Indicators / Volume / OBV
On-Balance Volume (OBV) Explained: Volume Confirms the Trend
Quick answer
On-Balance Volume (OBV) is a running total that adds volume on up days and subtracts it on down days. Its direction matters, not its value: OBV rising with price confirms the trend, and OBV failing to follow price warns that the move lacks support.
Video: On-Balance Volume for Beginners.
What OBV measures
Joe Granville introduced OBV on the idea that volume moves before price. If more volume trades on up days than down days, OBV climbs, showing buyers are committed.
How OBV is calculated
If close < previous close: OBV = previous OBV − volume
Otherwise: OBV = previous OBV
Settings
OBV has no settings. Many traders add a 20-period moving average to the OBV line to make its direction easier to read.
How to read OBV
1. Confirmation
Price and OBV making higher highs together confirm an uptrend. Lower lows together confirm a downtrend.
2. Divergence
Price makes a new high but OBV does not: the rally has less volume behind it. Price makes a new low but OBV holds higher: selling is drying up.
3. Breakouts
An OBV breakout above its own range often comes with, or just before, a price breakout. A price breakout without an OBV breakout is more likely to fail.
Common mistakes
- Reading the number. OBV's value depends on where the chart starts; only its direction matters.
- Ignoring volume spikes. One huge candle can shift OBV for weeks.
What to pair OBV with
- Chaikin Money Flow for recent buying and selling pressure.
- Volume Profile for where volume traded.
- RSI for momentum confirmation.
OBV FAQ
What does OBV divergence mean?
Price and OBV disagree: the move lacks volume support, which often comes before a pause or reversal.
Does the OBV number matter?
No. It depends on the chart's start date. Watch its direction and breakouts.
Does OBV work on stocks and crypto?
Yes, wherever volume data is reliable. Stocks report consolidated volume; in crypto, each exchange reports its own. Aggregated or thin volume makes it less reliable.