On-Balance Volume (OBV): How to Read It
On-Balance Volume keeps a running total that adds volume on up days and subtracts it on down days. It helps show whether volume is flowing into or out of an asset.
The formula
Common settings: No parameters; often paired with a 20-period moving average of OBV
How to read it
- Rising OBV suggests buying pressure.
- Falling OBV suggests selling pressure.
- OBV rising with price confirms the trend.
- OBV diverging from price can warn of a weakening move.
- The actual OBV number matters less than its direction.
Typical signals
- OBV making new highs before price as a possible early bullish sign.
- Price rising while OBV falls as a bearish divergence.
- OBV breaking its own trendline as a possible shift in flow.
Pitfalls to avoid
- A single huge-volume day can distort the line for a long time.
- Treats all volume on up days as buying, which is a simplification.
- Less reliable in assets with unreliable volume data.
FAQ
Does the OBV value matter?
Not really. Traders focus on its direction and how it compares with price.
What is OBV divergence?
It is when price and OBV move in different directions, hinting that the trend may lack support.
Can OBV be used for crypto?
Yes, though volume reporting can vary between exchanges.
Works well with
Volume
Volume shows how many shares, contracts or coins traded during each period. It reveals the level of participation behind a price move and helps judge whether a move has conviction.
π§Money Flow Index
The Money Flow Index is like an RSI that also includes volume. It measures buying and selling pressure on a 0 to 100 scale, helping spot stretched conditions backed by volume.
γ°οΈSimple Moving Average
The Simple Moving Average adds up the last N closing prices and divides by N to create a smooth line. It filters out daily noise so the underlying direction of the trend is easier to see.