On Balance Volume (OBV)

On Balance Volume (OBV) is a momentum indicator originally developed by Joseph Granville in 1963. Joseph defined the indicator in his book “New Key to Stock Market Profits”. The indicator was originally developed to measure money flow into securities. The indicator is guided by the concept that “volume precedes price”. If the price of a currency pair achieves a higher daily close than its previous reading, then the OBV considers all the day’s volume as up-volume. If the currency pair achieves a lower daily close, then the day’s volume is considered down-volume. The OBV line is then formed from the cumulative total of the positive and negative volume flows. More volume suggests more market interest and more market interest suggests either a strong trend or the start of a new trend. Less volume suggests less interest in the market and less interest suggests either a trend reversal or a temporary market consolidation.

Calculation
OBV = OBV[previous] + VOLUME IF close > close[previous]
OBV = OBV[previous] – VOLUME IF close < close[previous]
OBV = OBV[previous] IF close = close[previous]

Example Chart:

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Tags: Calculation, Granville, Momentum, Volume