What Is On-Balance Volume?

On-Balance Volume (OBV) is a momentum indicator built around one idea: volume moves before price. It’s not about how much a stock moved—it’s about how much buying or selling power was behind the move.

Developed by Joseph Granville in 1963, OBV was his answer to the problem of price lag. He saw volume as a pressure gauge, building up quietly before an inevitable release. Think of it as a coiled spring on your chart.

OBV adds volume on up days, subtracts it on down days, and ignores sideways noise. The math is simple. The impact isn’t.

The OBV Formula (Without the Noise)

Let’s keep it clean:

• If today’s close > yesterday’s close → OBV = Yesterday’s OBV + Today’s volume
• If today’s close < yesterday’s close → OBV = Yesterday’s OBV – Today’s volume
• If unchanged → OBV stays the same

That’s it. The result is a running tally of volume pressure. Ignore the absolute number. What matters is the slope.

Why OBV Still Matters

1. It Spots the Smart Money

OBV is a favorite for tracking institutional accumulation or distribution before price reacts. If volume spikes while price stalls, someone’s loading up.

When price finally catches up, it’s usually late. That’s why smart traders often combine OBV with institutional ownership insights.

2. Divergences Are the Main Course

The best OBV signals come when price and volume disagree:

• Positive Divergence: Price hits new lows, but OBV doesn’t? Selling pressure is drying up.
• Negative Divergence: Price makes new highs, but OBV flattens or falls? The rally’s running out of gas.

3. Breakouts That Stick

When OBV breaks a trendline before price does, that’s your whisper. Watch for price to follow. Combine it with a moving average or support level, and it’s no longer just a hunch.

OBV in Action: A Quick Walkthrough

Say a stock closes higher five days in a row, then falls for three, flattens, then ticks up again.

• Volume from up days is added
• Volume from down days is subtracted
• Flat days? Ignored

Your OBV line will mirror the market’s pressure—not the price chop. Here’s what that might look like across 10 sessions:

Day	Close	Volume	OBV
1	10.00	25,200	0
2	10.15	30,000	30,000
3	10.17	25,600	55,600
4	10.13	32,000	23,600
5	10.11	23,000	600
6	10.15	40,000	40,600
7	10.20	36,000	76,600
8	10.20	20,500	76,600
9	10.22	23,000	99,600
10	10.21	27,500	72,100

Up days? Add volume. Down days? Subtract. OBV isn’t about where the price ends—it’s about who was moving the needle.

OBV vs. Accumulation/Distribution

Same goals, different paths.

• OBV: Binary logic. Up or down close? All-in volume or nothing.
• Accumulation/Distribution (A/D): More nuanced. It weighs where price closed within the day’s range.

OBV is blunt but fast. A/D adds detail, but can lag.

Limitations (Don’t Skip This)

OBV is a leading indicator. That’s both its edge and its flaw.

• It can get ahead of itself.
• Spikes in volume (news, earnings, ETF rebalancing) can distort the line for days.
• Works better when paired with lagging indicators like moving averages.

Also, remember this: OBV’s value is cumulative from a starting point you pick. That means comparing OBV across assets is pointless. Only compare slopes, trends, and divergences.

When OBV Actually Helps

• Trend Confirmation: If OBV confirms higher highs, the trend’s alive. If not, look closer.
• Trading Ranges: Rising OBV in a range = quiet accumulation. Falling OBV = stealth exit.
• Breakout Spotting: If OBV breaks out before price, it’s your advance scout—especially helpful when screening for breakout stocks.

Final Word

OBV isn’t magic. It won’t give you a buy signal in neon lights. But it’s a damn good way to see what the big money’s doing before the crowd notices.

It’s clean, direct, and unfiltered. Just how volume should be.