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In the world of finance, one term that often comes up is On Balance Volume (OBV). This is a popular volume indicator created by Joseph Granville. It involves constructing an OBV line by assigning daily volume a positive or negative value based on whether prices closed higher or lower that day. A higher close results in a positive value while a lower close results in a negative value. This creates a running total that is constantly adjusted based on the direction of the close. Instead of focusing on the actual volume numbers, it is important to pay attention to the direction of the OBV line.
The formula for OBV is as follows: OBV=SUM(C-CP)/(ABS(C-CP)xV). Here, C represents today's close, CP represents yesterday's close, and V represents today's volume. By understanding this formula, we can better interpret the OBV line and make informed decisions in the world of finance.
