Mikula Forecasting Company

MarketWarrior: Using On Balance Volume

The On Balance Volume (OBV) was developed by Joseph Granville. This is a summation indicator which judges weather the buying volume or the selling volume is greater. For most traders buying is the only way they will trade in stocks. When trading stocks it is my opinion the OBV performs best when looking for bullish divergence to buy long, so stock traders should find this useful. The chart below shows the stock Braskem SA, symbol BAK, which is a petrochemical company that trades on the NYSE but is from Brazil. On the chart below I have labeled a Bullish Divergence between the price and the OBV using "A" and "B". When the market made a lower bottom at "B" while the OBV made a higher bottom at "B", the OBV is indicating that traders are accumulating this stock during the decline. When traders accumulate a stock while it is declining it indicates a strong upswing is coming. After "B" this market started a swift upswing which is still in progress.



Here is another example for the On Balance Volume (OBV). This chart shows the stock, S1 Corporation, symbol, SONE. I have again labeled a bullish divergence using "A" and "B". Notice "B" marks a lower price bottom than "A", while the OBV made a higher bottom at "B". In this situation the OBV is indicating traders are accumulating this stock while it was moving down into bottom "B". When traders accumulate a stock while it is declining it indicates a strong upswing should start soon. After the bottom "B" the market made a strong upswing as indicated by the OBV.