The On Balance Volume (OBV) is a running total of volume. It shows if volume is flowing into or out of a stock on the stock market.

When the security closes higher than the previous period's close, all of the day's volume is considered up-volume. When the security closes lower than the previous period's close, all of the period's volume is considered down-volume.

Calculating:

di = +1   if Ci > Ci-1
     -1   otherwise
Then
OBVi = Vi * di + OBVi-1

The basic trading rules all assume that changes in the OBV precede price changes in the stock.

An example of one trading rule, if money is flowing into the stock, indicated by a rising OBV and a rising stock price, and then the OBV changes direction (goes down) the assumption is that buyer interest is flagging and one should prepare for a drop in price.

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