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On-Balance Volume

OBV

On-Balance Volume (OBV) is a momentum indicator that uses volume flow to predict changes in stock price. It adds volume on up days and subtracts it on down days. The theory is that volume precedes price movement, so OBV can signal breakouts before they happen.

Interactive Chart

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OBV

Quick Answer

Cumulative volume indicator based on price direction. Created by Joseph Granville in the 1960s, OBV relates volume to price change. The absolute OBV number is not important; what matters is its direction and comparison to price.

Trading Signals

Bullish Divergence

Bullish

Price makes lower low, OBV makes higher low

Price ↓, OBV ↑

Bearish Divergence

Bearish

Price makes higher high, OBV makes lower high

Price ↑, OBV ↓

OBV Breakout

Bullish

OBV breaks above resistance before price

OBV > Previous High

OBV Breakdown

Bearish

OBV breaks below support before price

OBV < Previous Low

What is OBV?

Created by Joseph Granville in the 1960s, OBV relates volume to price change. The absolute OBV number is not important; what matters is its direction and comparison to price. If OBV is rising while price is flat, it suggests accumulation and potential upward breakout.

How to Read OBV

Rising OBV indicates positive volume pressure (accumulation). Falling OBV indicates negative volume pressure (distribution). When OBV moves in the same direction as price, the trend is confirmed. When they diverge, it may signal a potential reversal.

Trading Signals

Key signals: OBV confirming trend (moving with price), OBV divergence (moving opposite to price), OBV breaking its own support/resistance, and OBV making new highs/lows before price.

Trading Strategies

Trend confirmation: Only take long trades when OBV confirms uptrend. Divergence trading: Look for price making lower lows while OBV makes higher lows for bullish reversal. Breakout confirmation: Wait for OBV to break out before price.

Formula

Formula
If Close > Previous Close: OBV = Previous OBV + Volume
If Close < Previous Close: OBV = Previous OBV - Volume
If Close = Previous Close: OBV = Previous OBV

Tips & Common Mistakes

Pro Tips

  • •Focus on OBV trend direction, not absolute value
  • •Draw trendlines on OBV for additional signals
  • •OBV divergence can precede price moves significantly
  • •Combine with price patterns for confirmation

Common Mistakes

  • •Focusing on absolute OBV value instead of trend
  • •Ignoring OBV divergences
  • •Not drawing support/resistance on OBV
  • •Using OBV without considering price context

Best Used With

Price ActionSupport/ResistanceTrend Lines
Previous

MACD

Next

RSI