# How to Calculate an On-Balance Volume

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On-balance volume (or OBV) is a technical analysis tool developed by famed analyst Joe Granville. He published his work in the book "New Strategy of Daily Stock Market Timing for Maximum Profits." OBV is a method that interprets the moving average of volume.

Use technical analysis, the action of price and volume together to reinforce, or confirm, the validity of a price movement. Plot on balance volume beneath price points in a graph. Graph OBV with popular technical stock programs that contain an OBV module. Employ different lengths of moving averages for short term, intermediate and long term trading objectives. Look for the point where the graphed result begins to change direction, usually before prices actually change.

Look for the OBV changes to turn up prior to a clear upward price trend. This implies that a trend of rising OBV indicates institutional stock purchases. When the public brings added buying pressure then and only then will price and volume surge. Trade the OBV signal after price follows volume up or down.

Program the OBV using any standard spreadsheet program. The formula for the OBV is discrete and requires advanced spreadsheet programming skills. The formula (in Metastock form) is: If today's close > yesterday's close then OBV = yesterday's OBV + today's volume If today's close < yesterday's close then OBV = yesterday's OBV - today's volume If today's close = yesterday's close then OBV = yesterday's OBV

Use the OBV to confirm a rising or falling market. Rising markets occur when new peaks are higher than the previous peak and bottoms are higher as well. When tops and bottoms are lower than the previous pattern the trend is downward. Sideways action is when there is no major peaking pattern but a weak series of highs and lows.

Use a derivation on the OBV called the Williams %R. Trade with this measure for short term trading opportunities. Know that %R relies on volume figures but uses them in a more proportionate way than the OBV all-or-none technique.

## Tips & Warnings

• Understand that unlike a moving average where each day's average is added and the earliest day of the moving average is dropped the OBV technique requires that when a stock closes higher than the previous close all volume is considered up.Trade a bearish trend if the price is lower than the previous day's volume.
• Practice or "paper trade" before investing real money in any trading strategy.

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