On Balance Volume is an indicator that traders need to know in 2026

2026-02-25 02:29:35

Success in trading doesn’t rely solely on reading price trends. Reliable trends must be confirmed by strong trading volume. On Balance Volume (OBV) is a momentum indicator designed to accurately measure accumulated buying and selling pressure. It helps traders track institutional investor movements and confidently identify entry points.

Why is On Balance Volume Important for Market Analysis?

There aren’t many volume analysis tools in financial markets. OBV, developed by Joseph E. Granville in 1963, in his book Granville’s New Key to Stock Market Profits, is widely accepted because he believed that volume is the true driver of price movements.

OBV is designed so traders can observe how much buying or selling pressure is accumulated in an asset. When combined with price trends, this indicator reveals the strength of the current movement, from trend confirmation to high-accuracy reversal signals.

How On Balance Volume Works

OBV is calculated by cumulatively adding or subtracting volume based on closing price movements:

When the closing price rises: trading volume is added to OBV (OBV increases)
When the closing price falls: trading volume is subtracted from OBV (OBV decreases)
When the closing price remains unchanged: OBV stays the same

This method allows investors to monitor the activity of large investors and institutions that often trade in massive quantities. When prices rise along with increasing OBV, it indicates a strong uptrend. Conversely, if prices decline but OBV continues to rise slightly, the downtrend may be nearing its end.

Step-by-Step Calculation of On Balance Volume

Calculating OBV is straightforward with this basic formula:

Basic Formula:

OBVt = OBVt-1 + Volumet : if current closing price (t) is +
OBVt = OBVt-1 - Volumet : if current closing price (t) is -
OBVt = OBVt-1 + 0 : if current closing price (t) equals previous close

Variables:

OBVt = Cumulative volume at current period
OBVt-1 = Cumulative volume at previous period
Volumet = Volume during current period

Example Calculation: GOOG (Daily)

Plotting OBV alongside price often confirms the trend and can provide leading signals:

Date	Price	Volume	+ / -	OBV
10/02/23	135.17	19,210,394	+	19,210,394
10/03/23	133.30	19,628,736	-	-418,342
10/04/23	136.27	22,847,987	+	22,429,645
10/05/23	135.99	15,922,944	-	6,506,701
10/06/23	138.73	20,826,683	+	27,333,384
10/09/23	139.50	16,599,099	+	43,932,483
10/10/23	139.20	19,554,916	-	24,377,567
10/11/23	141.70	20,146,341	+	44,523,908
10/12/23	140.29	18,173,107	-	26,350,801
10/13/23	138.58	19,447,565	-	6,903,236
10/16/23	140.49	17,345,556	+	24,248,792
10/17/23	140.99	17,424,024	+	41,672,816
10/18/23	139.28	18,304,869	-	23,367,947
10/19/23	138.98	21,831,181	-	1,536,766
10/20/23	136.74	24,970,263	-	-23,433,497
10/23/23	137.90	20,780,665	+	-2,652,832
10/24/23	140.12	26,535,198	+	23,882,366
10/25/23	126.67	58,796,067	-	-34,913,701
10/26/23	123.44	33,907,363	-	-68,821,064
10/27/23	123.40	37,367,673	-	-106,188,737
10/30/23	125.75	24,165,631	+	-82,023,106
10/31/23	125.30	21,123,418	-	-103,146,524
11/01/23	127.57	26,536,604	+	-76,609,920
11/02/23	128.58	24,091,672	+	-52,518,248
11/03/23	130.37	19,529,448	+	-32,988,800
11/06/23	131.45	15,360,362	+	-17,628,438
11/07/23	132.40	19,223,786	+	1,595,348
11/08/23	133.26	15,093,598	+	16,688,946
11/09/23	131.69	17,976,533	-	-1,287,587
11/10/23	134.06	20,879,838	+	19,592,251
11/13/23	133.64	16,409,856	-	3,182,395
11/14/23	135.43	22,317,345	+	25,499,740
11/15/23	136.38	15,840,883	+	41,340,623

Reading OBV Signals to Confirm Trends

OBV measures trend strength and can be used in two main ways:

1. Confirming Continuing Trends

When prices are rising and OBV is accelerating upward, it indicates a strong uptrend supported by substantial buying. Similarly, falling prices with decreasing OBV suggest a strong downtrend.

Traders can combine OBV with swing trading strategies to enter during strong trend swings.

2. Detecting Reversal Points

Divergence occurs when price and OBV send conflicting signals, such as:

Price makes new highs but OBV does not → Weak upward move, potential reversal soon
Price makes new lows but OBV does not → Weak selling pressure, possible bullish reversal

Traders can use divergence signals to identify entry points for pullback or throwback strategies.

Trading Strategies Using OBV with Other Indicators

Relying solely on OBV can sometimes produce false signals. Combining OBV with other trend indicators enhances accuracy:

OBV + Moving Average (MA)

Moving Averages show average prices over a period, acting as support/resistance and trend indicators.

When combining OBV with MA, traders look for divergence signals and trend confirmations, such as:

Price drops below EMA25 and OBV declines, indicating a downtrend
OBV stops making new lows (divergence) while price attempts to break above EMA25, signaling a potential buy entry

OBV + Bollinger Bands

Bollinger Bands depict price volatility based on standard deviations around a moving average.

When OBV divergence occurs along with price touching the upper band and breaking below the 20 SMA, it suggests strong selling pressure and a potential downtrend. Traders might open short positions with stop-loss at recent highs.

Summary: OBV as a Comprehensive Indicator

On Balance Volume is a momentum indicator derived from volume data, allowing traders to observe accumulated trading pressure and market strength clearly. Its importance lies in confirming price trends with volume, as genuine trends are supported by strong trading activity.

Mastering OBV enhances a trader’s analytical toolkit, providing additional insights beyond trend indicators. It improves price prediction accuracy and confidence, leading to better long-term trading results.

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