OBV

What is OBV?

OBV (on-balance volume) is a cumulative volume line introduced by Joe Granville in 1963. The rule is deliberately simple: if a bar closes above the prior close, add its entire volume to a running total; if it closes below, subtract it; if the close is unchanged, do nothing. Every bar's volume is treated as all buying or all selling based purely on the close-to-close direction, which makes OBV a blunt but assumption-light proxy for whether volume is flowing with advances or with declines.

The line's absolute value is meaningless, since it depends on where your data starts; the information is in its slope, its swings, and its agreement with price. When price makes a new high and OBV confirms with its own high, the advance is carrying participation. When price makes an extreme that OBV refuses to match, that OBV divergence suggests the move is running on thinner volume. Granville's premise was that volume precedes price, so he also watched OBV break its own trendline or range ahead of price. The crude assignment rule is the known weakness: a bar barely positive on huge volume counts as fully bullish, so most traders read OBV alongside structure rather than alone.

How to calculate OBV

OBV needs only closes and volume, built bar by bar from an arbitrary starting value, commonly zero.

1. 1Compare the current close to the prior close.
2. 2If the close is higher, add the bar's full volume to the previous OBV value; if lower, subtract it; if equal, carry the previous value forward.
3. 3Plot the running total and ignore its absolute level. Read direction, swing highs and lows, and trendlines drawn on the line itself.
4. 4Compare OBV's swings with price's swings: confirmation supports the trend, and non-confirmation flags a divergence worth investigating.

How traders use it

• For trend confirmation: OBV printing new highs alongside price argues the advance is participated in, while a flat OBV under a rising price warns the rally is volume-light.
• For divergences: a price extreme that OBV fails to match is an early caution, handled like any regular divergence: a warning that needs price confirmation, not a standalone reversal signal.
• For early breaks: because volume can shift before price, some traders watch for OBV to break a range or trendline first and then look for price to follow; the sequence is a tendency Granville described, not a guarantee.
• As an input series: OBV is often smoothed with a moving average or fed into oscillator-style transforms to steady its bar-to-bar jumpiness before signals are taken from it.

OBV vs other volume flow lines