On-Balance Volume (OBV)
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Definition
OBV is a cumulative volume line that adds the day's volume when price closes up and subtracts it when price closes down, turning volume into a running total that tracks buying vs. selling pressure.
How to read it
The absolute OBV value is meaningless; only its direction and trend matter. A rising OBV means volume is accumulating on up days (accumulation); a falling OBV means volume concentrates on down days (distribution). The key idea is confirmation: OBV should trend with price. When OBV makes new highs alongside price, the trend has volume behind it; when they diverge, the move may be hollow. OBV often leads price because volume can shift before price does.
How practitioners use it
Used as context among multiple indicators — never as a standalone signal to act.
Less common professional uses
OBV treats a +0.1% close and a +5% close identically (it counts full volume by close direction only), so it can be skewed by marginal closes - the volume-weighted A/D line and CMF address this by using close location within the bar. Divergence can persist for a long time before price resolves; OBV is a context/leading-warning tool, not a precise timing trigger. OBV requires reliable volume; on fragmented/24h markets or thin names the cumulative line drifts on noise. It is most trustworthy on liquid instruments with clean consolidated volume.
Sources & provenance
Joseph Granville 1963
This page is educational content published by Pachira Aquatica Global LLC. It is not investment advice and not a recommendation.