On-Balance Volume

On-Balance Volume (OBV): A Volume Lens on Price Pressure

Key Takeaways

On-Balance Volume (OBV) measures volume flow to anticipate price movements.
It assumes volume precedes price—rising OBV signals buying pressure, falling OBV signals selling pressure.
OBV is cumulative: volume is added on up days, subtracted on down days, and unchanged when prices are flat.

Why OBV Matters

Markets don’t just move on price—volume often reveals the hidden strength behind trends. OBV is designed to capture that force by tracking whether money is flowing in or out of a market.

Clarity: Turns raw trading volume into a simple running total, making it easy to spot shifts in participation.
Strength: Rising OBV confirms that a trend has real buying or selling behind it.
Flexibility: Useful for spotting divergences, confirming breakouts, and gauging trend durability across assets and timeframes.

How Traders Use OBV

Identify divergences: If price rises while OBV falls, it suggests weakening buying pressure; if price falls but OBV rises, selling pressure may be fading.
Confirm breakouts: Traders look for OBV to rise along with price when markets break resistance, or fall with price when breaking support.
Gauge trend strength: Sustained increases or decreases in OBV during an existing trend suggest that the move has institutional backing.
Spot accumulation/distribution: Analysts often view OBV slopes as a way to distinguish between “smart money” activity and retail participation.

The Technical Bit

Calculation and Components

OBV is calculated by comparing today’s close to yesterday’s close and adjusting the volume accordingly:

If today’s close is higher: OBV = Previous OBV + Today’s Volume
If today’s close is lower: OBV = Previous OBV – Today’s Volume
If today’s close is unchanged: OBV = Previous OBV

This creates a single cumulative line that rises with buying pressure and falls with selling pressure.

Quick note on Volume: In trading, volume is the number of shares/contracts exchanged in a given period. High volume often reflects institutional activity, which OBV attempts to track.

What This Means for Traders

OBV offers a way to confirm whether trends are supported by real trading activity, as well as a framework for spotting early warnings when volume and price diverge.

Still, OBV has limitations. It can generate false signals during sudden volume spikes (e.g., earnings or news events) and doesn’t provide context about the magnitude of price moves. That’s why traders often pair it with tools from other categories—for example, Moving Averages (Trend) to confirm direction, MACD (Momentum) to assess acceleration or fading of moves, or Bollinger Bands (Volatility) to gauge whether breakouts are stretched.

By combining OBV with other indicators, traders can better distinguish routine price swings from moves backed by meaningful participation.

What It Means for Traders

Explore Technical Indicators in Action

Test your strategies with SentimenTrader’s Proprietary Backtest Engine, equipped with nearly 100 technical indicators and over 17,000 indicators covering Sentiment, Trend Score, Breadth, Macro, and Seasonality. No coding required.