On-Balance Volume

On-Balance Volume, or OBV, is a technical indicator that relates volume to price changes to predict the direction of future price movements. It adds volume on days when the price closes higher and subtracts volume on days when the price closes lower.

The resulting cumulative total provides a measure of buying and selling pressure. If the OBV is rising, it indicates that volume is heavier on up days, suggesting strong accumulation.

If it is falling, it suggests that volume is heavier on down days, indicating distribution. Traders look for confirmation of trends; if price and OBV are both moving in the same direction, the trend is considered valid.

If there is a divergence, it may signal that the current trend is about to reverse. It is a simple yet powerful tool for assessing the conviction behind market movements.

By integrating volume into price analysis, OBV helps filter out market noise.