Volume · Indicator
OBV is a running total that adds volume on up days and subtracts it on down days, tracking whether volume is flowing in or out.
Overview
On-Balance Volume is Joe Granville's cumulative volume indicator. Volume is added to the running total on up-days and subtracted on down-days, producing a single line that never resets. Rising OBV alongside rising price confirms an uptrend, and divergence between the two can warn of weakness. Granville's premise was that volume changes before price does, so a shift in the OBV line should precede a shift in the trend.
The construction is deliberately crude: the full volume of the bar is assigned to one side or the other based solely on whether the close was higher or lower than the previous close. A bar that closed marginally higher contributes exactly as much as one that closed limit-up. That bluntness is a weakness in principle but it makes the line very stable, since no weighting scheme can distort it.
The absolute value of OBV is meaningless. It depends entirely on where the data series happens to start, so two charts of the same instrument with different history lengths will show completely different OBV levels. Only the shape of the line matters: its slope, its highs and lows relative to each other, and how those compare to the price chart.
How it is calculated
On each bar the close is compared with the previous close. If it is higher, the bar's full volume is added to the running total; if lower, the full volume is subtracted; if unchanged, the total carries forward. There is no scaling or partial allocation.
The optional smoothing setting applies a simple moving average to the resulting line, which makes the shape easier to read and slope changes easier to identify at the cost of some lag. With smoothing set to 1 the raw cumulative line is drawn.
If close > previous close: OBV = previous OBV + Volume If close < previous close: OBV = previous OBV - Volume If close = previous close: OBV = previous OBV Smoothed OBV = SMA(OBV, Smoothing)
Inputs
How to read it
Compare the shape of the OBV line to the shape of price. When both make higher highs and higher lows, volume is supporting the advance and the trend is described as confirmed. When price makes a new high but OBV does not, the advance occurred on relatively less up-volume, which is the divergence Granville considered the indicator's main output.
Breakouts in the OBV line itself are watched independently of price. If OBV clears a level it has failed at several times while price is still inside its range, that is read as accumulation ahead of a price move. Whether this genuinely leads price is debated, but it is the traditional reading.
Because the absolute value is arbitrary, use trendlines and relative highs and lows on the OBV pane rather than any fixed level. Drawing the same structure on OBV that you would draw on price is the standard way to work with it.
Signals to look for
OBV making new highs alongside price making new highs indicates volume is flowing in the direction of the trend, which is treated as supporting evidence for the move continuing.
Price reaching a new extreme while OBV fails to follow suggests the move is happening on comparatively less committed volume. It is a warning about quality rather than a timing signal.
The OBV line clearing a horizontal level or trendline while price is still consolidating is read as accumulation or distribution occurring before the price move, which is the indicator's original premise.
Limitations
Frequently asked questions
OBV is a running total that adds volume on up days and subtracts it on down days, tracking whether volume is flowing in or out.
Compare the shape of the OBV line to the shape of price. When both make higher highs and higher lows, volume is supporting the advance and the trend is described as confirmed. When price makes a new high but OBV does not, the advance occurred on relatively less up-volume, which is the divergence Granville considered the indicator's main output.
Trend confirmation: OBV making new highs alongside price making new highs indicates volume is flowing in the direction of the trend, which is treated as supporting evidence for the move continuing.
OBV assigns the whole bar's volume to one side based only on the close-to-close direction, ignoring where the close landed within the bar. A bar that rallied hard and closed marginally lower still counts entirely as selling.
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