OBV - On Balance Volume
Learn On Balance Volume indicator for identifying accumulation/distribution and predicting price breakouts with volume confirmation.
What is OBV?
On Balance Volume (OBV) was developed by Joe Granville in 1963. It's a momentum indicator that uses volume flow to predict changes in price. The core principle: volume precedes price.
OBV adds volume on up days and subtracts it on down days, creating a cumulative total that shows whether volume is flowing into or out of a security.
If Close > Previous Close: OBV = Previous OBV + Volume
If Close < Previous Close: OBV=Previous OBV - Volume
If Close = Previous Close: OBV = Previous OBV
The absolute value of OBV doesn't matter - what matters is the direction and trend of the OBV line relative to price.
How to Interpret OBV
Key Concepts
- Rising OBV: Volume is flowing in (accumulation)
- Falling OBV: Volume is flowing out (distribution)
- OBV Breakout: Often precedes price breakout
Bullish Signals
- OBV making new highs while price consolidates
- OBV rising with price (confirmed uptrend)
- OBV breaks out before price does
- OBV showing higher lows (bullish divergence)
Bearish Signals
- OBV making new lows while price consolidates
- OBV falling with price (confirmed downtrend)
- OBV breaks down before price does
- OBV showing lower highs (bearish divergence)
OBV Divergence - The Most Powerful Signal
- Bullish Divergence: Price makes lower low, but OBV makes higher low → Smart money accumulating
- Bearish Divergence: Price makes higher high, but OBV makes lower high → Smart money distributing
How GarudaAlgo Uses OBV
GarudaAlgo Enhancement
GarudaAlgo monitors OBV divergence in real-time and tracks OBV trend relative to price trend. When OBV shows accumulation during price consolidation, we flag potential breakout setups.
OBV in Signal System
OBV analysis is part of the 6% Volume Analysis weight in GarudaAlgo's signal system.
What GarudaAlgo Analyzes
- OBV Trend: Rising, falling, or flat
- OBV vs Price: Confirmation or divergence
- OBV Breakouts: Early breakout signals
- Accumulation/Distribution: Smart money flow detection
Trading Strategies
Strategy 1: OBV Breakout Confirmation
- Identify price consolidation near resistance
- Watch for OBV to break out above its recent highs
- If OBV breaks out before price, prepare for price breakout
- Enter when price confirms with breakout
Strategy 2: Divergence Trading
- Look for OBV divergence from price at key levels
- Bullish divergence at support = buying opportunity
- Bearish divergence at resistance = selling opportunity
- Wait for price confirmation (reversal candle)
Best Practices
- Focus on the trend, not the value — The number itself is meaningless
- Divergence is key — OBV divergence often precedes major moves
- Combine with price action — OBV + breakout pattern = high probability
- Works best on stocks/crypto — Forex volume is less reliable