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Computerized Investing > First Quarter 2013

On-Balance Volume (OBV)

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by CI Staff

While traders and investors are primarily concerned with price, volume—the number of shares traded— is also an important element, especially in technical analysis. It provides information regarding the strength (or lack thereof) of price movements. Meaningful trends should have a corresponding increase in trading volume: Volume should be relatively higher on “up” days during an uptrend and on “down” days during a downtrend. Price movements—especially breakouts and trend reversals—on heavier-than-normal volume are more apt to follow through than those with light(er) volume.

On-balance volume (OBV), introduced by Joseph Granville in 1963, is a momentum indicator that relates volume to price change. It provides a running total of volume flowing into and out of a security. Traders use OBV to confirm a trend: An upward sloping OBV confirms an uptrend, while a downward sloping OBV confirms a downtrend.

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