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On Balance True Range by Thomas A. Bierovic

On-Balance True Range (OBTR) is my attempt to improve on the old On-Balance
Volume study (OBV). In OBV you add today's volume to a running total of volume if the market closes higher than yesterday, and you subtract today's volume from a running total of volume if the market closes lower than yesterday. The OBV line confirms the current trend by making new highs or new lows along with prices, or it warns of a possible trend reversal by diverging from price action.

OBV is a reasonably good trend-following indicator, but it has two problems. First, you cannot get accurate volume figures until the day after each trading session. If you trade from the daily charts, you are not able to update your OBV study before the markets open the next day. If you are an intraday trader, you must rely on tick volume, rather than actual volume, if you want to use the OBV study. Tick volume, however, can be very misleading. Tick volumetells you the number of trades made per intraday period, but it does nottell you the actual number of contracts traded. For example, a tick volumeof 45 for a 15minute period tells you that there were 45 trades during thattime, but the trades could have averaged one contract per trade or 100 contractsper trade. The second problem with OBV is that gaps are fairly common onthe daily charts and can represent a considerable change in price, but obviouslynovolume occurs in gaps. Volume is not representative of a market's realstrengthor weakness on days where there is a gap between yesterday's closeand today's high or low.

My OBTR study solves the two problems of OBV. Since there is a high statistical correlation between volume and True Range, I simply substitute True Range for volume in the OBV study. True Range is usually just the difference between a period's high and low. However, if the previous close is below the current period's low, True Range is the difference between the current high and the previous close. If the previous close is above the current high, True Range is the difference between the previous close and the current low. In other words, True Range fills in the gaps. On-Balance True Range is an improvement to On-Balance Volume because you donŐt have to rely on tick volume or wait until tomorrow to obtain actual volume figures and because OBTR more accurately reflects a market's real activity when there is a gap.

To calculate OBTR, just add the current period's True Range to a runningtotal of True Ranges if the market closes higher than the previous period'sclose or subtract the current period's True Range from a running total ofTrue Ranges if the market closes lower than the previous period's close.

For my own trading, I calculate a nine-period Exponential Moving Average(EMA) of OBTR and use OBTR crossings of the EMA to confirm divergences betweenprice and oscillators (e.g. MACD, RSI, and Stochastics). Bullish divergenceoccurs when a market makes a low, rallies, and then declines to a lower low,while an oscillator makes a low, rallies, and then declines to a higher low.Bearish divergence occurs when a market makes a high, declines, and thenrallies to a higher high, while an oscillator makes a high, declines, andthen rallies to a lower high. Divergence is a clue - an early warning signthat the trend might change very soon, but we must wait for the market itselfto tell uswhich divergences to act upon and which to ignore. Waiting forOBTR to crossitsEMA before you buy or sell will filter out many unprofitableoscillatorsignals.

In the Cotton example, RSI diverged from the new price lows at A and B. but we did not buy because OBTR did not cross above its EMA. At c, prices fell to another new low, but RSI made another higher bottom. We bought Cottonon the opening four days after c because OBTR rose above its EMA in a bullishdivergence environment. As the uptrend progressed, RSI diverged from new price highs at D, E, and F. We didnŐt exit our long position or sell short, however,because OBTR remained above its EMA. The trend following component of ourmethod kept us well-positioned in the uptrend despite the bearish signalsfrom the RSI.

On the Eurodollar chart, there was bearish divergence between the new price high and the lower Stochastics high at B. We sold short three days afterthe high when OBTR crossed below its EMA. At points C, D, E, and F. Stochastics formed a series of bullish divergences, but we didn't exit our short position or go long because OBTR remained below its EMA. At G. Eurodollars fell to another new low, but once again Stochastics formed a higher bottom. We exited our short position and went long two days after the low when OBTR crossed above its EMA in the bullishdivergence environment.

Integrating oscillators and OBTR creates a simple yet powerful trading method. My On-Balance True Range study provides reliable trend-following confirmation of oscillator divergence signals in all time frames from intraday chartsto the daily and weekly charts. I hope you will find OBTR to be a usefuladdition to your technical toolbox. Best wishes for profitable trading.

Thomas A. Bierovic is an independent futures trader and technicalanalysis teacher with 24 years of successful trading experience. Tom has presented highlyrated seminars throughout the U.S., Europe, the Middle East, Asia, and the Far East. He teaches technical analysis for the Chicago Board ofTrade, the National Futures Association, and Futures magazineŐs Futures &Options School. He also conducts individualized, one-on-one workshops forboth independent and institutional futures traders.

