What Is an On-Balance Volume (OBV)?
On-Balance Volume (OBV) is a technical analysis indicator used to measure the positive and negative flow of volume in a security. It was developed by Joseph Granville in 1963, and it uses price and volume data to determine whether an asset is being accumulated or distributed. OBV adds up all the trading volumes on days when prices close higher than they opened, while subtracting all the trading volumes on days when prices close lower than they opened. This cumulative total gives investors an idea of how much buying or selling pressure there has been for that particular stock over time.
The On-Balance Volume indicator can be used as a leading indicator to predict future trends in price movements. If OBV shows increasing buying pressure, then this could indicate that prices will soon rise; conversely if OBV shows decreasing buying pressure, then this could indicate that prices will soon fall. Additionally, divergences between OBV and price action can also provide insight into potential reversals in trend direction before they occur with price action alone. As such, traders often use On-Balance Volume as part of their overall strategy for making informed decisions about entering or exiting positions within markets