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Cumulatively tracks volume aligned with price direction, exposing the net buying or selling pressure underlying price movements.
On-Balance Volume (OBV) cumulatively adds volume on up periods and subtracts it on down periods to track buying or selling pressure.
On-Balance Volume (OBV) cumulatively adds volume on up periods and subtracts it on down periods to track buying or selling pressure.
The calculation:
If Close > Previous Close: OBV = Previous OBV + Volume If Close < Previous Close: OBV = Previous OBV - Volume If Close = Previous Close: OBV = Previous OBV
What OBV measures:
- Accumulation: Rising OBV indicates buyers are active
- Distribution: Falling OBV indicates sellers are active
- Money flow: Volume-based proxy for institutional activity
- Confirmation: Should confirm price trends
Trading applications:
- Trend confirmation: Rising prices with rising OBV confirms uptrend
- Divergence signals: Price/OBV divergences can warn of reversals
- Breakout validation: Volume expansion on breakouts strengthens signal
- Accumulation detection: Rising OBV in flat market may precede rally
Key divergences:
- Bullish divergence: Price makes lower low, OBV makes higher low
- Bearish divergence: Price makes higher high, OBV makes lower high
Limitations:
- Absolute level meaningless: Only the direction and pattern matter
- Gap effects: Gaps can distort the OBV calculation
- No volume quality: Treats all volume equally regardless of price level
OBV is one of the oldest volume indicators and remains widely used for confirming price trends and detecting potential reversals.
Where it fits
On-Balance Volume (OBV)→Trading ActivityTrading activity measures the level of buying and selling in a stock, typically expressed through volume metrics that indicate liquidity and investor interest.