The On Balance Volume Indicator
With Volume being such a key (and often under-utilized) parameter in the markets, one indicator stands out for a couple of specific reasons – identifying Reversal points in a stock’s chart.
The indicator is the On Balance Volume (OBV). To explain it simply, it tries to measure if money is coming into a stock or going out. It adds the current day’s volume to the a running cumulative total if the day was up (which means there was more buying activity). And it subtracts a day’s volume from the running total if it was a down day. By doing this, it adds a layer of analysis that combines price and volume in one indicator.
For the most part, the indicator simply confirms the price trend. Where it is most useful is when it shows a divergence from Price.
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