On-Balance Volume (OBV)
Add the volume on up days and subtract it on down days: the running OBV roughly shows whether money is flowing in or out.
Key takeaways
- 1Close up: OBV adds the day's full volume; close down: it subtracts it; unchanged: no change.
- 2OBV's absolute value means nothing. What matters is its direction and whether it moves in step with price.
- 3If price makes a new high but OBV doesn't follow (a volume divergence), the rally lacks volume behind it.
- 4If price moves sideways while OBV keeps rising, money may be quietly accumulating. That's only a clue; you need a price breakout to confirm it.
Check your understanding
Get every question right to complete this lesson
1.Today closes down on volume of 500,000. OBV will…
2.Price makes a new high but OBV doesn't. What does that mean?
3.Today the price rose only 0.1% on volume of 800,000; yesterday it rose 5% on volume of 200,000. How much did each day add to OBV?
Text version · Volume & Volatility Indicators, lesson 1: “On-Balance Volume (OBV)”
Add the volume on up days and subtract it on down days: the running OBV roughly shows whether money is flowing in or out.
A running volume ledger
On an up close, add the day's volume; on a down close, subtract it; unchanged, record nothing. The running total is OBV: when it's rising, there have been more up days on heavy volume.
Price at a new high, but OBV didn't keep up
Price making a new high while OBV doesn't is a volume-price divergence: the rally lacks volume behind it. Conversely, price going sideways while OBV quietly rises may mean money is accumulating.
Watch the direction, not the number
OBV's value depends entirely on the day you start adding, so its absolute size means nothing. What matters is its direction and whether it moves with price: new highs together are confirmation; going separate ways is a warning.
Key takeaways
- Close up: OBV adds the day's full volume; close down: it subtracts it; unchanged: no change.
- OBV's absolute value means nothing. What matters is its direction and whether it moves in step with price.
- If price makes a new high but OBV doesn't follow (a volume divergence), the rally lacks volume behind it.
- If price moves sideways while OBV keeps rising, money may be quietly accumulating. That's only a clue; you need a price breakout to confirm it.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- In "Example ledger," press "Next day" to record trades one by one: on the last day it closed down on 500k shares. What's OBV now?
- Hover over a candle with a big gain and one with a small gain: what do they add to OBV, the size of the gain or the whole day's volume?
- Switch to "Accumulation → breakout": how much did price change in the range? How much did OBV rise? Did the breakout come before or after OBV rose?
- Switch to "Volume-price divergence" and play to the end: which of the two price highs is higher? Which of the matching OBV peaks is higher?
Quiz and explanations
- 1. Today closes down on volume of 500,000. OBV will…
- Answer: Fall by 500,000.On a down day, the day's volume is subtracted.
- 2. Price makes a new high but OBV doesn't. What does that mean?
- Answer: The rally lacks volume behind it.That's a divergence between volume and price.
- 3. Today the price rose only 0.1% on volume of 800,000; yesterday it rose 5% on volume of 200,000. How much did each day add to OBV?
- Answer: Today +800,000, yesterday +200,000.OBV only looks at the direction, then adds the full volume, regardless of how big the move was.
Terms in this lesson
- breakout (Breakout): Price decisively moving past support, resistance or a pattern boundary, often on rising volume.
- divergence (Divergence): Price makes a new high or low but the indicator doesn't, hinting the trend may be weakening.
- OBV (On-Balance Volume): A running total that adds volume on up days and subtracts it on down days, showing where money is flowing.