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On Balance Volume (OBV)
Joseph Granville invented the tool in his 1963 book "New Key to Stock Market Profits." He wrote that volume would anticipate price. Therefore, On Balance Volume OBV indicator builds links between the volume and the price change accompanying the certain volume.
The mechanism of its work is not difficult. When the closing price of the ongoing bar is under that of the previous bar, the volume will be taken from the previous value of OBV. When the closing price of the ongoing bar is above that of the previous bar, the value of the volume of the ongoing bar is to be added to the previous value of OBV.
It is worth to use signals sent by OBV as confirming. Oscillators or tendency indicators are usually more important than these signals. However, OBV (as oscillators) provides a strong signal of turn at the discrepancy with the price. Besides, the increase of OBV up to a new top or its fall to the new bottom confirms the bulls' power or bears' power and sends respectively the decrease or increase signal.
