Volume and Open Interest
6.2 Volume Oscillators
There are numerous volume‐based oscillators and indicators, with some of the
more popular ones being:■ (^) Volume Weighted Moving Average (VWMA)
■ (^) Accumulation Distribution Line (ADL)
■ (^) On Balance Volume (OBV)
■ (^) Chaikin Money Flow
■ (^) Chaikin Oscillator
■ (^) Demand Index
■ (^) Herrick Payoff Index
■ (^) NYSE Up/Down Volume Line
We analyze oscillators for bullish and bearish signals using the eight standard
methods of observation (refer to Chapter 8 for more on oscillator analysis):
- OBOS Overextended Levels
- Equilibrium and Zero Line Crossovers
- Signal Line Crossovers
- Price-Oscillator Divergence
- Geometrically Based Oscillator Pattern Analysis
- Numerically Based Oscillator Pattern Analysis
- Horizontally Based Oscillator Pattern Analysis
- Oscillator‐on‐Oscillator Analysis
price‐based Volume Indicators: the ObV and a/D line
The On Balance Volume (OBV) oscillator is simply a cumulative or running total
of each period’s volume added or subtracted from a running total depending on
whether the current period’s close is higher or lower than the preceding period’s
close price. If the current period’s close is higher than the preceding period’s close
price, the current period’s volume is added to the running total. If it is less than the
preceding period’s close price, the current period’s volume is subtracted from the
previous running total. If the closing price remains unchanged, no volume is added
or subtracted from the running total. The disadvantage of using the OBV is that its
absolute value or reading is dependent on the start date. Nevertheless, this does not
affect the changes in the relative value of the OBV line. As such, all eight oscillator
analysis methods may still be employed to determine bullish and bearish signals.
One major weakness of the OBV oscillator is that the current period’s volume is
added or subtracted from the cumulative total regardless of the current period’s price
behavior. For example, assume that the current period’s bar closes just below the pre-
vious period’s close price. This would mean that the current period’s volume would
be subtracted from the running total regardless of the fact that the current bar may
have made a new significant high, way above the previous bar’s high. To redress this
issue, many practitioners prefer to use the ADL, Chaikin Money Flow (CMF), or the