Joseph Granville developed and launched the On Steadiness Quantity (OBV) indicator to the technical evaluation group in his 1963 e-book Granville’s New Key to Inventory Market Income. It has since develop into a highly regarded indicator used to measure shopping for and promoting stress.
See the OBV in motion on this fast video tutorial:
By definition OBV is a operating complete of quantity. When the instrument closes greater than the earlier shut, the entire day’s quantity is taken into account up-volume. Conversely, when the instrument closes decrease than the earlier shut, the entire day’s quantity is taken into account down-volume.
Granville’s principle behind the OBV is that quantity precedes worth. When quantity will increase with none main strikes within the worth of an instrument, the instrument would ultimately “spring” up. Equally, when an instrument’s worth stays unchanged but quantity is noticeably reducing, this instrument is poised to fall.
The worth of the OBV indicator doesn’t maintain a lot advantage. Somewhat, it’s the conduct of the OBV line that technical analysts use to forecast potential market strikes through the next strategies:
- Pattern Identification
- Help & Resistance
- Divergence
Pattern Affirmation
Figuring out the pattern of the OBV and evaluating it to the pattern of the instrument studied can act as helpful pattern affirmation software. The chart beneath options the each day Gold Futures Contract over a 6-month interval. One can simply determine the same conduct of the GC and OBV indicator backing Granville’s principle of quantity main worth.
Help & Resistance
Using the identical chart and timeframe, manually drawn help & resistance zones on the OBV indicator can present technical analysts with further perception on potential market conduct. As buying and selling quantity continues to satisfy resistance or help ranges, it warrants additional consideration as a reversal or a flat market conduct may very well be on the horizon.
Divergence
Recognizing divergence between an instrument and the OBV indicator might be much less frequent & more difficult to determine in actual time. Nonetheless, sticking with the precept that quantity leads worth, divergences generally is a highly effective indication {that a} change in worth conduct could also be forthcoming.
Under is a traditional instance of bullish divergence seen within the each day U.S. Treasury Bond Futures (ZB). The worth pattern is on a decline whereas the general pattern of the OBV is on the rise. This conduct demonstrates that the bears are dropping energy and the bulls are within the place to regain management of the market.
As with various buying and selling indicators, the OBV has its limitations. As a result of the OBV is usually used to foretell market reversals, false indicators generally is a frequent incidence. Due to this fact, using the OBV as a affirmation software alongside different strategies of basic & technical evaluation is usually thought-about finest follow. The OBV is only one of over 100 free indicators included within the award-winning NinjaTrader platform.
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