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OBV - Good Example of if() Function
This is part of a larger Technical Analysis site provided by Equity Analytics, Ltd.

Personally, I don't care too much to look at volume bars on the bottom of a chart. I've never felt it was precise enough to gain much insight from other than to get a general idea as to how volume is running. Also, it's hard to relate volume to price with just volume bars.

This is why I consider On Balance Volume to be such a useful indicator. It was developed by Joseph Granville. On Balance Volume creates a volume line along the bottom of a price chart. OBV is relatively easy to construct. We first start with a beginning number. It should be relatively high. I use 50,000. Then, on day one, if the close is positive, that days volume is added to the 50,000. If the days close was lower, the volume is subtracted. So on up days, volume is added. And on down days, the volume is subtracted. The result is a fluctuating line.

The value of the On Balance Volume is that it generally is a precursor to a change in trend. The holding is that smart money leaves a security first when it is near a top; and also that the smart money is buying when a security is near a low. When the general public catches on to a security's rise in price, volume will increase substantially and the OBV line will increase rapidly faster. Conversely, On Balance Volume will start to decrease while price is still rising. This indicates that the smart money is leaving the security.

Another valuable aspect of On Balance Volume is when divergence's occur. When OBV is decreasing while the price is increasing, a signal is generated that the rally may not be as solid as it appears. When price is declining and OBV is increasing, it is a sign that the investor shouldn't become too bearish. The decline may not last too long.

written and copyrighted by:
Charles J. Kaplan, President, Equity Analytics, Ltd.


OBV

(if(c > ref(c,-1),1,-1) * volume) + PREV

 

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