How is on-balance volume calculated?

Each day is compared with the previous close, and there are only three cases:

Hypothetical, six days of a $50 stock in the table below: day 2 closes up on 1.4 million shares, so OBV goes from 0 to 1.4M; day 3 closes down on 0.6M and OBV drops to 0.8M; day 4 adds 1.8M for 2.6M; day 5 closes flat, so its 0.9M is ignored; day 6 subtracts 0.7M for 1.9M. Only the close decides the sign: the size of the move and the bar’s high and low play no part.

  • Close higher than yesterday: OBV = yesterday’s OBV + today’s volume.
  • Close lower than yesterday: OBV = yesterday’s OBV − today’s volume.
  • Close unchanged: OBV stays where it was.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn six-day ledger with the columns day, close, volume, ± and OBV: closes of 50.00, 50.80, 50.40, 51.20, 51.20 and 50.90; signed volumes of +1.4M, −0.6M, +1.8M, 0 and −0.7M in green, red and grey; OBV of 0, 1.4M, 0.8M, 2.6M, 2.6M and 1.9M. An arrow leads to the same values drawn as a running-total line, with a note reading read the direction, not the number.

How to read OBV: confirmation vs divergence

The number itself means nothing. It depends on the date the running total started, so two charts of the same stock can show very different values. What you read is the direction of the line and its highs and lows compared with price.

Confirmation: price makes higher highs and higher lows, and OBV does too, as on the left of the drawing at the top of the page. More volume is arriving on up days than on down days, which supports the trend. The same holds in reverse for a downtrend.

Divergence: price makes a higher high but OBV makes a lower high (bearish), or price makes a lower low while OBV makes a higher low (bullish). It says the move has less volume behind it, not that it will reverse; trends can run for a long time with a divergence. Treat it like RSI divergence: a warning that still needs a level and a trigger.

OBV breakouts: when the line moves before price

Granville’s idea was that volume leads. One way traders apply it: price is stuck under resistance, but OBV climbs and breaks above its own previous high. Buying volume is building even though price has not moved yet, as in the drawing below.

Hypothetical: a stock trades between $50.50 and $54.00 for three weeks, and OBV makes a new high while price is still at $53.50. Some traders set an alert above $54.00 and wait for a daily close above it, ideally on high relative volume. The OBV break alone is not an entry; it only marks the chart as worth watching. The breakout trading strategy covers the entry and false breakouts.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn price chart moving sideways under a dashed resistance line, with the OBV line below it. OBV rises past its own earlier high (a purple dashed line) and is ringed in green, with a note reading OBV makes a new high first; two dotted vertical lines link that moment to a later candle that closes above resistance with a buy triangle, labeled price breaks out later.

Limits of OBV: what the indicator gets wrong

OBV is simple, and its simplicity creates blind spots:

Variants such as the accumulation/distribution line weigh each day’s volume by where the close sits in the bar’s range, which softens the first two problems but adds assumptions of its own.

  • One day can dominate. A single session with several times normal volume, around earnings or an index rebalance, can shift the line more than weeks of ordinary trading.
  • It ignores the size of the move. A close up $0.01 adds the whole day’s volume, exactly like a close up $5.00.
  • Its level is arbitrary. Compare direction and swing points, never the number with another chart.
  • Data varies. Different data feeds and sessions, with or without extended hours, report different volume, so the line can differ between platforms.

Turn your phone sideways to read the drawing. Tap to close.

Two hand-drawn panels. Left: an OBV line over twelve volume bars, one red bar about six times taller than the rest and circled, where the line drops in a single step, with a note reading one huge day outweighs weeks. Right: a tiny candle labeled +$0.01 and a tall candle labeled +$5.00 above equal volume bars, each tagged OBV +1M, with a note reading the size of the move is ignored.

How to use OBV with other tools

On TradingView, OBV is a built-in indicator: search for On Balance Volume and it plots in its own pane under the chart. Standard OBV has no length setting; some traders add a moving average of the line to make its direction easier to read. Many read it on daily charts, where swing points take days to form; on intraday charts the line gets noisy.

OBV works best as one vote among several, in this order:

  1. Location: a support or resistance level, or a volume profile node, gives the trade a place.
  2. Trigger: a candle close beyond that level.
  3. Volume: OBV for the trend of participation, relative volume for today’s activity.
  4. Risk: a stop beyond the level, sized with the position size calculator.