On Balance Volume (OBV) and the Accumulation Distribution Line (ADL) sometimes diverge because their formulas are quite different. Both are cumulative volume-based indicators that measure the flow of volume. OBV is based on the change from one period to the next, but the Accumulation Distribution Line is based on the level of the close relative to the high-low range within a given period. OBV ignores price action within a given period. The Accumulation Distribution Line ignores price action outside a given period. Basically, On Balance Volume rises when the close is up and falls when the close is down. The Accumulation Distribution Line (ADL) advances when the close is in the upper half of the high-low range and declines when the close is in the lower half.
The charts above provide examples when On Balance Volume (OBV) goes one way and the Accumulation Distribution Line goes the other. Dupont (DD) gapped down on 10-Jan and closed below its prior close to push OBV lower. However, the close was near the high for the day and this pushed the Accumulation Distribution Line higher. Travellers (TRV) gapped up and closed up to move OBV higher. However, the close was near the day’s low and this moved the Accumulation Distribution Line lower. So which indicator is better? Traders that eat spaghetti and meatballs generally do better with OBV. Traders that prefer spaghetti with sausage do better with the Accumulation Distribution Line. Sorry, just a little attempt at Friday humor. Neither is better or worse. They simply measure different things. Chartists can easily plot both in the same indicator window to enhance the robustness of volume flow analysis. Also see our ChartSchool articles on On Balance Volume and the Accumulation Distribution Line.
About the author:Arthur Hill, CMT, is a Senior Technical Analyst at StockCharts.com.He has written articles for numerous financial publications including Barrons and Stocks & Commodities magazine.Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed technician.In addition to his CMT designation, Arthur holds an MBA from the Cass Business School at City University in London.Learn More
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I cannot find easy instructions on how to display both OBV and Accum/Dist in the same indicator window. I like this idea. Please provide a how to. Thanks. Art's Response: Click on the charts in the examples. This will open a live SharpChart and you can then look at the indicator settings.
Posted by: Jim Miller January 28, 2011 at 14:02 PM
Art, excellent explanation and illustrations. For traders exploring price-volume relationships, Elder's Force Index and the recently added Money Flow Index (both in Chart School) are also really interesting. The default parameters are good, but play with both shorter and longer. I like 65 on the Force index with a 13 day moving average to get a feel for the longer trend. I'm still experimenting with 7 on the Money Flow - more crosses above/below the 80/20 line and I think clearer divergences for trade timing. Would love to see more articles the nuances of using indicators. Thanks!
Posted by: Mark Dobbins January 28, 2011 at 17:56 PM
When you click on the chart it only shows you the chart, not the settings. I'm interested in how to put OBV and AccDist on the same window as well. Thanks! Art's Response: Chart links are fixed. Thanks for the heads up!
Posted by: Shawn Clinton January 29, 2011 at 13:34 PM
