On-Balance Volume
Cumulative volume-flow indicator that adds up-day volume and subtracts down-day volume.
What it is
OBV, popularized by Joseph Granville in 1963, is one of the simplest volume-based indicators. The idea: when price closes higher, add the day's volume to a running total. When price closes lower, subtract it. The cumulative line tracks the net pressure of buying versus selling volume.
OBV's value is rarely in the absolute level — it's in the trajectory. Rising OBV during a price advance confirms the move has volume support. Rising OBV while price stalls (positive divergence) hints that accumulation is ongoing even though price has not yet reflected it.
How it's calculated
Initialize OBV_0 = 0 (or any starting value). Then for each new bar:
If Close > Previous Close: OBV = OBV + Volume If Close < Previous Close: OBV = OBV − Volume If Close == Previous Close: OBV = OBV
The result is a cumulative line that can grow without bound. It is meaningful only relative to its own past, not in absolute units.
How to interpret signals
Trend confirmation. Rising OBV during a price uptrend = trend has volume support, healthy. Falling OBV during uptrend = warning signal (price rising on weakening volume).
Divergence. Price makes a higher high but OBV makes a lower high = bearish divergence. Price makes a lower low but OBV holds = bullish divergence.
OBV moving averages. Some strategies trade crosses of OBV with its own moving average (e.g., 20-period SMA of OBV) to capture volume momentum shifts.
Strengths
- Captures volume direction in a single line — easier to read than raw volume bars.
- Divergences with price are some of the most studied bullish/bearish setups.
- Conceptually simple and computationally cheap.
- Works on any market with reliable volume data.
Limitations
- Crypto exchanges often have wash-traded or spoofed volume, distorting OBV.
- Equal weighting of all volume regardless of size — a $1 move on huge volume counts the same as a $50 move on small volume.
- Cumulative nature means very long histories produce huge numbers; reset choice matters.
- No price scaling — OBV is in volume units, not price units.
Common pitfalls
- Trusting OBV on assets with manipulated or aggregated volume.
- Comparing OBV values across different assets (different volume scales make absolute comparison meaningless).
- Reacting to small OBV/price divergences — clean divergences are obvious, marginal ones are noise.
- Ignoring price context — OBV divergence in a strong trend is often less predictive.
Related strategies in Backstrap
Educational note: This page explains what OBV measures and how it is conventionally interpreted. It does not constitute investment advice. Past patterns do not guarantee future results, and no indicator works in all market regimes. See the full disclaimer.
Last updated: 2026-05-08