On-Balance Volume - OBV Indicator

On Balance Volume Definition

On-Balance Volume (OBV) is a cumulative volume-based tool intended to show the relation between the amount of deals and asset’s price movements.

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How to Use On Balance Volume

The On-Balance Volume line is used for trend confirmation or possible turning points identification purposes.

Trend confirmation:

  • An uptrend in prices is confirmed if the line is rising;
  • A downtrend in prices is confirmed if the line is falling.

Divergence pattern analysis:

  • Rising OBV line along with decreasing prices indicates the downtrend may be weakening to a bullish reversal;
  • Falling OBV along with rising prices indicates the uptrend may be weakening to a bearish reversal.
OBV Indicator

On-Balance Volume (OBV) Indicator

On-Balance Volume Formula (Calculation)

In each trading period, the On-Balance Volume indicator is calculated depending on its value in the previous trading period: if the current closing price is above the previous one, then the current volume is added to the OBV, and if it is below - the current volume is subtracted from the OBV. If the current closing price is unchanged, then the on-balance volume remains unchanged.


OBV(t) = OBV(t-1) + Vol, if C(t) > C(t-1);
OBV(t) = OBV(t-1) – Vol, if C(t) < C(t-1);
OBV(t) = OBV(t-1), if C(t) = C(t-1),

where:
t – current period;
t-1 – previous period;
C – close price;
Vol – volume.

How to use On-Balance Volume in trading platform

Use indicators after downloading one of the trading platforms, offered by IFC Markets.