Definition
OBV adds volume on up days and subtracts volume on down days to create a running total. Rising OBV suggests accumulation (buying); falling OBV suggests distribution (selling). Divergences between OBV and price can signal potential reversals.
Formula
If Close > Previous Close: OBV = Previous OBV + Volume
If Close < Previous Close: OBV = Previous OBV - Volume
Example
If price makes new highs but OBV doesn't, it suggests the advance lacks volume support and may reverse. This bearish divergence is a warning sign.
FAQ
What is On-Balance Volume (OBV)?
A cumulative volume indicator that relates volume to price change.
How do you calculate On-Balance Volume (OBV)?
A common formula for On-Balance Volume (OBV) is: If Close > Previous Close: OBV = Previous OBV + Volume If Close < Previous Close: OBV = Previous OBV - Volume
Why is On-Balance Volume (OBV) important?
On-Balance Volume (OBV) helps investors evaluate technical analysis and make more informed decisions.