Short Answer
OBV (On-Balance Volume) is a running total of volume: on days (or bars) when close > previous close, volume is added; when close < previous close, volume is subtracted; unchanged close often leaves OBV flat. Traders watch OBV trend vs price trend and divergences for clues about accumulation or distribution.
Detailed Explanation
Developed by Joe Granville, OBV treats volume as fuel behind moves. The absolute OBV number matters less than direction and relative highs/lows vs price.
Interpretation
- Rising OBV with rising price → volume confirms the uptrend (simplified).
- Falling OBV with falling price → confirms selling pressure.
- Bullish divergence: price lower lows, OBV higher lows → possible underlying buying.
- Bearish divergence: price higher highs, OBV lower highs → possible weakness.
OBV is cumulative—it can drift over long periods; focus on slope and structure relative to price.
Common Uses
- Confirm breakouts (OBV moving with price).
- Warn when price makes new highs but OBV does not (distribution hint).
- Combine with VWAP, price patterns, or RSI for context.
Settings
Classic OBV has no period parameter; variants may smooth OBV or use different rules.
Common Mistakes
- Expecting precise timing from OBV alone.
- Ignoring gaps and corporate actions (can distort cumulative series on some feeds).
- Using OBV without checking liquidity and real volume quality.
- Confusing OBV with Money Flow Index or Chaikin—related ideas, different math.
OBV in VaultCharts
VaultCharts includes On-Balance Volume in the volume-indicator family. Use it to confirm or question price moves, not as a single trigger.