Tom is the author of A Synergetic Approach to Profitable Trading and theinstructor on Futures magazines' video series Synergetic Technical Analysis.SynergyFax, his daily fax advisory service, gives specific recommendationsfor allmajor U.S. futures markets.

OBTR

To: "'metastock-list@xxxxxxxxxxxxx'" <metastock-list@xxxxxxxxxxxxx>
Subject: OBTR
From: JH McLean <malton@xxxxxxxxxxxxxxxx>
Date: Wed, 27 Aug 1997 13:36:14 +1000
Resent-Date: Tue, 26 Aug 1997 22:04:04 -0600
Resent-From: metastock-list@xxxxxxxxxxxxx
Resent-Message-ID: <"Kqa7Z.0.Aw1.pSw0q"@mail.equis.com>
Resent-Sender: metastock-list-request@xxxxxxxxxxxxx

In reference to Saturday 23 August 1997 posting of OBTR formula by Tim Kruzel

The On Balance True Range formula sent in:


On Balance True Range I

Cum(If(C > Ref(C,-1),1,-1) *
(If(Ref(C,-1) < L,
{Then} (H - Ref(C,-1)),
{Else}
If(Ref(C,-1) > H,
{Then} (Ref(C,-1) - L),
{Else} (H - L)
))))

 

To my way of thinking disregards the possibility of consecutive equal closes which does distort the indicator considerably in a flat market.
This may be done on purpose as I do not know the indicator or its use. (I would appreciate any information on its use - it looks quite interesting.)

To overcome the equal close problem the following modification looks appropriate:

 


On Balance True Range II

Cum(If(C > Ref(C,-1),1,
If(C < Ref(C,-1),-1,0))*
(If(Ref(C,-1) < L,
{Then} (H - Ref(C,-1)),
{Else} If(Ref(C,-1) > H,
{Then} (Ref(C,-1) - L),
{Else} (H - L)
))))

 

Also, in my humble opinion, the On Balance Volume formula as shown in the MS help files:

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

Has the same problem (this formula does not mirror the built in indicator)

If modified as :

(If(C > Ref(C,-1),1,If(C < Ref(C,-1),-1,0)) * VOLUME) + PREV

Does mirror the built in indicator.

Any comments Equis?

Best of luck, James

[2024]


OBTR

To: metastock-list@xxxxxxxxx
Subject: OBTR
From: kandersen4@xxxxxxxx (Ken Andersen)
Date: Fri, 5 Sep 1997 11:44:51 -0500
Resent-Date: Fri, 5 Sep 1997 09:46:48 -0600
Resent-From: metastock-list@xxxxxxxxxxxxx
Resent-Message-ID: <"r6qAu2.0.oF6.db24q"@mail.equis.com>
Resent-Sender: metastock-list-request@xxxxxxxxxxxxx

Al Taglevore, Robert Doeden,

<<... I fail to see how the results differ from OBV.>>

Al: The formula given on this list obviously isn't the complete indicator that Bob uses. It is only part of it.

Bob describes what it does and does not look like: "Looks like a slow MACD with two oscillators that cross. If you have only one line that is not what the Livewire OBTR looks like."

Looking over Bob's previous posts, especially the most recent one, I am inclined to believe that the following formula is the same that he is using. I compared this indicator to his observations of various markets that heincluded in his last post. It APPEARS to be dead on.

It seems that when the MACD and Stochastics give buy signals, the OBTR confirms the signal when the short-term OBTR crosses above both the intermediate-term and the long-term OBTR.

Plot these three OBTR indicators in the same inner window and compare for yourself.
Don't hesitate to let me know if I am wrong.


On Balance True Range Short-Term

Mov(Cum(If(C > Ref(C,-1),1,-1) *
(If(Ref(C,-1) < L,
{Then} (H - Ref(C,-1)),
{Else}
If(Ref(C,-1) > H,
{Then} (Ref(C,-1) - L),
{Else} (H - L) )))), 10 ,E)

 


On Balance True Range Intermediate-Term

Mov(Mov(Cum(If(C > Ref(C,-1),1,-1) *
(If(Ref(C,-1) < L,
{Then} (H - Ref(C,-1)),
{Else}
If(Ref(C,-1) > H,
{Then} (Ref(C,-1) - L),
{Else} (H - L) )))), 10 ,E),10,E)

 

 


On Balance True Range Long-Term

Mov(Mov(Mov(Cum(If(C > Ref(C,-1),1,-1) *
(If(Ref(C,-1) < L,
{Then} (H - Ref(C,-1)),
{Else}
If(Ref(C,-1) > H,
{Then} (Ref(C,-1) - L),
{Else} (H - L) )))), 10 ,E),10,E),10,E)

 

 
 
Ken

[2256]

Source / From: TOP
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