OBV
-
efficiency
- Senior Member
- Posts: 27
- Joined: Wed Jun 02, 2004 9:17 am
- Location: Omaha Nebraska
OBV may have been state of the art in 1962 when Granville "invented" it, but we've had PC's for 30 years and allocating ALL volume in one direction or the other is hardly precise.
Market Profile creating a histogram at price increments is better but not practical beyond futures.
Try :
( (C-O)/(H-L)) x V
then run a cumulative sum and apply your moving average to the running figure.
But does volume matter? You transact in PRICE.
I consider high volume = public.
Public = weak hands.
High volume in a upswing satisfies the primal instinct of safety in numbers. But, it also means someone is selling INTO strength. The disntinction being the seller is A. taking profits B. stemming losses (either way eliminating ownership bias) whereas the buyer is incurring FRESH risk.
Stated another way, I personally prefer reasonably quiet breakouts (and partial fills) upon entry versus high volume and tight spreads when I want OUT.
Market Profile creating a histogram at price increments is better but not practical beyond futures.
Try :
( (C-O)/(H-L)) x V
then run a cumulative sum and apply your moving average to the running figure.
But does volume matter? You transact in PRICE.
I consider high volume = public.
Public = weak hands.
High volume in a upswing satisfies the primal instinct of safety in numbers. But, it also means someone is selling INTO strength. The disntinction being the seller is A. taking profits B. stemming losses (either way eliminating ownership bias) whereas the buyer is incurring FRESH risk.
Stated another way, I personally prefer reasonably quiet breakouts (and partial fills) upon entry versus high volume and tight spreads when I want OUT.
OBV may appear rudimentary but in my experience it works well as a filter. It tends to lead price.
I wouldn't necessary use it as an entry/exit signal by itself but if I'm evaluatiing a long (short) trade I would like to see new highs (lows) in prices accompanied by new highs (lows) in OBV.
If new highs (lows) are not accompanied by new highs (lows) in OBV I simply tighten my stops if I'm already in a trade.
Please note that I'm a discretionary trader and have not backtested the impact of this method in any system.
But from my limited trading experience it has saved my ass many times.
I wouldn't necessary use it as an entry/exit signal by itself but if I'm evaluatiing a long (short) trade I would like to see new highs (lows) in prices accompanied by new highs (lows) in OBV.
If new highs (lows) are not accompanied by new highs (lows) in OBV I simply tighten my stops if I'm already in a trade.
Please note that I'm a discretionary trader and have not backtested the impact of this method in any system.
But from my limited trading experience it has saved my ass many times.
-
efficiency
- Senior Member
- Posts: 27
- Joined: Wed Jun 02, 2004 9:17 am
- Location: Omaha Nebraska
Not rudimentary. More like archaic.
Assigning ALL volume in one direction (or the other) was probably convenient before the advent of the PC.
Although precision cannot be attained, there are closer approximations. Such as the formula cited.
As far as "leading", relative strength, neutralizing the influence of the underlying index, should also lead. So would momentum indicators such as ROC, RSI (normalized to a universal range) and a host of others. More applicible to swing trading than trend following.
OBV had its day in the sun. In the 1960's and early to mid 1970's.
Assigning ALL volume in one direction (or the other) was probably convenient before the advent of the PC.
Although precision cannot be attained, there are closer approximations. Such as the formula cited.
As far as "leading", relative strength, neutralizing the influence of the underlying index, should also lead. So would momentum indicators such as ROC, RSI (normalized to a universal range) and a host of others. More applicible to swing trading than trend following.
OBV had its day in the sun. In the 1960's and early to mid 1970's.