On Balance Volume (OBV) - Technical Indicator

On Balance Volume Definition

The On Balance Volume (OBV) indicator was developed by Joe Granville, and detailed in his 1963 classic, Granville's New Key to Stock Market Profits. The OBV is a momentum indicator, which attempts to display the relationship between volume and price change. The OBV is calculated by adding the day's volume to a running cumulative total when the security's price closes up, and subtracts the volume when it closes down. The on balance volume indicator is believed to be able to display if the "smart money" is involved in a price move. Unlike other technical indicators that have oversold and overbought conditions, the OBV is truly a subjective indicator. You as the trader have to be able to look at the price chart and determine if the OBV is confirming or contradicting the price move.

Using On Balance Volume to confirm a breakout

If you are in a stock and it is trending in a direction, you will want to see the OBV trending in the same manner. This confirmation between the price move and volume, implies that there is strength in the move. Below is an example of a stock which is trending positively with an up trending on balance volume. Remember, the higher the volume, the greater the odds the move has legs.

On Balance Volume Breakout

Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

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