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Indicators | OCT 1997
On-Balance Volume by John Sweeney
The on-balance volume indicator is a technical tool that traders use to determine the trend of volume. Here are the basics. The interplay of price and volume is the combination that is most discussed in traditional technical analysis. In these discussions, volume either confirms or does not confirm price movement by its expansion or contraction from prevailing values. Analysts examine the wildly fluctuating bar charts usually shown below price graphs to determine whether volume is truly expanding or contracting. To smooth the fluctuations in volume and also provide an overall indicator of price direction, trader Joseph Granville proposed in 1976 that volume should simply be summed each day according to whether the price went up or down. If the price went up from close to close, the day’s volume would be added to the running total. If price went down, on the other hand, the day’s volume would be subtracted from the running total.
by John Sweeney
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