On-balance volume, or OBV, is a simple running total of volume that rises on up days and falls on down days. The idea behind it is that volume often moves before price. If OBV is climbing while the price goes sideways, buyers may be quietly building positions. If OBV is falling while the price holds up, selling may be building underneath.
How OBV is worked out
OBV was introduced by Joseph Granville in his 1963 book on stock market profits. The calculation is simple:
- If today's close is higher than yesterday's, add today's volume to the running total.
- If today's close is lower, subtract today's volume.
- If the close is unchanged, the total stays the same.
The actual OBV number does not matter, because it depends on where you start counting. What matters is the direction of the line and how it compares with the price.
How to read OBV
- Confirmation: in a healthy uptrend, OBV should rise with the price. Rising prices with falling OBV suggest the rally lacks support.
- Breakouts: if OBV breaks to a new high before the price does, that can hint at an upcoming price breakout.
- Divergence: a new price high with a lower OBV high is bearish divergence. A new price low with a higher OBV low is bullish divergence.
Drawing trend lines on OBV
You can draw trend lines on the OBV line exactly as you would on a price chart. A break of an OBV trend line sometimes comes before a break in the price trend, giving you an early warning.
Limits of OBV
- It counts a day's whole volume as buying or selling based only on the close, so one big day can distort it.
- It works best on shares and other markets with reliable volume data. Volume for spot forex and many CFDs is not true market volume.
- Like all indicators, it is best used alongside price, support and resistance, not on its own.
Related guides
This guide is for education only and is not financial advice. Trading carries risk; you can lose more than you expect.