OBV (On-Balance Volume)

On-Balance Volume (OBV) is a cumulative volume indicator developed by Joseph Granville. On days when price closes higher, the full volume is added to the running total. On days when price closes lower, volume is subtracted. The resulting line shows whether volume is flowing into or out of an instrument.

How OBV Is Used in Trading

The most powerful OBV signal is divergence. When price makes new highs but OBV fails to confirm with new highs, it suggests the rally lacks volume support and may reverse. This "smart money" indicator often leads price by days or weeks, making it valuable for position traders.

Rising OBV during a price uptrend confirms the move is supported by increasing buying volume. This volume confirmation adds conviction to trend-following strategies. Conversely, rising prices with flat or declining OBV is a warning sign of a weak trend.

OBV breakouts sometimes precede price breakouts. When OBV breaks to new highs while price is still consolidating, it can foreshadow an impending price breakout. This predictive quality makes it popular in algorithmic pre-positioning strategies.

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