Futures-signed on-balance volume construction

A running total of signed session volume

On-balance volume is built as a running total of session volume. When the tracked price series finishes higher, the construction adds that session's entire volume. When the series finishes lower, it subtracts the same session volume.

The line is then compared with the price series. Volume confirmation uses the sign assigned to volume as a filter on a price move rather than as a standalone forecast.

Confirmation versus volume divergence

The intended confirmation rule is that a new high or new low in the price series should be matched by a corresponding extreme in the cumulative volume line. A price high or low is treated as more credible when the volume construct makes a matching extreme.

A mismatch is a volume divergence: price prints a new high or new low while the cumulative volume line does not. That reading is a warning that buying or selling pressure is not confirming the print.

Simple volume-price analysis also treats advances on expanding volume and declines on contracting volume as constructive, and the reverse as cautionary. Those heuristics are described with many exceptions and imprecise timing.

Close-signed volume and upside bias

A close-signed cumulative volume line is described as having an upside bias because session volume often expands on advancing days and contracts on declining days. New highs in the line can therefore appear before later price weakness.

Assigning a full session's volume to the close direction also ignores day structure. A tiny net gain still books all volume as buying even if the close sits near the session low.

Range-weighted and futures-signed increments

Range-weighted volume is an alternative volume-price construction. It multiplies total session volume by the close-minus-open distance divided by the high-minus-low range, so the increment reflects where the session settled inside its range. A weak close inside a wide range does not receive a full up-day credit.

Futures-signed volume keeps cash-market session volume as the increment but uses the stock-index futures contract's daily direction, not the cash index close, to decide whether that volume is added or subtracted. That rule is motivated by treating the contract as a leading price series whose larger participants are assumed to be more informed than cash-index prints.

Limits of the confirmation read

The same confirmation logic is described as clearer near market lows than near highs. Many periods are said to produce no usable signal under either the cash-index or the futures signing rule.