What is On-Balance Volume (OBV)?

Understanding On-Balance Volume (OBV)

On-Balance Volume (OBV) is a momentum indicator developed by Joe Granville that uses volume flow to predict changes in price. It operates on the premise that volume precedes price—smart money accumulates positions before major price moves, which OBV reveals. The indicator maintains a cumulative total, adding volume on up days and subtracting volume on down days, creating a running tally that shows whether volume is flowing into or out of an asset.

Interpreting OBV Signals

A rising OBV reflects positive volume pressure, suggesting accumulation and potential price increases ahead. Falling OBV indicates distribution and potential price declines. The absolute value of OBV matters less than its direction and divergences. When OBV rises while price consolidates, it suggests underlying strength and potential bullish breakout. When OBV falls while price rallies, it warns of weak momentum and possible reversal. OBV confirmation of price trends validates their strength.

Trading Applications

Use OBV to confirm breakouts—a breakout accompanied by surging OBV has higher probability of success than one on declining volume. Monitor OBV trend breaks as early warnings for price trend changes. Divergences between OBV and price offer high-probability reversal signals. Combine OBV with RSI or MACD for convergent signals. OBV works across all timeframes but is most reliable on daily charts and above.