Monitoring the Smart Money by Using On-Balance Volume
The study of technical analysis focuses primarily on price and volume. Perhaps it is not surprising that price garners most of the attention. However, volume deserves more than a cursory glance.
Volume is important because it provides information about the strength (or lack thereof) of price movements.
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Heavier volume should be in the direction of the existing trend—volume should be relatively higher on “up” days during an uptrend and on “down” days during a downtrend. Furthermore, price movements on heavier-than-normal volume are more apt to continue than those with light(er) volume.
One of the more useful technical indicators used by technicians is “on-balance volume” (, which was introduced by Joseph Granville in his 1963 book “Granville’s New Key to Stock Market Profits.” OBV takes volume analysis beyond the volume bars typically seen below a price chart and provides a visual representation of the volume flow for a given security, enabling you to compare it against the price action.
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