On-Balance Volume (OBV)
Original schematic showing the guide's principal visual relationships.
OBV(today) = prior OBV ± today's volume, based on whether close rose or fell.
Formula and components
A cumulative line that adds volume on up closes and subtracts it on down closes.
OBV(today) = prior OBV ± today's volume, based on whether close rose or fell.
How it works
The indicator transforms price, range, or volume observations over a selected lookback. Shorter settings react faster but create more noise; longer settings respond more slowly and emphasize the underlying regime. Always compare the reading with price structure and timeframe.
How to read it
OBV trend can confirm price direction; divergence may indicate that participation is not supporting a new high or low.
Practical example
Price holds near its high while OBV makes a new high because volume concentrates on up days. That participation supports accumulation; divergence is only a warning until price confirms with a boundary break.
Confirmation checklist
Confirm that participation supports the price move and compare like-for-like sessions. One unusual print or event-driven spike should not define the entire signal.
Limitations and false signals
The entire day's volume receives one sign even when the close changes only slightly, so isolated high-volume sessions can distort the line.
Limitations and false signals
Frequently asked questions
What does this pattern or indicator describe?
A cumulative line that adds volume on up closes and subtracts it on down closes.
How should the signal be confirmed?
OBV trend can confirm price direction; divergence may indicate that participation is not supporting a new high or low. Confirm that participation supports the price move and compare like-for-like sessions. One unusual print or event-driven spike should not define the entire signal.
What can cause a false signal?
The entire day's volume receives one sign even when the close changes only slightly, so isolated high-volume sessions can distort the line.