Install our What is On-Balance Volume (OBV)?
The On-Balance Volume (OBV) technical indicator is a volume-based momentum indicator developed by Joseph Granville in the 1930s. It measures the buying and selling pressure on a security's price movements, providing valuable insights for traders and investors.
How Does OBV Work?
The OBV indicator calculates the difference between the closing prices of a stock and its previous day's closing price multiplied by the trading volume on that day. This calculation reveals the net result of buying and selling pressure over a specific period, allowing traders to gauge the overall momentum of the security.
Interpreting OBV Results
The strength of the OBV signal can be determined by analyzing its slope, range, and behavior over time. A positive slope indicates increasing buying pressure, while a negative slope suggests increasing selling pressure. By comparing these signals to the stock's price movements, traders can make more informed decisions about buy or sell signals.
Benefits of Using OBV in Trading
The On-Balance Volume (OBV) technical indicator offers several benefits for traders, including:
- Identifying trends and momentum patterns
- Confirming trading signals
- Providing additional context to price movements
Example of OBV in Action
To illustrate the effectiveness of the OBV indicator, consider a scenario where a trader notices that an OBV bar is closing above its previous day's level. This signal suggests increasing buying pressure and could prompt the trader to take a long position.