On Balance Volume - OBV
The on balance volume (OBV) indicator was developed by a fellow named Joseph Granville in 1963.
What makes OBV so useful is that it presents a more visual way to view the share price volume flow and compare it to the stock's price action.
Volume should increase in the direction of the price trend, and this indicator makes it easier to make sure that is happening.
If the direction of the OBV line is up, the line is bullish meaning that there is more volume on up days than on down days.
A falling OBV line signals that volume is heavier on down days, and is considered to be bearish.
For further in-depth information on Technical Indicators, this resource contains critical information to help you learn to use stock charts and technical indicators in a clear, simple and concise manner to improve your trade entries and exits in the stock market.
_______________________________________________________________
OBV Uses
_______________________________________________________________
On-balance volume has two major uses:
- Pre-signal price breakouts
- Price Divergences
Pre-signal price breakouts
Just before a price breakout (up or down), OBV will breakout BEFORE the stock price does. That is usually an early signal that the share price will follow in the same direction.
See the chart above
Price Divergences
OBV gives it's strongest signals when it diverges from prices. For example, on a Double Top chart pattern, on the second top of the stock, if OBV diverges and heads lower, this is a pre-signal that the stock price is ready to fall.
The opposite would be true on a Double Bottom chart pattern.
See the chart above.
As with this indicator, it is meant to be used in conjunction with other indicators.
_______________________________________________________________
Recommended Technical Analysis Tools and Resources
Recommended Technical Stock Trading Software
_______________________________________________________________
Interpret Technical Indicators like a Pro! Learn How to Truly Understand and Use Indicators For What They Were Designed For The Technical Analysis Course:
Personalized Course on Technical Analysis Techniques ! Lays the Foundation for Investors to Become Expert Technical Analysts and Smarter, More Successful Traders. |
Tell Us About Your Favorite On Balance Volume Indicator Use and Strategy
Is there a specific On Balance Volume Strategy or Technique that you use, that is not described on this page?
Here is your opportunity to share your On Balance Volume Indicator expertise and technique, to help and coach other newbie Stock Traders become more proficient and confident on their journey to Stock Trading Success and Profitability!
_________________________________________________________________
Return From "On Balance Volume" to the "Technical Analysis Indicators" Page
Return From "On-Balance Volume" to the Home Page "Stock Market For Beginners"