1994issue C071-5

Constructing a 40-period envelope on on-balance volume

On-balance volume is a running total of signed volume. A 40-period simple moving average of that series is the envelope centerline, and the bands sit two population standard deviations above and below that average over the same lookback.

On-balance volume is a running total of signed volume: the current volume is added when the close rises, subtracted when the close falls, and ignored when the close is unchanged.
The envelope centerline is the 40-period simple moving average of that on-balance volume series.
The upper and lower bands add and subtract two times the population standard deviation of on-balance volume over the same lookback.
The moving average and both bands are first available only after 40 completed on-balance volume observations, and the same overlay can be rebuilt as a 40-period, two-deviation Bollinger study on that line.

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Current trackOn-balance volume88 readings Bollinger Bands102 readings Moving average597 readings

How on-balance volume is accumulated

On-balance volume is constructed as a running total that adds the current volume when the close is above the prior close, subtracts that volume when the close is below the prior close, and adds zero when the close is unchanged.

That close-to-close comparison gives each period a signed volume: the period volume receives a positive, negative, or zero sign before it is added to the running total.

The moving-average centerline

The centerline of the envelope is a 40-period simple moving average of the on-balance volume series.

That moving average is the simple average of on-balance volume inside a fixed lookback. The lookback is the number of consecutive on-balance volume observations used to compute both the average and the deviation.

How the bands are placed

The upper band is the 40-period moving average plus two times the population standard deviation of on-balance volume over the same window. The lower band is the 40-period moving average minus two times the population standard deviation of on-balance volume over the same window.

The deviation multiple is the scalar applied to the window standard deviation to place those bands. Population standard deviation is the window dispersion measure used when the bands are built from first principles in a worksheet.

When the envelope first appears

Because the lookback is 40 completed observations, the moving average and both bands are first available only after that full window of on-balance volume values exists.

Rebuilding the same overlay

The same stack can be rebuilt by plotting on-balance volume and then applying a simple 40-period, two-deviation Bollinger band study to that line.

A scripted reconstruction takes on-balance volume as the series input, a length of 40, an upper deviation of 2 and a lower deviation of -2, then plots the upper band, lower band, average, and the on-balance volume line.

Illustrated worksheets and charts apply the same on-balance volume series with its 40-period moving average and bands as a single overlay stack.

Educational research material, not investment advice. Historical source context does not establish present-day performance.

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19961-1 pp.Next on On-balance volumeConstructing a matched percent-B volume disparityThe close and on-balance volume each receive a 33-period moving average and a two-standard-deviation envelope before percent-B is computed.

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