathrm{if}\ close > close_{prev} \\
0       & \mathrm{if}\ close = close_{prev} \\
-volume & \mathrm{if}\ close < close_{prev}
\end{matrix} \right.
</math>
Because OBV is a cumulative result, the value of OBV depends upon the starting point of the calculation.

==Application==
Total [[volume (finance)|volume]] for each day is assigned a positive or negative value depending on prices being higher or lower that day. A higher close results in the volume for that day to get a positive value, while a lower close results in negative value.<ref>[http://www.oxfordfutures.com/futures-education/tech/on-balance-volume.htm ''On Balance Volume ( OBV )''].   22 September 2007.</ref> So, when prices are going up, OBV should be going up too, and when prices make a new rally high, then OBV should too. If OBV fails to go past its previous rally high, then this is a negative [[divergence]], suggesting a weak move.<ref>[http://financial-edu.com/on-balance-volume-obv.php OBV Behaviorial Limitations and Formulas] at Financial-edu.com.</ref>

The technique, originally called "continuous volume" by Woods and Vignola, was later named "on-balance volume" by [[Joseph Granville]] who popularized the technique in his 1963 book ''Granville's New Key to Stock Market Profits''.<ref name="Granville">Joseph E. Granville, ''Granville's New Strategy of Daily Stock Market Timing for Maximum Profit'', [[Prentice Hall|Prentice-Hall, Inc.]], 1976. {{ISBN|0-13-363432-9}}</ref> The index can be applied to stocks individually based upon their daily up or down close, or to the market as a whole, using breadth of market data, i.e. the advance/decline ratio.<ref name="Granville" />

OBV is generally used to confirm price moves.<ref>[http://www.investopedia.com/terms/o/onbalancevolume.asp What Does On-Balance Volume Mean]</ref>  The idea is that volume is higher on days where the price move is in the dominant direction, for example in a strong uptrend there is more volume on up days than down days.<ref>[http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:on_balance_volume_obv StockCharts.com article on On Balance Volume]</ref>

== Similar indicators ==
Other price × volume indicators:
* [[Money flow]]
* [[Price and volume trend]]
* [[Accumulation/distribution index]]

== See also ==
* [[Dimensional analysis]] — explains why volume and price are multiplied (not divided) in such indicators

== References ==
{{Reflist}}

{{technical analysis}}

[[Category:Technical indicators]]
[[Category:Dimensional analysis]]