OBV (On-Balance Volume)
A cumulative volume indicator that exposes the demand flow hidden behind price. Divergence between price and OBV is what reveals quiet accumulation and quiet distribution.
Overview
OBV (On-Balance Volume) was introduced by Joseph Granville in 1963. Rather than tracking price, it tracks the direction of the volume that produced the price — accumulating it day after day into a single running total that shows whether buyers or sellers, over time, are gaining the upper hand.
The rule is plain: on days when price closes higher than the previous close, that day's full volume is added; on days when price closes lower, it is subtracted. The accumulated line then traces, in a way price alone cannot, the long shadow of the volume behind the moves.
Calculation
Formula
Close > previous close → OBV = previous OBV + today's volume Close < previous close → OBV = previous OBV − today's volume Close = previous close → OBV = previous OBV
The starting value is arbitrary (zero, or simply the first day's volume). The absolute level carries no meaning; slope and divergence are what speak.
How to read it
How to Read
NASDAQ:AAPL
Confirmation — OBV moves with price
When price is rising and OBV is rising with it, the rally is being carried by genuine volume. The crowd is not merely watching — it is participating, and the trend is sound.
The same holds for declines: an OBV that drops alongside price confirms that selling pressure is real.
Divergence — OBV diverges from price
The most prized signal from OBV is divergence with price.
- Bullish divergence: price prints a fresh low, but OBV makes a higher low → the surface shows continued selling, but underneath, accumulation has already begun.
- Bearish divergence: price prints a fresh high, but OBV makes a lower high → the surface shows continued buying, but underneath, distribution is already underway.
The old maxim — "price doesn't lie, but volume lies even less" — is exactly what divergence is making visible.
Leading breakouts
During range-bound consolidation, price may move sideways while OBV quietly drifts in one direction. This is widely watched as a leading hint for the eventual breakout direction. Before the triangle finally resolves, OBV has often already written the answer.
Market psychology
Caveats
Related studies
- VWAP — Volume-weighted average price, the institutional benchmark
- Moving Average — Pair with trend direction
Related Studies
VWAP (Volume Weighted Average Price)
The intraday average price weighted by traded volume. The institutional benchmark — a single number for what the session truly transacted at.
Moving Average
The most fundamental trend indicator. Moving averages smooth out price data to visually reveal the direction of a trend.