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1992issue C061

Constructing a breadth index from on-balance volume

A volume index is built by combining the current on-balance volume readings of the financial indices in a defined group. Each constituent can be scored +1, -1, or counted as neutral, and the scored series ranges from +8 to -8 when charted against the financial index.

  • On-balance volume updates a running total by adding a day's volume after a positive close and subtracting that volume after a negative close.
  • A confirmation sequence of higher highs and higher lows is treated as positive confirmation of the prevailing trend; lower lows and lower highs are treated as a negative reading.
  • A volume index is formed by combining the current on-balance volume state of each financial index in a defined group.
  • Each constituent can receive a breakout score of +1, -1, or a neutral reading, and the scored volume index ranges from +8 to -8 for comparison with the financial index.
Entries in this reading3 entries
Current trackOn-balance volume88 readingsMarket breadth147 readingsVolume-price analysis207 readings

How on-balance volume is updated and plotted

On-balance volume updates a running total by adding a day's volume after a positive close and subtracting that volume after a negative close.

Each day's on-balance volume value is plotted as a series. That series is applied as a leading or confirming reading of a market trend.

What a confirmation sequence shows

A confirmation sequence is a pattern of successive higher highs and higher lows, or lower lows and lower highs, in the plotted on-balance volume line.

A sequence of higher highs and higher lows in on-balance volume is treated as positive confirmation of the prevailing trend. A sequence of lower lows and lower highs is treated as a negative reading of the prevailing trend.

Editorial reading: volume-price analysis asks whether price direction and this signed volume total agree, so the prevailing trend can be treated as confirmed or contradicted.

Combining constituents into a volume index

A volume index can be constructed by combining the current on-balance volume readings of the financial indices that make up the group.

Market breadth is the count of how many constituent markets sit in a bullish, bearish, or neutral on-balance volume state at the same time.

Assigning a breakout score

Each constituent can be scored +1 for a bullish breakout, -1 for a bearish breakdown, or counted as a neutral reading. That discrete vote is the breakout score, later summed across constituents.

The scored volume index ranges from +8 to -8 and is charted against the financial index for comparison.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
18 of 61 in the On-balance volume track
19921-7 pp.Next on On-balance volumeConstructing signed market thrust from issue volumeThe conventional trading index divides the advancing-to-declining issue ratio by the advancing-to-declining volume ratio and treats a reading of 1.00 as neutral.
All readings on this track · 61 readings
  1. 1988Cumulative volume trend and 200-session polarity
  2. 1988Three clocks when cumulative volume led price
  3. 1988Payoff index checkpoints for open interest and divergence
  4. 1988Relative strength, stochastics, and on-balance volume as a turning-point stack
  5. 1988Signing volume by open interest change
  6. 1988Case study: weekly on-balance volume with trendlines and a 21-period average
  7. 1988Combining weekly and daily MACD divergences with on-balance volume
  8. 1988Restoring the original tests for market breadth, on-balance volume, and trendlines
  9. 1989Evaluating volume-weighted breadth extremes
  10. 1989Demand oscillator construction with a momentum overlay
  11. 1989Constructing a volume percentage ratio from advance-decline flow
  12. 1990Constructing net positive volume as On-balance volume
  13. 1990Buying-share scale with on-balance volume
  14. 1990Friday-filtered on-balance confirmation lines
  15. 1991Constructing rate-market volume breadth from on-balance volume
  16. 1991Building a breadth composite from on-balance volume breakouts
  17. 1992Constructing a rate-complex volume-breadth index
  18. 1992Constructing a breadth index from on-balance volume
  19. 1992Constructing signed market thrust from issue volume
  20. 1992Constructing indicator phase across averages, volume and bands
  21. 1993Force on-balance volume to agree with itself at slower horizons
  22. 1993Three transforms of market thrust from breadth and volume
  23. 1994Constructing a tick-line momentum oscillator
  24. 1994Constructing a smoothed on-balance tick momentum oscillator
  25. 1994Histogram confirmation and a second-series veto for MACD-family alerts
  26. 1994Constructing a 40-period envelope on on-balance volume
  27. 1996Constructing a matched percent-B volume disparity
  28. 1997Constructing calendar regime overlays and volume-weighted rules
  29. 1997Constructing market thrust from breadth and volume
  30. 1997Constructing on-balance volume as a signed running total
  31. 1997A three-layer construction for a signed volume-force oscillator
  32. 1997Constructing a range-sum volume-force oscillator
  33. 1999On-balance volume confirmation, price-indicator divergence, and bounded exits
  34. 2000A daily long-only confirmation stack on the tether line
  35. 2000A three-filter tether and volume trend system
  36. 2003Constructing finite volume elements as a finite-period money-flow filter
  37. 2003Constructing on-balance volume from signed session volume
  38. 2003On-balance volume as a market-breadth participation ledger
  39. 2003Construct a volatility-adjusted on-balance volume filter before confirming a breakout
  40. 2004Opening and midday ranges as an on-balance-volume breakout case
  41. 2004Constructing a volatility-gated volume-flow measure
  42. 2004Constructing a volume-flow series from on-balance volume
  43. 2004Volume-flow indicator construction from on-balance volume
  44. 2004Volume-flow slope divergence, then separate on-balance-volume and crossover rules
  45. 2004Volume flow and band construction as one inspectable problem
  46. 2004Auditing advance-decline confirmation for scale, horizon, and composition
  47. 2005Bounded market breadth from the Arms index to BRIN
  48. 2006Overnight-hold entry and exit construction
  49. 2007Evaluating Volume-price confirmation versus On-balance volume and MACD
  50. 2009Volume confirmation versus a price advance
  51. 2010Typeahead retrieval of a moving average, on-balance volume, and a stochastic oscillator
  52. 2010Modified volume-price trend and log-price scale alignment
  53. 2010Constructing liquidity accelerometers from advance-decline averages
  54. 2012Failed short cycles as breadth and volume tests
  55. 2016Earnings straddles, implied volatility, and money-flow filters
  56. 2017A volume residual filter and a price projection matrix
  57. 2019Volume-volatility parabola and signed-volume momentum
  58. 2019Separating on-balance volume into breadth and volume
  59. 2020Constructing the obvm signal line
  60. 2020Constructing smoothed on-balance volume with a signal line
  61. 2020Keep neutrality as a first-class input in three-state market data
By fieldMarket breadth135 readingsBy year1992153 readings
All 88 readings tagged On-balance volume
Also on On-balance volume5 readings
1989Evaluating volume-weighted breadth extremes1992Constructing a rate-complex volume-breadth index1992Constructing signed market thrust from issue volume1997Constructing market thrust from breadth and volume2005Bounded market breadth from the Arms index to BRIN