On-Balance Volume
On-Balance Volume (OBV) is a cumulative volume indicator developed by Joe Granville that adds each day's volume to a running total on up days and subtracts it on down days, used historically to study whether volume flow has been consistent with or diverging from the direction of price movement.
On-Balance Volume was introduced by Joe Granville in his 1963 book 'Granville's New Key to Stock Market Profits' and is one of the earliest volume-based technical indicators. The calculation is straightforward: if today's closing price is higher than yesterday's closing price, today's total volume is added to the running OBV total. If today's closing price is lower, today's volume is subtracted. If the closing price is unchanged, OBV remains the same. The starting value of OBV is arbitrary; it is the direction and shape of the OBV line that technical analysts study, not its absolute level.
Granville's foundational thesis was that volume precedes price in historical market data. He proposed, based on his study of historical charts, that periods of increasing volume on up days relative to down days historically corresponded to accumulation by large investors — and that this accumulation would eventually be reflected in rising prices. Conversely, periods of increasing volume on down days historically corresponded to distribution — large investors exiting — which would historically precede price declines.
The primary application of OBV in technical analysis is to study divergences between the OBV line and the price chart. In historical data, instances where price has continued to make new highs while OBV was failing to confirm those highs (or was declining) have been studied as potentially indicating weakening volume support for the price move in those historical cases. Similarly, periods where price was making new lows but OBV was flattening or rising have been studied as potentially indicating that selling volume was historically decreasing despite continued price weakness.
OBV's simplicity — all volume on an up day is treated identically regardless of whether the gain was fractional or substantial — is both its strength (easy to calculate and replicate) and its limitation (it does not account for the magnitude of price moves, only their direction). More sophisticated volume indicators such as the Chaikin Money Flow and Accumulation/Distribution Line attempt to address this limitation. Like all technical indicators, OBV describes historical volume and price patterns and does not have established predictive power for future price behavior.