On Balance Volume

Definition

The On Balance Volume indicator is a technical trading momentum indicator that uses volume flow to predict changes in the asset price.
Created by Joe Granville and introduced in his 1963 book Granville's New Key To Stock Market Profits.

On Balance Volume has one of the more straightforward calculations in technical analysis. It is simply addition or subtraction based on a few conditions:

1. If Current Closing Price is greater than the Prior Closing Price then:
Previous OBV + Current Volume = Current OBV

2. If Current Closing Price is less than the Prior Closing Price then:
Previous OBV - Current Volume = Current OBV

3. If Current Closing Price is equal to the Prior Closing Price then:
Previous OBV = Current OBV

The running total is plotted as a line. When volume on up days outpaces volume on down days, then OBV rises. When volume on down days outpaces volume on up days, then OBV falls. What this means is that essentially, when OBV is up, buying pressure is up and when OBV is down, then selling pressure is up. The basic theory behind the On Balance Volume indicator is that volume precedes price. This is significant because it allows the OBV to be used for a couple of different purposes. It can be used for general trend identification or confirmation. It can also be used to anticipate price movement after divergences.

Default Inputs

AlertLength sets the number of bars to determine the Alert criteria, 14 by default.