2020issue C0422-25
Constructing smoothed on-balance volume with a signal line
A two-stage exponential stack turns close-signed volume into a working series and a signal line. Crossovers and price-indicator swing mismatches can then be written as named conditions instead of being read from the raw accumulation series by eye.
- Classic on-balance volume adds session volume after a higher close, subtracts it after a lower close, and holds the prior total when the close is unchanged.
- The working series is a short exponential of that total, called OBVM, and the signal line is a longer exponential of OBVM. A defined pair is 7 and 10; other pairs shown are 3/10 and 7/50, with the signal-line window typically from 10 to 50.
- A bullish signal-line crossover is the smoothed series turning up through the signal line; a bearish crossover is a turn down through it. A bullish divergence is a higher low in the smoothed series against a lower low in price; a bearish divergence is a lower high against a higher high in price.
- The construction is specified for daily or weekly charts as a trend-confirmation, crossover, and divergence filter. It is described as prone to whipsaws and not suitable as a standalone tool.
Close-signed volume as a running total
Classic on-balance volume is built from close-to-close direction. Current volume is added after a higher close, subtracted after a lower close, and the series is left unchanged when the close is unchanged. That running total is the close-signed volume series on which the later averages are stacked.
A short exponential and a signal line
The modified construction defines the working series as a 7-day exponential average of on-balance volume. That short exponential is OBVM. The signal line is a 10-day exponential average of that series.
Typical smoother and signal-line pairs shown for the construction are 3/10, 7/10, and 7/50. The signal-line window is described as typically ranging from 10 to 50.
When the unsmoothed series tracks the market
The construction is specified for use when unsmoothed on-balance volume tracks the underlying market. One stated example is a 20-day correlation of 0.44 or higher between an index and its on-balance volume.
Signal-line crossovers
A bullish signal-line crossover is defined as the smoothed series turning up through the signal line. A bearish signal-line crossover is defined as the series turning down through the signal line.
Crossover episodes are described as lasting a few days to a few weeks depending on move strength. Higher underlying volatility is described as increasing the number of crossovers.
Price and indicator swing mismatches
Divergence is a defined mismatch between indicator swing structure and price swing structure. A bullish divergence is a higher low in the smoothed series against a lower low in price. A bearish divergence is a lower high in the smoothed series against a higher high in price.
Which crossover direction is treated as in-regime
In the composite rule set, bullish signal-line crosses are the favored condition when a 200-day exponential average of price is rising. Bearish crosses are favored when that average is falling. The long price exponential marks which crossover direction is treated as in-regime.
Daily and weekly use
The same construction is specified for daily or weekly charts as a trend-confirmation, crossover, and divergence filter.
All readings on this track · 61 readings
- 1988Cumulative volume trend and 200-session polarity
- 1988Three clocks when cumulative volume led price
- 1988Payoff index checkpoints for open interest and divergence
- 1988Relative strength, stochastics, and on-balance volume as a turning-point stack
- 1988Signing volume by open interest change
- 1988Case study: weekly on-balance volume with trendlines and a 21-period average
- 1988Combining weekly and daily MACD divergences with on-balance volume
- 1988Restoring the original tests for market breadth, on-balance volume, and trendlines
- 1989Evaluating volume-weighted breadth extremes
- 1989Demand oscillator construction with a momentum overlay
- 1989Constructing a volume percentage ratio from advance-decline flow
- 1990Constructing net positive volume as On-balance volume
- 1990Buying-share scale with on-balance volume
- 1990Friday-filtered on-balance confirmation lines
- 1991Constructing rate-market volume breadth from on-balance volume
- 1991Building a breadth composite from on-balance volume breakouts
- 1992Constructing a rate-complex volume-breadth index
- 1992Constructing a breadth index from on-balance volume
- 1992Constructing signed market thrust from issue volume
- 1992Constructing indicator phase across averages, volume and bands
- 1993Force on-balance volume to agree with itself at slower horizons
- 1993Three transforms of market thrust from breadth and volume
- 1994Constructing a tick-line momentum oscillator
- 1994Constructing a smoothed on-balance tick momentum oscillator
- 1994Histogram confirmation and a second-series veto for MACD-family alerts
- 1994Constructing a 40-period envelope on on-balance volume
- 1996Constructing a matched percent-B volume disparity
- 1997Constructing calendar regime overlays and volume-weighted rules
- 1997Constructing market thrust from breadth and volume
- 1997Constructing on-balance volume as a signed running total
- 1997A three-layer construction for a signed volume-force oscillator
- 1997Constructing a range-sum volume-force oscillator
- 1999On-balance volume confirmation, price-indicator divergence, and bounded exits
- 2000A daily long-only confirmation stack on the tether line
- 2000A three-filter tether and volume trend system
- 2003Constructing finite volume elements as a finite-period money-flow filter
- 2003Constructing on-balance volume from signed session volume
- 2003On-balance volume as a market-breadth participation ledger
- 2003Construct a volatility-adjusted on-balance volume filter before confirming a breakout
- 2004Opening and midday ranges as an on-balance-volume breakout case
- 2004Constructing a volatility-gated volume-flow measure
- 2004Constructing a volume-flow series from on-balance volume
- 2004Volume-flow indicator construction from on-balance volume
- 2004Volume-flow slope divergence, then separate on-balance-volume and crossover rules
- 2004Volume flow and band construction as one inspectable problem
- 2004Auditing advance-decline confirmation for scale, horizon, and composition
- 2005Bounded market breadth from the Arms index to BRIN
- 2006Overnight-hold entry and exit construction
- 2007Evaluating Volume-price confirmation versus On-balance volume and MACD
- 2009Volume confirmation versus a price advance
- 2010Typeahead retrieval of a moving average, on-balance volume, and a stochastic oscillator
- 2010Modified volume-price trend and log-price scale alignment
- 2010Constructing liquidity accelerometers from advance-decline averages
- 2012Failed short cycles as breadth and volume tests
- 2016Earnings straddles, implied volatility, and money-flow filters
- 2017A volume residual filter and a price projection matrix
- 2019Volume-volatility parabola and signed-volume momentum
- 2019Separating on-balance volume into breadth and volume
- 2020Constructing the obvm signal line
- 2020Constructing smoothed on-balance volume with a signal line
- 2020Keep neutrality as a first-class input in three-state market data