On-Balance Volume
Technical IndicatorsA cumulative volume-based indicator that adds volume on up days and subtracts volume on down days. Rising OBV confirms uptrends, while falling OBV confirms downtrends. Divergence between OBV and price can signal upcoming reversals.
What Is On-Balance Volume?
On-Balance Volume (OBV), created by Joe Granville, uses volume flow to predict price changes. The calculation is simple: if today's close is higher than yesterday's, today's volume is added to the running OBV total. If lower, it is subtracted. If unchanged, OBV stays flat. The actual OBV number is less important than its direction and slope relative to price.
OBV in Forex
Forex is a decentralized market with no single source of true volume. Tick volume (the number of price changes per period) serves as a proxy and works surprisingly well with OBV. When price is rising and OBV is also rising, the uptrend is confirmed by volume support. When price rises but OBV flattens or falls, it signals a divergence: the move lacks volume conviction and may reverse.
Practical Applications
Use OBV as a confirmation tool rather than a standalone signal. Before entering a breakout trade, check if OBV is trending in the same direction. For range-bound markets, watch for OBV to break out of its own range before price does, which can signal which direction the eventual price breakout will go. Combine OBV with Moving Average analysis: apply a 20-period SMA to the OBV line itself, and look for OBV crossing above or below its own average to confirm momentum shifts.
Related Terms
Accumulation/Distribution
A cumulative volume-based indicator that uses the relationship between a pair's closing price and its high-low range to determine whether money is flowing into (accumulation) or out of (distribution) a currency pair.
Money Flow Index
A volume-weighted RSI that combines price and volume data to measure buying and selling pressure. It oscillates between 0 and 100, with readings above 80 indicating overbought and below 20 indicating oversold conditions.
VWAP (Volume Weighted Average Price)
An intraday benchmark that calculates the average price weighted by volume. VWAP resets daily and shows the average price at which a pair has traded throughout the session, helping traders identify whether they are buying above or below fair value.
Force Index
An oscillator that combines price change and volume to measure the strength of buying and selling pressure. Developed by Alexander Elder, it helps confirm trends and identify potential reversal points.