On Balance Volume Technical Analysis Indicator - Using Volume to Confirm Price Movement


Visitors: 217

On Balance Volume (OBV) uses volume to confirm price movements. The calculation for On Balance Volume is given below

  • On days when the close is greater than the open (i. e. stock posted a gain) then the volume for that day is added to the running OBV total.
  • However, when the close is less than the open (i. e. stock posted a loss), then the volume for that day is subtracted from the running OBV total.
Generally speaking, increases in volume when prices rise is bullish. Therefore an increasing OBV is bullish. When volume increases and prices decrease this is bearish: A decreasing OBV is generally considered bearish. As a confirmation tool, if price and the OBV indicator are rising together, this is bullish. When prices and the OBV are moving downward, this is considered bearish.

When prices move higher or lower on low volume, the On Balance Volume technical analysis indicator will hardly move. This can signal weak participation by traders and is called a divergence. The price movement was not confirmed by volume and therefore is looked upon by traders as a questionable move in which they are unlikely to join in.

Volume is one of the most important parts of technical analysis, arguably second only to price. To learn how to interpret volume click the Volume Analysis link.

Trading is risky. Trade only with money you can afford to lose. Past performance of technical analysis indicators is not indicative of future performance.

Tom Markelson is a contributor to the website and trades stock index futures, stock options, and stock index options.

To visually see the On Balance Volume indicator, a link has been provided: On Balance Volume (OBV)


Article Source:

Rate this Article: 
Volume Metrics
Rated 4 / 5
based on 5 votes

Related Articles:

Volume Analysis

by: Alton Hill (February 01, 2008) 

Volume Based Analysis

by: Viktor Ka (February 26, 2011) 

Cost Volume Profit Analysis - What Is It All About?

by: Jay Hickman (April 17, 2008) 

A Stocks Volume Can Indicate Price Movements

by: Shaun Rosenberg (April 05, 2008) 

Traders Index or Arms Index Technical Analysis Indicator For Stock - Index ..

by: Tom Markelson (May 12, 2007) 

Low Semen Volume: Solutions For Low Semen Volume In Men

by: Ben Clemons (July 14, 2007) 
(Health and Fitness/Mens Issues)

Technical Analysis - 12 Important Characteristics Of Technical Analysis!

by: Abhishek Agarwal (April 02, 2008) 

Technical Analysis Charts - How To Predict The Future Market Using Technical ..

by: Abhishek Agarwal (December 25, 2007) 

The Volume Oscillator

by: Viktor Ka (December 13, 2009) 

Volume Metrics

by: Susan Slobac (August 06, 2008) 
(Reference and Education)