Introduction
Joe Grenvil introduced weighted volume (OBV), in his book "The New Key to Granville profit on the stock exchange in 1963. This was one of the first and most popular indicators, which measures the positive and negative volume. The concept behind the indicator as follows: volume precedes price. Weighted volume is a simple indicator that adds the amount of the period, when the closing occurs with the increase and deducts the amount of this period, when the closing occurs with decreasing. Overall total value derived from the additions and subtractions is the amount, form a balanced line level. This line then may be compared to the price schedule of the main tool for finding a market divergence or confirmation.
Calculation
As stated above, the weighted volume is calculated by adding the amount for a certain period to the current overall value, when the price of market-based instruments rose with increasing volume and subtraction, when the price closes down.
For example, if the closing price today than yesterday's closing price, the new weighting will be equal to the amount of:
OBV = Yesterday's OBV + today's value of volume
If today's closing price is less than yesterday's closing price, the new value will OBV:
OBV = Yesterday's OBV - Today's Volume
If today's closing price is equal to yesterday's closing price, the new weighted volume is:
OBV = Yesterday's OBV
Application
The idea behind the OBV indicator is that changes in the weighted volume will be preceded by changes in prices. Rising volume may indicate the presence of the influx of money into the market-based instruments. Then, as the audience should be the example, the price of market-based instruments also will increase.
Like other indicators, the indicator OBV will take a certain direction. Rising (Bull) line is the weighted volume shows that the higher in the days of growth. If the price of similar increases, the OBV indicator may serve as confirmation of the price trend is upwards. In this case, the rising price is a result of increased demand for market-based instruments, which is a prerequisite for strong ascending trend.
However, if prices move higher, while the line volume is reduced, the presence of a negative divergence. This divergence suggests that the upward trend in demand is not supported properly, and should be seen as a warning sign that this trend will not continue long.
Numeric value-weighted volume is not so important, but rather serves to guide the line. Trader should focus on the direction of OBV and its relationship to the price of market-based instruments.
The above graph shows how the line is a weighted amount can be used as a confirmation of the price trend. The peak in September was accompanied by a subsequent reduction of price to match shipam volume, thus implying that the descending trend should continue.
The use of graphics programs
In most graphic programs Weighted volume can be constructed as an indicator. Typically, the window parameters of the first option specifies the number of periods for the formation of the rolling average, while the other options do not relate to the schedule.
Joe Grenvil introduced weighted volume (OBV), in his book "The New Key to Granville profit on the stock exchange in 1963. This was one of the first and most popular indicators, which measures the positive and negative volume. The concept behind the indicator as follows: volume precedes price. Weighted volume is a simple indicator that adds the amount of the period, when the closing occurs with the increase and deducts the amount of this period, when the closing occurs with decreasing. Overall total value derived from the additions and subtractions is the amount, form a balanced line level. This line then may be compared to the price schedule of the main tool for finding a market divergence or confirmation.
Calculation
As stated above, the weighted volume is calculated by adding the amount for a certain period to the current overall value, when the price of market-based instruments rose with increasing volume and subtraction, when the price closes down.
For example, if the closing price today than yesterday's closing price, the new weighting will be equal to the amount of:
OBV = Yesterday's OBV + today's value of volume
If today's closing price is less than yesterday's closing price, the new value will OBV:
OBV = Yesterday's OBV - Today's Volume
If today's closing price is equal to yesterday's closing price, the new weighted volume is:
OBV = Yesterday's OBV
Application
The idea behind the OBV indicator is that changes in the weighted volume will be preceded by changes in prices. Rising volume may indicate the presence of the influx of money into the market-based instruments. Then, as the audience should be the example, the price of market-based instruments also will increase.
Like other indicators, the indicator OBV will take a certain direction. Rising (Bull) line is the weighted volume shows that the higher in the days of growth. If the price of similar increases, the OBV indicator may serve as confirmation of the price trend is upwards. In this case, the rising price is a result of increased demand for market-based instruments, which is a prerequisite for strong ascending trend.
However, if prices move higher, while the line volume is reduced, the presence of a negative divergence. This divergence suggests that the upward trend in demand is not supported properly, and should be seen as a warning sign that this trend will not continue long.
Numeric value-weighted volume is not so important, but rather serves to guide the line. Trader should focus on the direction of OBV and its relationship to the price of market-based instruments.The above graph shows how the line is a weighted amount can be used as a confirmation of the price trend. The peak in September was accompanied by a subsequent reduction of price to match shipam volume, thus implying that the descending trend should continue.
The use of graphics programs
In most graphic programs Weighted volume can be constructed as an indicator. Typically, the window parameters of the first option specifies the number of periods for the formation of the rolling average, while the other options do not relate to the schedule.Nicholas Fisher
stockcharts.com
stockcharts.com
No comments:
Post a Comment