On-Balance Volume (OBV)¶
| Name | Type | Prerequisite | Use Cases |
|---|---|---|---|
| On-Balance Volume (OBV) | Volume | Price & Volume | Identifying divergence between price and volume. |
Definition¶
On-Balance Volume (OBV) is a technical trading momentum indicator that uses volume flow to predict changes in stock price. It accumulates buying and selling volume.
Mathematical Equation¶
\[
OBV_t = OBV_{t-1} + \begin{cases} \text{Volume}_t & \text{if } P_t > P_{t-1} \\ 0 & \text{if } P_t = P_{t-1} \\ -\text{Volume}_t & \text{if } P_t < P_{t-1} \end{cases}
\]
Special cases¶
- Maximum possible value: Unbounded
- Minimum possible value: Unbounded
- Behavior: A running cumulative total of volume, adding on up days and subtracting on down days.
Visualization¶
Trading Significance¶
-
Volume Precedes Price: Use OBV to confirm trends. If price is rising but OBV is flat or falling, the trend may be weak.
-
Divergence: Bullish/Bearish divergence between price and OBV often signals reversals.