| The On-Balance Volume (OBV) indicator is a momentum oscillator that incorporates positive and negative volume changes to assess the strength of a price trend. Created by Joe Granville, OBV is based on the premise that volume precedes price movements. The OBV calculation involves adding the day's volume to the indicator if the closing price is higher than the previous day and subtracting it if the closing price is lower. Traders use OBV to confirm price trends and identify potential reversals. Rising OBV values confirm an uptrend, indicating that buying volume is dominant. Conversely, falling OBV values during a downtrend suggest increasing selling pressure. The divergence between OBV and price movements can signal potential trend reversals. OBV is a versatile tool used in various trading strategies. For instance, if a stock is making new highs, and OBV confirms this with rising values, it may suggest a strong and sustainable uptrend. |
