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.
On Balance Volume (OBV) - Technical Analysis from A to Z
On Balance Volume ("OBV") is a momentum indicator that relates volume to price change. The OBV indicator is a running total of volume. It shows if the volume is flowing into or out of a security. When the security closes higher than the previous close, all of the day's volume is considered up-volume. When the security closes lower than the previous close, all of the day's volume is considered down-volume.
Volume - Technical Analysis from A to Z
Volume is the number of shares (or contracts) traded during a specified time frame (e.g., hour, day, week, month, etc.). The volume analysis is a basic yet essential element of technical analysis. The volume provides clues as to the intensity of a given price move. Volume can help determine the health of an existing trend. A healthy up-trend should have higher volume on the upward legs of the trend and lower volume on the downward (corrective) legs. A healthy downtrend usually has a higher volume on the downward legs of the trend and a lower volume on the upward (corrective) legs.
On Balance Volume (OBV) - Technical Analysis from A to Z