On-Balance Volume
On-Balance Volume (OBV) is a running total of volume that adds a period's volume when price closes higher and subtracts it when price closes lower. Its direction is used to judge whether buying or selling pressure is building.
How OBV is calculated
OBV was introduced by Joseph Granville in his 1963 book Granville's New Key to Stock Market Profits. The rule is simple. If today's close is above yesterday's, add today's volume to the running total. If it is below, subtract it. If the close is unchanged, OBV stays the same.
The absolute number has no meaning on its own, because it depends on where the count started. What matters is the direction and shape of the line.
An example
Say OBV starts at 0. Day 1 closes up on 1,000 units of volume, so OBV is 1,000. Day 2 closes down on 400, so OBV is 600. Day 3 closes up on 900, so OBV is 1,500. Although price went up and down, more volume flowed on up days, so OBV rose overall.
How traders use it
The idea behind OBV is that volume can lead price. If OBV climbs steadily while price moves sideways, some traders read it as quiet accumulation that may precede a move up. If OBV falls while price holds, it may hint at distribution.
Traders also look for confirmation and divergence. A new price high confirmed by a new OBV high suggests the move has volume behind it. A new price high with OBV failing to follow is a divergence that suggests weaker participation.
Limits to keep in mind
OBV treats an entire period's volume as buying or selling based only on the close. A day that closes up by a tiny amount on huge volume adds all of that volume, even if most of the day was heavy selling. That makes the indicator crude.
In crypto, it also inherits volume problems: values differ between exchanges and can be distorted by wash trading. Single volume spikes, such as from a listing or a liquidation cascade, can shift the line for a long time. OBV works best as supporting evidence, not as a stand-alone signal.
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Frequently asked questions
What does a rising OBV mean?
More volume has been traded on up periods than on down periods recently. It is often read as buying pressure, though it does not guarantee price will follow.
Why is the OBV value itself unimportant?
Because it is a cumulative total that depends on the starting point and the data source. Traders look at its trend and how it compares with price.
Is OBV a leading indicator?
It is often described that way, since volume changes can show up before price changes. In practice it gives both early signals and false ones.
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