THE HAnDbook of TEcHnIcAl AnAlySIS(7) running total (Cumulative Line) Indicators like the on-balance volume
(OBV) are constructed with a running total of all past values. Unlike VWAP, there
is no averaging involved in OBV calculations. Hence, it is not considered to be a
true moving average, although it does create a line on the charts where technical
analysis may be applied. Nevertheless, a smoothed version of the OBV may be
created by generating an SMA based on the OBV values for each period. This new
moving average may now be used as a proxy for the OBV, as well as act as a signal
line for the OBV indicator. See Figure 11.18.
(8) adapting to Volatility: adaptive Moving averages Moving averages may
also be adjusted for volatility. There are many forms of volatility-weighted moving
averages, sometimes referred to as adaptive moving averages. They are construct-
ed in such a way that as volatility increases the sensitivity of the moving averages
decreases, thereby distancing the moving averages from price. This is important
so as to reduce the probability of being whipsawed by price in an erratic market.
figure 11.18 VWAP Action on a Daily Chart of Utilities Select Sector SPDR.
Courtesy of Stockcharts.com
figure 11.17 Calculating the Wilder’s Average.