On Balance Volume (OBV) is a very popular momentum indicator that tracks absolute change in volume to speculate price movement. It’s a mass belief that volume drives price due to aggressive trades from institutional investors. On Balance Volume indicator essentially tracks this smart money flow into the market and signals future price direction. OBV indicator was developed by Joseph Granville and introduced it in his book, “Granville’s New Key to Stock Market Profits”. In this post we would understand OBV applications and its calculation steps, there is an real time excel sheet attached at the end of post which calculates OBV for any given stock symbol.
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On Balance Volume (OBV) Calculation
OBV is calculated based on current and previous Close and Volume values.
- Initial OBV of the price series is equal to absolute volume.
- If current price is greater than previous price, then current OBV= previous OBV+current volume
- If current price is less than previous price, then current OBV= previous OBV-current volume
- If current price is equal to previous price, then current OBV= previous OBV
Theory Behind On Balance Volume (OBV)
As stated earlier OBV tracks smart money flow in the market. Breaking it down further, if absolute volume for a particular period increases or decreases sharply without any significant change in price, then it indicates that the price is going to move shortly. Sharp increase in volume without significant price change signals bullish move, while sharp decrease in volume without significant price change signals bearish move. This theory is backed upon assumption that institutional investors are either buying or selling in bulk when volume changes suddenly. While retail investors are taking positions opposite to institutional investors due to which volume change doesn’t reflect in price movement instantly. Eventually volume would drive the price either upwards or downwards.
OBV can be interpreted in the following ways:
- If change in OBV value is relatively higher than change in price for a given time period, then there may be sharp upside or downside in the price in near future. We have included columns in the Excel sheet which auto calculates change in OBV and change in price.
- OBV Divergences can be quite handy and reliable too. A Bullish divergence is formed when OBV forms higher high and higher low, while price forms lower low. Similarly Bearish divergence is formed when OBV forms lower high and lower low while price forms higher high.
OBV can be very useful for your trading decisions when used with other price action patterns.
On Balance Volume Excel Sheet Overview
This is an semi-automated Excel sheet which updates by itself on a single click. You would just need to enter the stock name, exchange and timeframe and the Excel sheet would do the job for you. The excel calculates OBV , change in OBV (%) and change in price (%)
See the below screenshots:
How to use this Excel Sheet
Step 1: Download the Excel file from the end of this post.
Step 2: Open this Excel file and make sure you are connected to internet. Please accept if it asks to enable Macros and Data connections.
Step 3: Input the Symbol Name, Exchange Name, Interval and Number of Days.
Step 4: Click on Get Data button. The data would be automatically downloaded and OBV values would be caluclated. This data can be downloaded for max 15 days and the minimum interval is 1 minute.
Download link for On Balance Volume(OBV) Excel Sheet
Please see the below link to download OBV excel Sheet. Please let us know if you have any feedback or comments.