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Ask a Trainer - TC2000 version 12/18
Custom PCF Indicator
OK, I'm playing around with a custom PCF using OBV. I chart OBV with an arbitrary 7 day SMA. Then I go to the PCF and type OBV and it matches OBV. Then I do OBV7 and it matches the 7 day SMA. Perfect! So in the custom PCF I do an OBV/OBV7. The chart shows 1.07 for the SPY. Then I "Add Column to Watchlist" but the value is different showing .20 at the time Why are the values different?
The values are different because OBV is a cumulative indicator and the actual value of OBV does not matter and is completely meaningless. This means the percentage that OBV is above its moving average or the ratio of OBV to its moving average is also meaningless. The value will change based on the amount of history used to calculate the OBV.
I know this can seem like a very strange concept, but the following topic explores how it is in fact possible to create valid formulas for OBV.
Dealing with OBV & MS in PCF's - how to interp their "values"
For example, OBV minus its 7-period simple moving average should remain the same:
OBV - OBV7
And while you calculating this as a percentage of OBV7 is not valid, calculating this as a percentage of the high - low of OBV over a fixed period of time is valid:
100 * (OBV - OBV7) / (MAX(OBV,50) - MIN(OBV,50))