OBV (On-Balance Volume) explained

Volume

What OBV measures

OBV accumulates volume on up-days and subtracts it on down-days, creating a running total. The absolute value is meaningless — only the trend and divergences matter. The premise: if OBV is rising while price is flat, institutions are accumulating quietly, suggesting price will follow. If OBV falls while price rises, institutions are distributing.

How OBV readings are interpreted

When OBV makes new highs alongside price: strong trend confirmation. When price makes new highs but OBV doesn't: bearish divergence — the rally lacks volume conviction. When price is flat but OBV rises: accumulation phase, anticipate breakout to the upside. OBV is best used for divergence analysis and trend confirmation.

Conventional OBV levels

OBV rising with price: healthy uptrend
OBV falling while price rises: bearish divergence — potential top
OBV rising while price falls: bullish divergence — potential bottom
OBV breaking to new highs: confirms price breakout is valid
OBV trend line break: often precedes price trend line break by several days

Where OBV works, and where it does not

Most effective for liquid assets with reliable volume data. Works particularly well for identifying institutional accumulation and distribution in large-cap stocks. Less useful for assets with inconsistent or manipulated volume (some crypto exchanges). Best on daily charts.

Indicators commonly read alongside OBV

Price breakouts: OBV confirming a price breakout validates it significantly
Moving Averages: Apply a 20 EMA to OBV to smooth and spot OBV trend changes earlier
MACD: OBV trend + MACD trend in agreement = strong directional conviction

Known limitations of OBV

OBV doesn't account for the SIZE of price moves — a tiny up-close on huge volume vs large up-close on small volume receive equal treatment
OBV can mislead in assets with large overnight gaps
The absolute OBV level is meaningless — only the slope and divergences matter

OBV in practice

Apply a 20-period EMA to OBV: when OBV crosses above its EMA, it's a bullish signal
OBV divergence with price over 2+ weeks on daily chart = high-quality setup
Pre-breakout pattern: OBV makes a new high 3-5 days before price does
Track cumulative OBV from a key level (e.g. post-earnings low) to see net buying since that point

Other volume indicators

CMF — Chaikin Money Flow
VWAP — Volume Weighted Average Price
Anchored VWAP
Elder Force Index

Testing ideas built on OBV

A reading of OBV can be written as an exact rule and checked against historical data — as a full strategy with entries, exits and costs, or as a single condition and what followed it:

How to backtest a trading strategy without code
Event analysis: what follows a market event

Plot it yourself. Add this indicator to a chart, change every parameter and watch the line move, then backtest how the rule would have behaved on historical data — free on the S&P 500 ETF, no card.

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This is reference material, not advice. It describes what each indicator measures and how its readings are conventionally interpreted. Nothing here is a recommendation to buy or sell anything, and no indicator predicts future prices. GU Analyser is an analytical tool — no money is ever traded here.