On-Balance Volume is an indicator created by Joseph Granville. It is a running total of volume used to show the buying and selling (the accumulation and distribution) of financial instruments. The calculation is performed as follows:
1. Start with zero.
2. If the stock closes up, add the volume to zero.
3. If the stock closed down, subtract the volume from zero.
4. As each new time period is added, based on the closing value, you add or subtract the volume from the previous time period’s value. For example, if the stock closes up compared to yesterday’s close, you add the volume to the running total. If the stock closes down, you subtract the volume from the running total.
Reference: Granville, Joseph E. Granville’s New Strategy of Daily Stock Market Timing for Maximum Profit. Englewood Cliffs, NJ: Prentice-Hall, Inc., 1976.