V. 11:6 (270-270): Traders' Tips by Technical Analysis, Inc.

V. 11:6 (270-270): Traders' Tips by Technical Analysis, Inc.
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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.

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