On-Balance Volume is a volume-based indicator developed by Joseph Granville to track the relationship between volume and price movement in financial markets. It adds volume on up days and subtracts it on down days, forming a cumulative line that reflects buying and selling pressure. OBV helps traders determine whether volume supports the price trend, often giving early signals of potential breakouts or reversals, especially when used with other indicators or price patterns.
Significance
- Shows volume flow direction — whether volume is following or opposing price.
- Confirms trends when OBV moves in the same direction as price.
- Signals reversals through divergence between OBV and price movement.
- Indicates accumulation or distribution before major price moves.
- Useful with trend tools like moving averages and support/resistance levels.
Indicator Components & Values
- OBV Line → A running total of volume adjusted based on price closes.
- Positive Volume → Added to OBV when price closes higher.
- Negative Volume → Subtracted from OBV when price closes lower.
- Divergence → Price and OBV moving in opposite directions may hint at trend reversal.
Trading Strategy
- Trend Confirmation → Go with the trend when both price and OBV move in the same direction.
- Breakout Anticipation → OBV breaking a key level before price may signal an early entry.
- Divergence Strategy → Buy on bullish divergence (OBV rises while price falls), and sell on bearish divergence.
- OBV + Moving Average → Use OBV crossovers with a moving average to filter trades.
- Support/Resistance Zones → Watch how OBV behaves near important price levels for entry/exit cues.
