OBV (On-Balance Volume)
Cumulative volume that adds on up candles and subtracts on down candles -- trend confirmation, divergence, and why the absolute number does not matter. Not yet available in the strategy builder.
What is On-Balance Volume?
On-Balance Volume (OBV) is a cumulative volume indicator that keeps a running total. On every candle where the price closes higher than the previous close, the full volume is added to the total. On every candle where the price closes lower, the full volume is subtracted. The result is a single line that rises when buying volume dominates and falls when selling volume dominates.
The key insight: the absolute OBV number is meaningless. An OBV of 5,000,000 is not "better" than an OBV of -200. What matters is the direction of the OBV line -- whether it is trending up, down, or sideways -- and whether that direction agrees with the price.
How It's Calculated
In plain English: look at whether the price went up or down compared to the previous candle. If it went up, add all of that candle's volume to the running total. If it went down, subtract all of it. If the price did not change, OBV stays the same.
There are no parameters to set. OBV uses every candle from the start of the data, which is why it starts at zero and accumulates over time.
Trend Confirmation
The simplest use of OBV: check whether the OBV line agrees with the price trend. If the price is trending up and OBV is also trending up, volume is supporting the move -- more volume is occurring on up candles than on down candles. If the price is trending up but OBV is flat or declining, the rallies are happening on lighter volume than the pullbacks.
OBV Divergence
The most closely watched OBV signal is divergence -- when OBV disagrees with the price direction. Because volume is an independent data stream (it measures participation, not price), OBV divergence can reveal shifts in market conviction that are not yet visible in the price.
Bearish OBV divergence: the price makes a higher high but OBV makes a lower high. Each successive rally is happening with less volume participation. The price is going up, but fewer participants are driving it.
Bullish OBV divergence: the price makes a lower low but OBV makes a higher low. The selloffs are occurring on decreasing volume -- selling pressure is fading even as the price drops further.
Things to Watch Out For
Gap candles can distort OBV
If a stock gaps down on very high volume (e.g., an earnings miss), that entire volume is subtracted from OBV in a single candle. This can cause a dramatic drop in OBV that dominates the line for many subsequent candles, even if buying pressure returns. OBV has no memory decay -- every candle's volume has equal weight regardless of how long ago it occurred.
Most reliable on stocks
OBV was designed for stock markets with centralized volume data. On forex (tick volume) and crypto (potentially unreliable volume), OBV signals should be interpreted with caution. The direction of the OBV line may still provide useful context, but the magnitude of moves is less meaningful when the underlying volume data is an approximation.
OBV does not weight by price change magnitude
A candle that closes 0.01 higher adds the same volume as a candle that closes 5.00 higher. A tiny up close on massive volume adds all of that volume to OBV, even though the buying pressure was arguably weak (the close barely moved despite heavy trading). The AD indicator partially addresses this by weighting volume based on the close's position within the candle range.
Where to Go Next
Volume Indicators Overview -- AD and ADOSC, which offer alternative approaches to volume analysis.
Momentum Indicators -- the divergence concept applied to price-based momentum.
Trend Indicators -- use OBV alongside trend indicators to confirm breakout conviction.