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Accumulation/Distribution ---On Balance Volume Graphs

I usually plot both the A/C and OBV on my watch charts to monitor with price. Could be daily, hourly, 15 Minute charts etc. Many times either the A/C rises while the OBV goes down... or vice versa. I am trying to determine quickly if there is true volume entering the stock. I feel most secure when both are rising, but when they diverge, I am uncertain. Any ideas on how to resolve.


  • markdmarkd mod
    edited May 2017
    A/D add volume depending on where a stock closes in relation to its midpoint. That's a pretty good way to account for the balance of buying and selling, but what bothers me is it does not take into account the change in price from the prior close. So, for instance, if a bar that gaps down - the high is below the previous low - but closes at the top of its intraday range - at the high of the bar -, then A/D ADDs the volume - ALL of it - even though the stock closed down. So there is no accounting for the selling that caused the price to decline. I don't see how that can be right.

    OBV is much cruder than A/D, it just adds all the volume is the stock closes up, by even one tick, and subtracts all the volume if the close is down. Unlike A/D, OBV takes no account of range. For instance, suppose on heavy volume a stock closes up one tick, but most of the day traded below the previous low. All the volume goes on the positive side, even though there was a lot of selling. Or course, over time, that would happen on the negative side, too - a stock spends most of the day up, then closes lower, so all that buy volume counts as sell volume. Over time, the imbalances do seem to work out.

    The problem with OBV (A/D, too) is it is hard to use for signals in the short term. As the volume total grows the scale increments get small, so it's hard to see the smaller trends, and peaks and troughs that might be tradable.

    One way around that is Force, which uses a parameter to limit the data incorporated into the indicator. The default is 13, but other parameters seem to work, too. To my eye, it better captures the ebb and flow of accumulation and distribution over the shorter term. Check out the Chart School article for ways to interpret it.

    Money Flow is another volume indicator worth investigating. It works like an oscillator. Also worth reading the Chart School article.
  • Great technical response !! I will look at Force or Money Flow as an alternate. Thanks markd !!
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