On-Balance Volume (OBV): Volume Trend Indicator
OBV cumulatively adds volume on up days and subtracts it on down days. Learn how this leading indicator predicts price movements. On-balance volume.
What Is OBV?
On-Balance Volume (OBV), created by Joseph Granville, is a cumulative volume indicator. On days when price closes up, the day's volume is added. On down days, it's subtracted. The theory: volume precedes price.
Reading OBV
- Rising OBV + flat price: Accumulation — price likely to break up
- Falling OBV + flat price: Distribution — price likely to break down
- OBV making higher highs while price makes lower highs: Bullish divergence
- OBV making lower lows while price makes higher lows: Bearish divergence
Using OBV in CFD Trading
OBV is most useful for confirming breakouts. If price breaks resistance but OBV doesn't make a new high, the breakout lacks volume support and may fail. Conversely, if OBV breaks to new highs before price, it signals an impending breakout.
Limitations
OBV doesn't account for the magnitude of price moves — a 0.1% up day gets the same volume weight as a 3% up day. Use OBV alongside price-based indicators for confirmation, not as a primary signal.
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Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70-80% of retail investor accounts lose money when trading CFDs. Backtesting does not guarantee future results. Always consider whether you can afford the potential loss of your capital.