Traders' Tips by Technical Analysis, Inc.
ON-BALANCE VOLUME Many indicators try to divine from daily data what went on in intraday trading.
For example, the simple on-balance volume indicator (OBV) assigns the full impact of a day's full volume
by the behavior of the closes. For steady-volume blue chips, this is not much of a problem, but it is for
thinly traded stocks such as the penny stocks. The close could be affected by a small last-minute trade in
a very thin market. Traders of penny stocks will have noticed an adverse sensitivity of the classic
unmodified on-balance volume indicator (OBV).
My suggestion: Incorporate the high and the low in the calculation of the OBV indicator. I call this
indicator the multivote OBV. The following formulas assign +3 if all votes agree to a gain and -3 if all
agree to a loss. If today's high, low and close are all higher than yesterday's, then today's volume is
multiplied by +3 and added to the running sum of the volume.