Volume indicators

OBV: On Balance Volume

Adds the volume on up days and subtracts it on down days, to see whether volume is backing the trend.

The idea in plain words

The idea is that volume moves before price: big players buying quietly push volume up on up days before the price takes off. OBV keeps a running score.

How it is calculated

If the close is higher than yesterday's, add today's volume; if lower, subtract it.

OBV = previous OBV + volume   (close up)
OBV = previous OBV − volume   (close down)
OBV unchanged when the close is unchanged

How to use it

OBV rising with the price: the trend is supported.
OBV breaking out before the price: a possible early sign of a price breakout.

Drawing conclusions

Look at OBV's trend and divergences, not its value.

Example

An index is flat for a month while OBV keeps rising; the index then breaks out to the upside.

Prices in examples are illustrative.

Watch out for

On currencies, metals and CFDs there is no central exchange volume. The chart uses "tick volume", the number of price changes in each candle, which follows real activity closely but is not the number of contracts traded.

A little history

Joe Granville popularised OBV in his 1963 book "Granville's New Key to Stock Market Profits".

Educational content only. No indicator or pattern predicts the future, and nothing here is investment advice.