On-Balance Volume (OBV) is a cumulative indicator: it adds the day's volume to a running total when price closes up, and subtracts it when price closes down. The idea is that volume precedes price — sustained buying pressure (rising OBV) shows accumulation, sustained selling (falling OBV) shows distribution.
What it reveals
OBV's absolute value is meaningless; its direction and trend are the signal. A rising OBV confirms that an uptrend has real volume behind it. A flat or falling OBV during a price rise warns that the move is thin — price is climbing without conviction, which often precedes a stall.
Divergence is the point
The most useful OBV read is divergence: price makes a new high but OBV doesn't (bearish — buyers aren't committing), or price makes a new low but OBV holds (bullish — sellers are exhausting). Divergence hints that the crowd behind the price move is thinning out before the reversal shows up in price.
When price makes a new high and volume doesn't follow, the move is running on fumes.
The caveats
OBV treats a close up by a penny the same as a close up by 3% — it ignores magnitude — and it's noisy on low-volume names. It's best as a confirmation and divergence tool alongside price structure, not a standalone signal. Volume is one of the more honest inputs in markets; OBV is one crude way to read it.
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