On Balance Volume

On Balance Volume

The On Balance Volume indicatorshows a relationship of price and volume as a momentum index. On Balance Volumeindex generally precedes actual price movements. informed investors are buyingwhen the index rises and uninformed investors are buying when the index falls.Volume is the number of shares or contracts that change ownership over a givenperiod of time. On Balance Volume is a momentum indicator that relates volumeto price change. It is an indication of supply and demand that is independentfrom price and can relate a great deal about the relative enthusiasm of buyersand sellers in the market place.

On Balance Volume is oneindicator that is designed to track changes in volume over time. It is the running total of volume calculatedin such a way as to add the periods volume to a cumulative total if the periodsclose was higher than the previous periods close and to subtract the periodsvolume from the cumulative total on down periods. The assumption is that changes in volume willprecede changes in price trend. should be used in conjunction with otherindications of price trend reversals.

It shows if volume is flowinginto or out of a instrument. When the instrument closes higher than theprevious close, volume is considered up-volume. When the instrument closeslower than the previous close, all of the periods volume is considereddown-volume.

OBV changes precede pricechanges. The smart money is flowing into the instrument by a rising OBV.When the public then moves into the instrument, both the instrument and the OBVwill surge ahead.