On-Balance Volume (OBV)

The On-Balance Volume (OBV) indicator provides a running total of volume and shows whether the volume is flowing into or out of a given security. This indicator was developed by Joe Granville.

 

On-Balance Volume (OBV)

The On-Balance Volume (OBV) indicator provides a running total of volume and shows whether the volume is flowing into or out of a given security. It allows traders to spot turning points and valid signals across a wide variety of markets and time frames.

This indicator was developed by Joe Granville.

 


On-Balance Volume (OBV) Calculation

The On-Balance Volume indicator determines whether the smart money is buying or selling. It is calculated by keeping a running total of the volume figures and then adding in the volume if the close is higher than the previous period, or subtracting the volume if the closing price was lower.

On up days:  the  trading volume is added to the previous day's OBV

On down days:  the  trading volume is subtracted from the previous day's OBV.

On-Balance Volume (OBV) Interpretation

For the majority of technical analysts, volume plays an important role. Unfortunately, simply comparing one day’s volume to a three-month average will not tell you much about whether money is flowing in or out of a particular market or stock.

Buy (long) signals are recommended when there is a bullish divergence between the price and the On-Balance Volume indicator. Sell (short) signals are recommended when there is a bearish divergence between the price and OBV.



On Balance Volume attempts to determine the significance of price movement through the trading volume on a given day.  This example spots divergence between the price chart and OBV.

On Balance Volume attempts to determine the significance of price movement through the trading volume on a given day.  This example spots divergence between the price chart and OBV.

Divergence analysis is very useful, but divergences are not always observed at every important turning point.  Improved accuracy can be achieved using divergence analysis on multiple time frames.

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