Ask Colin

On some stocks the On-Balance Volume on a weekly chart seems to be indicating a different picture to that on a daily chart. Why is that?

This is a really interesting question. So many of the indicators we use in technical analysis can be calculated on data of any period length. In other words, the indicator works on daily, weekly or monthly data and even intra-day data. However, as analysts we should be careful about making assumptions without thinking them through and perhaps testing them. I think this is one such case.

In all the literature I have read, only one book even considers a weekly On Balance Volume line, that being Colby and Myers The Encyclopaedia of Technical Market Indicators. They reached the conclusion that it worked better than the daily line. However, there were two big caveats. Firstly, although it worked better, it still performed worse than their control indicator, which was a moving average. Secondly, they only tested it on a market index, not on a stock.

Certainly, Granville intended his indicator to be a short-term indicator and only described its use on daily data. Other writers have followed him, though whether they have thought out or tested the issue, we cannot be sure.

My own experience is similar to yours. It concerns me that the daily indicator is strongly up, yet the weekly indicator can be strongly down, because a big volume day was an up day, while the week was down so that the same big volume day gets counted on the downside. I prefer to only use the On Balance Volume as a daily indicator for this reason.