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Key Takeaways
- OBV keeps a running total that adds the full period volume when the close is higher than the prior close and subtracts it when the close is lower.
- OBV’s changes carry the signal. The change between two bars is net up-close minus down-close volume, while the seed shifts the whole line by a constant.
- Traders read OBV to confirm a trend when it moves with price, and to flag divergence when the two move in opposite directions.
- Joseph Granville popularized OBV in his 1963 book on the premise that volume often shifts before price.
- A higher close assigns the full bar volume positively, a lower close assigns it negatively and an equal close contributes zero.
What is On-Balance Volume (OBV)?
On-Balance Volume (OBV) is a running total of volume signed by each bar’s close. A higher close than the prior close adds the bar’s full volume, a lower close subtracts it and an unchanged close adds zero. Joseph Granville popularized the indicator in his 1963 book. Traders read OBV to confirm a trend when it moves with price and to flag divergence when the two move apart.
The line answers a precise question: how much up-close volume minus down-close volume has accumulated over the selected interval?
How is On-Balance Volume calculated?
Start from a seed value, such as zero, and the prior close. For each completed bar, add or subtract its full volume by the direction of the close, keeping the same session and volume unit throughout.
The direction of the closing change determines the sign, while the full bar volume determines the size of the OBV update. An up-close bar with positive volume always increases OBV. A multi-bar price advance can still have lower OBV when intervening down-close volume dominates.
Formula
If close > prior close, OBV = prior OBV + volume. If close < prior close, OBV = prior OBV − volume. If close = prior close, OBV is unchanged.- Volume is the bar’s full period volume; the close-to-close direction supplies the sign.
- Changing only the seed shifts the line vertically while preserving its differences, slope and relative peaks.
On-Balance Volume example: five sessions
Start from a prior close of $50 and OBV zero. The next five closes are $51, $52, $50.50, $53 and $53, with volumes of 1.2M, 0.9M, 1.5M, 0.5M and 0.8M shares.
- Day 1 close up, volume 1.2M: OBV = 0 + 1,200,000 = 1,200,000
- Day 2 close up, volume 0.9M: OBV = 1,200,000 + 900,000 = 2,100,000
- Day 3 close down, volume 1.5M: OBV = 2,100,000 − 1,500,000 = 600,000
- Day 4 close up, volume 0.5M: OBV = 600,000 + 500,000 = 1,100,000
- Day 5 close flat, volume 0.8M: OBV = 1,100,000 (unchanged)
The final $53 close exceeds Day 2’s $52 close, while OBV is 1.1M versus Day 2’s 2.1M. Over that interval, the 1.5M down-close volume exceeds the 0.5M up-close volume. The unchanged final close contributes zero.
A $50.50 close on 1.5M shares reduces OBV to 0.6M. A $53 close on 0.5M shares raises it to 1.1M. The next $53 close leaves that value unchanged even though 0.8M shares trade.
Price exceeds its earlier $52 level while OBV remains below 2.1M. That is a bearish divergence. Since Day 2, down-close volume has outweighed up-close volume while price made the new high.
OBV seed, units and negative values
Changing the seed adds the same constant to every later reading. Differences, slopes and relative peaks over the same observations remain unchanged. Loading more history works the same way: over the shared bars, the line shifts by a constant as long as the data and rules match.
Use declared units such as shares or millions of shares. A negative OBV value is a valid cumulative reading under its chosen seed.
How traders use OBV: trend confirmation and divergence
Select the price swings and compare OBV at those same bars. Then specify the separate price trigger, entry, invalidation, size and exit.
The chart compares price levels of $108, $111 and $112 with OBV readings of 74M, 72M and 68M shares. Each step in the line is that session’s full volume, added on a higher close and subtracted on a lower close.
Use Relative Volume to compare activity with a selected baseline, VWAP for a volume-weighted price reference and Volume Profile for volume by price. When OBV diverges, Options Flow shows whether option premium leans the same way, such as puts bought at the ask into the new high, and the Options Profit Calculator prices the trade at your target and expiration.
Limitations of On-Balance Volume
- Check the price change behind a large OBV step. The close alone sets the sign of the whole bar’s volume, so a bar that closes one cent higher adds all of its volume to OBV.
- Compare OBV changes, slopes and peaks across charts. The raw level carries the seed and the loaded history, so match both before reading one chart’s level against another’s.
- Trace a divergence to the bars that built it. One heavy-volume bar can dominate the line: in the example, a single 1.5M-share down close outweighs the later 0.5M of up-close volume, so OBV stays below its Day 2 level while price makes a new high.
- Divergence sets up the trade, and the price trigger opens it. A trend that keeps rising through lower OBV highs stops out an early short, so enter on the trigger.
- Set the session first. Including or excluding extended-hours trading changes both the closes and the volumes.
Bottom line
On-Balance Volume shows whether volume is concentrated on up closes or down closes. Read its changes, slopes and peaks rather than its raw level, compare it with price at the same bars, and trade a divergence when a separate price trigger fires.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Fidelity: On-Balance Volume (OBV)
- Fidelity: Why to consider stock volume
- Open Library: Granville's New Key to Stock Market Profits (1963)
How entries are sourced, calculated and updated: editorial methodology.