On Balance Volume (OBV)

If a share price is moving up, you may want to know whether strong trading volume supports that rise. OBV helps you study this by adding volume on rising-price days and subtracting it on falling-price days.

• OBV tracks price direction using volume.
• Rising OBV may support rising prices.
• Falling OBV may support falling prices.
• Divergence can signal weakening price trends.
• Unchanged prices keep OBV value unchanged.
• Use OBV with other technical indicators.

A share price may rise sharply, but that rise can look very different when you check trading volume.

If both price and OBV are rising, volume is moving in the same direction as the price. This may strengthen the case that the current trend has volume support.

If the price rises but OBV starts falling, you may need to be more careful. It means the price and volume indicator are moving in different directions.

The same idea applies when prices fall.

OBV is therefore useful as a confirmation tool. It should not be treated as a guaranteed buy or sell signal.

On-Balance Volume is a cumulative volume indicator used in technical analysis.

It looks at whether the current closing price is higher, lower, or equal to the previous closing price.

If the price closes higher, that day's trading volume is added to OBV.

If the price closes lower, that day's volume is subtracted.

If the closing price does not change, OBV also remains unchanged.

Over time, this creates a running line that you can compare with the price chart.

The OBV formula follows three simple rules.

When today's closing price is higher

OBV today = Previous OBV + Today's volume

When today's closing price is lower

OBV today = Previous OBV − Today's volume

When today's closing price is unchanged

OBV today = Previous OBV

You can start the calculation with an assumed value such as 0. The actual starting number matters less than how OBV moves over time.

Suppose you start with an OBV value of 0.

On Day 2, the price rises. The 1,500-share volume is therefore added.

On Day 3, the price falls. The 900-share volume is subtracted.

On Day 5, the closing price does not change. The OBV stays at 1,800 even though 800 shares were traded.

This is why OBV is called a cumulative indicator. Each day's value builds on the previous value.

You mainly compare the direction of the OBV line with the direction of the price.

Price rising and OBV rising

This means more volume is being added on days when the price closes higher.

It may confirm that buying activity is supporting the rising price trend.

Price falling and OBV falling

This means more volume is being subtracted on falling-price days.

It may confirm that selling activity is supporting the downward trend.

Price rising but OBV falling

This means the price and OBV are moving differently.

The price rise may have weaker volume support.

Price falling but OBV rising

This also shows a difference between price and volume behaviour.

It may suggest that selling pressure is becoming weaker.

These are signals for further analysis. They do not guarantee the next price move.

Divergence happens when price and OBV move in different directions.

There are two common types.

What is bullish OBV divergence?

Bullish divergence can appear when the price makes a lower low, but OBV makes a higher low.

Suppose a share falls from ₹150 to ₹140 and later drops to ₹135. But OBV does not fall to a new low.

This can mean the price is still falling while selling pressure shown by volume is becoming weaker.

It may point to a possible trend change. However, a reversal is not guaranteed.

What is bearish OBV divergence?

Bearish divergence can happen when the price makes a higher high, but OBV makes a lower high.

For example, suppose the price moves from ₹200 to ₹220 and later reaches ₹230. If OBV fails to make a higher high, volume is not fully confirming the price increase.

This may suggest weaker buying pressure.

Again, you should check other price and volume signals before drawing a conclusion.

OBV is mainly useful when its direction matches the existing price trend.

During an uptrend, rising OBV may show that volume is supporting higher prices.

During a downtrend, falling OBV may show that volume is supporting lower prices.

You can also watch for sudden volume spikes.

For example, a very high-volume day can cause a sharp jump or fall in OBV. Since OBV is cumulative, that one large movement can continue affecting the indicator afterwards.

This is why looking at several trading periods is generally more useful than relying on one day's OBV movement.

A breakout happens when price moves above an observed resistance level or below an observed support level.

Suppose a share moves above resistance and OBV also rises. This means volume is moving in the same direction as the price breakout.

If the price breaks resistance but OBV stays weak or falls, the breakout has less volume confirmation.

The same logic can apply to breakdowns below support.

OBV can therefore provide extra information, but it cannot tell you whether every breakout will continue.

Both OBV and the Accumulation/Distribution indicator use trading volume. However, they use volume differently.

OBV focuses mainly on whether the current closing price is higher or lower than the previous close.

Accumulation/Distribution also considers where the price closed within the day's trading range.

On-Balance Volume and Volume Price Trend (VPT) both combine price and volume information.

However, their calculations are different.

OBV adds or subtracts the complete trading volume based only on whether the closing price moved up or down.

VPT also considers the percentage change in price.

For example, suppose two trading days have the same volume. The share rises 1% on one day and 5% on another.

OBV adds the full volume on both days.

VPT gives more weight to the day with the larger percentage price change.

OBV can be useful, but it has important limitations.

Large volume can distort the indicator

One unusually high-volume trading session can move OBV sharply.

Because OBV is cumulative, the impact of that session remains in future values.

OBV ignores the size of price moves

OBV only checks whether the closing price moved up or down.

A ₹1 rise and a ₹10 rise receive the same treatment if trading volume is the same.

Low liquidity can create unclear signals

When a security trades in low volumes, both price and volume can move irregularly.

This can make OBV harder to interpret.

Divergence does not guarantee reversal

Price and OBV can move in opposite directions for some time without a trend reversal.

A divergence should therefore be treated as an alert for further analysis.

OBV does not provide price targets

OBV may help you judge volume strength.

It does not tell you the exact price at which a security may rise, fall, or reverse.

No single technical indicator gives complete information about the market.

OBV mainly helps you understand whether trading volume supports the direction of price.

You can compare it with price trends, support and resistance levels, moving averages, momentum indicators, or other volume indicators.

Using more than one type of information can help you understand the market situation better.

On-Balance Volume helps you check whether trading volume supports a price trend. When price and OBV move together, the existing trend may have stronger volume support. When they move differently, it may signal weakening momentum or possible divergence.

However, OBV cannot predict the market or guarantee a reversal. Large volume spikes, low liquidity, and unusual price movements can affect the indicator. Use OBV as one part of technical analysis and compare it with price action and other indicators before interpreting a market signal.