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Glossary
ON-BALANCE VOLUME
On-Balance volume is a volume-dependent tool meant to reveal the connection of deals and asset’s price movements. This is used to confirm a trend and reversals.
When charts show a rising OBV together with decreasing prices, it denotes unstable downtrend ready to turn into a bullish reversal. When OBV falls together with rising prices, the uptrend is weakening and there is a possibility of bearish reversal.
Once the line rises, a price uptrend is verified. When the line falls, a price downtrend is confirmed.
FORMULA
OBV(t) = OBV(t-1) + Vol, if C(t) > C(t-1);
OBV(t) = OBV(t-1) – Vol, if C(t) < C(t-1);
OBV(t) = OBV(t-1), if C(t) = C(t-1),
where: t – current period; t-1 – previous period; C – close price; Vol – volume.
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