On-Balance Volume (OBV)

A running total of volume that adds or subtracts each bar's volume based on whether price closed up or down.

What it is

On-Balance Volume (OBV) is a cumulative volume indicator developed by Joseph Granville and popularized in the 1960s. It keeps a running total: when a bar closes higher than the previous close, that bar's volume is added to the line; when it closes lower, the volume is subtracted; when the close is unchanged, OBV stays flat. The idea is to track whether volume is broadly flowing into or out of an asset over time. OBV is plotted as a single line, usually in a separate pane below price. Its absolute value is not meaningful on its own; what matters is its direction and how it changes relative to price. Like every indicator, OBV is descriptive rather than predictive, and no indicator can forecast future prices. All trading carries risk of loss.

How it works

OBV is built one bar at a time from two simple inputs: the close and the volume. Compare the current close to the previous close. If price went up, the full bar volume is added to the previous OBV value. If price went down, the full bar volume is subtracted. If the close is exactly the same, OBV carries over unchanged. The result is a cumulative line that rises during periods dominated by up-closes on volume and falls when down-closes on volume dominate. Note that OBV uses the whole bar's volume regardless of how large the price move was, so a tiny up-tick counts the same as a large rally. Because it is a running sum, the starting value is arbitrary and only the shape of the line over time is informative.

How traders read it

• Traders often watch the direction of the OBV line itself: a generally rising OBV is read as volume accumulating on up days, while a falling OBV is read as volume leaving on down days.
• Confirmation is a common interpretation: when price and OBV trend in the same direction, some traders treat the move as having broader volume participation behind it.
• Divergence is the most cited use: if price makes a new high (or low) but OBV does not, traders sometimes read this as the move lacking volume support and worth scrutiny.
• OBV breaking above or below its own recent range or trendline is sometimes watched as a volume cue that may precede or accompany a price move, though it offers no assurance either way.
• Because OBV's absolute number is arbitrary, traders focus on slope, peaks, and troughs relative to price rather than the value itself.

Common settings

OBV has no length or smoothing parameter by default — it is a pure cumulative calculation, so there is nothing to tune. Some traders add a moving average of OBV (for example a 20-period SMA or EMA) as a reference line to gauge OBV's own trend, but that average is an optional add-on rather than part of the original indicator.

Strengths

• Simple and transparent: it uses only close and volume, so its behavior is easy to understand and verify.
• Combines price direction and volume into one line, giving a quick read on whether volume is broadly aligned with price.
• Useful for surfacing price-versus-volume divergences that a price chart alone does not show.
• Does not repaint — each bar's contribution is fixed once the bar closes.

Pitfalls to watch

• OBV treats every up-close and down-close equally regardless of the size of the price change, so a marginal close can shift it as much as a strong move, which can distort the picture.
• Divergences can persist for a long time without price reacting; an OBV divergence is not a timing tool and is not predictive.
• On instruments with unreliable or fragmented volume data (some forex feeds, for example), OBV can be misleading because the underlying volume figures may not reflect true market activity.
• As a cumulative line it carries history forward indefinitely; gaps, splits, or data resets can leave artifacts in the line that are easy to misread.
• OBV is a lagging, confirmation-style indicator built only from past closes and volume — it reacts to what has already happened and offers no assurance about what comes next. All trading carries risk of loss.

Pine v6 example

//@version=6
indicator("On-Balance Volume", shorttitle="OBV")

// Built-in cumulative OBV
obvLine = ta.obv

// Optional reference line: a moving average of OBV
maLength = input.int(20, "OBV MA Length", minval=1)
obvMa = ta.sma(obvLine, maLength)

plot(obvLine, "OBV", color=color.blue)
plot(obvMa, "OBV MA", color=color.orange)

Pro tip: Compare the shape of OBV against price rather than its raw number. Overlaying a moving average of OBV can make the line's trend easier to read. Treat any divergence as a prompt to investigate further and to manage risk, never as a standalone reason to act.

Educational only — not financial advice, not a recommendation to trade. No indicator is predictive; trading involves substantial risk of loss.