What Does OBV Mean In Trading?

What Does OBV Mean In Trading?

Trading on the financial markets can be a highly technical process. Traders use a wide variety of technical indicators to identify and confirm market trends and make profitable trading decisions. 

One such commonly used indicator is the on-balance volume, or OBV for short. 

The OBV indicator is designed to measure the cumulative flow of volume (buying and selling pressure) in a financial market, typically a stock or a cryptocurrency, over a specified period.

This is important because it gives traders a clear view of how much interest an asset is able to generate at any given time and spike in OBV value can be an indicator of a shift happening on the market. 

Typically, when a new trend is forming, this is characterized by increased trading volumes and capital inflows or outflows, based on the direction of the new trend. 

Whether you choose to trade highly volatile assets, such as cryptocurrencies and micro-cap stocks, or ultra-stable S&P 500 index funds, OBV can nonetheless be a very useful tool at your disposal. 

What Is OBV And How Does It Work?

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As already mentioned above, OBV shows the cumulative flow of volume for a particular asset to determine the shifts in market interest and sentiment towards the asset.

This can range from singular assets, to a basket of investments and indexes.


The OBV is calculated by adding the volume of an asset to the indicator when the price closes higher (indicating buying pressure) and subtracting the volume when the price closes lower (indicating selling pressure).

If the closing price is unchanged from the previous period, no volume is added or subtracted.

  • If the current closing price > previous closing price, OBV = Previous OBV + Current Volume
  • If the current closing price < previous closing price, OBV = Previous OBV - Current Volume
  • If the current closing price = previous closing price, OBV remains unchanged


Traders and analysts use OBV to confirm trends. Rising OBV suggests that buying pressure is increasing, which may indicate a bullish trend.

Falling OBV suggests increasing selling pressure and may indicate a bearish trend.

Divergences between the OBV and the price of the asset can also be used to identify potential trend reversals.

Volume Confirmation

OBV is often used alongside price analysis to provide confirmation of price trends. For example, if a stock is in an uptrend, traders may look for rising OBV as confirmation that the buying pressure is indeed increasing and supporting the price movement.

By confirming this, traders can also use other technical indicators in conjunction with OBV to pinpoint an entry price that has the most potential of delivering profits. 

Volume Breakouts

Traders also use OBV to identify potential breakouts. A breakout occurs when the OBV moves in the opposite direction of the price trend.

For example, if a stock is trading in a range, and OBV starts rising while prices are still within that range, it may signal an upcoming breakout to the upside.


OBV can be used to spot divergences between the indicator and the price chart. For example, if the price of a stock is making higher highs while the OBV is making lower highs, it could be a bearish divergence, suggesting that the price trend may weaken.

Divergences are important to consider when using OBV, as it can potentially signal the end of one trend and the beginning of a new one. 

Pros And Cons Of Using OBV In Trading

Using on-balance volume in trading comes with its fair share of advantages and disadvantages. Traders need to consider these factors carefully before relying on the indicator for trade signals. 


  • Confirmation of Price Trends: OBV can be a useful tool for confirming the strength of price trends. When the OBV aligns with the direction of the price movement, it provides confidence to traders that the trend is supported by healthy buying or selling volume
  • Early Warning Signals: OBV can provide early warning signals of potential trend reversals or breakouts. Divergences between the OBV and price can signal that a trend may be losing strength or reversing, allowing traders to make informed decisions ahead of time
  • Simplicity: OBV is relatively easy to understand and calculate. It doesn't involve complex mathematical formulas, making it accessible to both novice and experienced traders. This simplicity can lead to quicker analysis and decision-making


  • False Siglas: OBV, like many technical indicators, is not immune to false signals. It can produce whipsaw signals during periods of low volatility or in choppy markets, leading traders to make incorrect trading decisions
  • Limited to Volume Information: OBV primarily relies on volume data and doesn't incorporate price directly. This limitation can result in situations where OBV appears strong, but price trends are weak or vice versa, leading to misleading signals
  • Subjectivity: Interpreting OBV signals can be somewhat subjective. Traders may have different criteria for identifying divergences or trend confirmations, leading to variations in how the indicator is used and potentially causing confusion

Key Takeaways From What Does OBV Mean In Trading

  • Traders use technical indicators to gather data from the market and make trade decisions
  • OBV, or on-balance volume, is a popular indicator that measures the flow of capital in and out of financial instruments
  • Traders sue OBV to identify bullish and bearish trends by measuring the growth and decline of trading volume 
  • A rising OBV may indicate an upcoming bullish trend, while a falling OBV shows a bearish turn 
  • OBV is frequently used alongside other indicators, such as moving averages and oscillators to generate more reliable signals 

FAQs On What Does OBV Mean In Trading

Is OBV a good indicator in trading?

OBV can be a good indicator of trend changes on the market. For example, when the OBV is falling, it generally means that the buying volume is falling and a bearish trend is likely to form. 

What does OBV show in forex trading?

In forex trading, on-balance volume shows the flow of trading volume of a currency pair. This shows the interest of the market towards a particular pair, as well as the formation of bullish and bearish trends. 

What does a rising OBV mean?

A rising OBV indicates an increasing buying pressure, which may indicate the start of a bullish trend. Traders can wait for the end of the bearish trend to weaken and as the OBV starts to increase consistently, a buy signal can be generated.