Track 2 · Lesson 8 · 4 min
Reading volume
On-balance volume, Chaikin money flow and the Money Flow Index: using how much traded, not just the price.
On-balance volume
Price tells you where a stock traded. Volume tells you how much traded there. Joseph Granville, a market-letter writer, argued in his 1963 book that volume moves before price: big money accumulates quietly before a rally and sells quietly before a fall.
His on-balance volume (OBV) is a running total. On an up day, add that day's volume; on a down day, subtract it. If OBV climbs while the price goes sideways, buyers may be accumulating. Granville read OBV's trend by eye. Be The Puck's mechanical version holds the stock while OBV is above its own 20-day average, and labels that signal line as its own choice.
AMD with the on-balance volume play, last two years
The play is in while on-balance volume (violet, lower panel) is above its 20-day average (amber).
On-balance volume
Money flow
OBV counts the whole day's volume as buying or selling based only on the close. Marc Chaikin refined that. His Chaikin Money Flow weighs each day's volume by where the close lands in the day's range: a close near the high counts mostly as buying, near the low mostly as selling. Above zero over 21 days means buying pressure; Be The Puck uses ±0.05 as a buffer against whipsaws, as StockCharts suggests.
Gene Quong and Avrum Soudack's Money Flow Index (1989) folds volume into Wilder's RSI, so a rally on heavy volume pushes it higher than the same rally on light volume. It reads like the RSI: 80 and 20 are the usual overbought and oversold lines.
The limits of volume
Volume is messier than price. It spikes on index rebalancing days and option expiries for reasons that have nothing to do with conviction, and crypto volume is spread across many exchanges. Volume plays also need daily data, so they're among the busier ones here.
The volume plays on the S&P 500
On SPY since 2005, after trading costs.
| Play | Checks | Switches / yr | Time in | Annual return | Worst drawdown | Calls right |
|---|---|---|---|---|---|---|
| On-Balance VolumeJoseph E. Granville | Daily | 36.7 | 58% | +2.7% | −45.0% | 28% |
| Chaikin Money FlowMarc Chaikin | Daily | 8.4 | 70% | +2.5% | −46.1% | 35% |
| Money Flow IndexGene Quong & Avrum Soudack | Daily | 1.7 | 41% | +6.1% | −53.9% | 55% |
| Negative Volume IndexNorman Fosback & Paul Dysart | Daily | 0.5 | 99% | +9.9% | −53.5% | 20% |
| Force IndexAlexander Elder | Daily | 36.2 | 59% | +2.2% | −46.9% | 28% |
| Buff AveragesBuff Dormeier | Daily | 15.1 | 66% | +6.0% | −29.2% | 33% |
| Chaikin OscillatorMarc Chaikin | Daily | 25.5 | 68% | +0.1% | −54.0% | 34% |
| Volume Flow IndicatorMarkos Katsanos | Daily | 5.4 | 61% | +6.5% | −39.4% | 31% |
| Klinger OscillatorStephen J. Klinger | Daily | 44.8 | 49% | +1.6% | −38.2% | 33% |
| Buy & holdbenchmark | Never | 0 | 100% | +11.0% | −55.2% | – |
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