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This Week's Lesson: Thursday, October 23, 2014
Volume Always Precedes Price

The on-balance volume has long been his favorite indicator, and here, MoneyShow's Tom Aspray details a variation he has developed that can warn of longer-term tops and bottoms.

This statement is one of the cardinal beliefs held by most technicians. It first came to my attention in the late 1970s when I read Joe Granville's book New Strategy of Daily Stock Market Timing for Maximum Profit, where he wrote “stocks do not rise in price unless demand exceeds supply. Demand is measured in volume and thus volume must precede price.”

In the early stages of my career, I did extensive testing of this concept and developed my own methods of interpreting the on-balance volume. It is the volume indicator in which I have the most confidence. Over the years, I have explored the OBV in more detail and last year discussed multiple time frame analysis of the OBV in The Best Volume Indicator.

In that article, I discussed the long-term bottoming and topping formations in the OBV and why the relationship of the OBV to its 21-period weighted moving average can be so important. I touched on the bullish and bearish setups that I have often observed with the OBV, which is the focus of this week's trading lesson.

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