# On-Balance Volume (OBV) > On-Balance Volume adds volume on up days and subtracts it on down days to track money flow. Learn the formula, divergence, breakouts and its limitations. Source: https://learn.tradelabsai.com/volume/obv/ Track: Volume Analysis · Level: Intermediate · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "On-Balance Volume (OBV)", https://learn.tradelabsai.com/volume/obv/ On-Balance Volume (OBV) is a cumulative volume indicator introduced by Joseph Granville in his 1963 book *Granville's New Key to Stock Market Profits*. It keeps a running total: add the day's volume when price closes up, subtract it when price closes down. Granville's idea was that volume flows ahead of price, so changes in OBV can reveal accumulation or distribution before price makes it obvious. ## The formula ``` If close > previous close: OBV = previous OBV + volume If close < previous close: OBV = previous OBV − volume If close = previous close: OBV = previous OBV ``` The absolute value of OBV does not matter; it depends on where you start counting. What matters is its direction and how it compares with price. **Example: Building OBV** Starting OBV: 0. Day 1: close up, volume 100,000 → OBV 100,000. Day 2: close down, volume 60,000 → OBV 40,000. Day 3: close up, volume 150,000 → OBV 190,000. Day 4: close down, volume 40,000 → OBV 150,000. Up days carried more volume than down days, so OBV rose overall. ## How to read OBV | Situation | Interpretation | |---|---| | Price up, OBV up | Trend confirmed by volume | | Price flat, OBV rising | Possible accumulation; buyers active before price moves | | Price up, OBV flat or down | Bearish divergence; rally lacks volume support | | Price down, OBV down | Downtrend confirmed | | Price flat, OBV falling | Possible distribution | | Price down, OBV flat or up | Bullish divergence; selling losing force | ## Common OBV signals ### Divergence The most watched signal. If price makes a new high but OBV does not, the advance is happening on lighter up volume, a sign of weakness. If price makes a new low but OBV holds higher, selling volume is drying up. See [Volume Divergence](https://learn.tradelabsai.com/volume/volume-divergence/). ### OBV breakouts Some traders draw trend lines or support and resistance on OBV itself. An OBV breakout to new highs while price is still in a range can signal that buyers are building positions and a price breakout may follow. **Example: OBV leading price** A stock trades sideways between $45 and $48 for six weeks. During that time, OBV rises steadily to a new high, because up days have consistently heavier volume than down days. When price finally breaks above $48, OBV had already shown that buying pressure was building. The trader who noticed it had the stock on a watchlist before the breakout. ### Trend confirmation Many traders simply check that OBV is moving in the same direction as price before trusting a trend. ## Combining OBV with price structure OBV is most useful as a second opinion. When price breaks out of a range and OBV breaks to new highs at the same time, the breakout has volume behind it. When price breaks out but OBV stays below its prior peak, be more cautious and consider a smaller position or waiting for a retest. ## Limitations - **All or nothing:** OBV assigns a day's entire volume to buyers or sellers based only on the close versus the previous close. A day that closes up one cent on huge volume adds all of it. - **Spikes distort it:** a single extreme volume day can shift OBV for months. - **No fixed levels:** there are no overbought or oversold readings. - **Volume data:** less meaningful in spot forex, where real volume is not available. The Accumulation/Distribution line addresses the first weakness by weighting volume according to where the close falls within the day's range. See [Accumulation/Distribution](https://learn.tradelabsai.com/volume/accumulation-distribution/). ## Common mistakes - **Reading the absolute OBV number,** which depends on the start date. - **Treating every small divergence as significant.** - **Ignoring unusual volume days** that skew the line. ## Frequently asked questions ### What does On-Balance Volume show? Whether volume is flowing into or out of an asset, by adding volume on up days and subtracting it on down days. ### What is OBV divergence? When price and OBV move in different directions, such as price making a new high while OBV does not, suggesting the move lacks volume support. ### Is OBV a leading indicator? Granville believed volume leads price, and OBV sometimes rises before breakouts, but it is not reliably predictive and is best used as confirmation. ## Sources - Wikipedia, [On-balance volume](https://en.wikipedia.org/wiki/On-balance_volume) ## Continue learning - Next lesson: [Money Flow Index (MFI)](https://learn.tradelabsai.com/volume/money-flow-index/) - Previous lesson: [Anchored VWAP](https://learn.tradelabsai.com/volume/anchored-vwap/) - Related: [Anchored VWAP](https://learn.tradelabsai.com/volume/anchored-vwap/): Anchored VWAP starts the volume weighted average from an event you choose, like earnings or a swing low. Learn how to pick anchors and use them as dynamic levels. - Related: [Accumulation/Distribution](https://learn.tradelabsai.com/volume/accumulation-distribution/): The Accumulation/Distribution line weights volume by where the close falls in the range. Learn the formula, how it differs from OBV, divergence and Chaikin tools. - Related: [Money Flow Index (MFI)](https://learn.tradelabsai.com/volume/money-flow-index/): The Money Flow Index combines price and volume into a 0 to 100 oscillator. Learn the MFI formula, overbought and oversold levels, divergence and how to use it. - Related: [Volume Divergence](https://learn.tradelabsai.com/volume/volume-divergence/): Volume divergence is when price makes new highs or lows on shrinking volume. Learn how to spot bearish and bullish volume divergence and how to act on it. - Related: [Volume Analysis Basics](https://learn.tradelabsai.com/volume/volume-analysis-basics/): Volume analysis uses trading activity to confirm or question price moves. Learn the core principles, volume spikes, climaxes, dry ups and how to apply them. - Related: [Buying and Selling Pressure](https://learn.tradelabsai.com/volume/buying-and-selling-pressure/): Buying and selling pressure describe which side is more aggressive. Learn how to read it from candles, volume, delta and the tape, and the limits of each method.