Daytrading With On-Balance Volume by D.W. Davies
Where is the smart money going? Here’s how you can find out.
On-balance volume (OBV) is a momentum indicator
that relates price change to volume. It has
proven itself over and over again as an important
market trading tool for the intermediateterm
investor. It is particularly useful for spotting
accumulation or distribution during periods
of price consolidation.
Most intermediate-term investors include a study of OBV
in their research of a potential stock buy or sell. However, it
can also be a great aid in the rough-and-tumble world of
daytrading the emini stock index futures.
First, a little background on OBV. The indicator was
developed by the technical analyst and market guru of yesteryear, Joe Granville. He presented a detailed account of this
valuable market tool in his New Strategy Of Daily Stock
Market Timing For Maximum Profits. It is from this book we
get the trading maxim “Volume precedes price.”
On-balance volume is calculated by adding the volume to a
cumulative total when price closes up, and subtracting the
volume when price closes down. If there is no price change,
there is no change made to the OBV cumulative total.