On-Balance Volume (OBV) Explained: Formula and Interpretation
Learn the On-Balance Volume (OBV) formula and how it's interpreted, verified against multiple technical analysis sources.
- 7 min read
- For beginners
- Educational
- Lección 2 de 5
This lesson explains On-Balance Volume (OBV), developed by Joseph Granville in 1963, one of the earliest volume-based indicators still widely referenced today.
This formula has been verified against multiple technical analysis education sources, including original attribution to its developer.
The OBV Formula
OBV is calculated as a cumulative running total: if today's close is higher than the previous close, today's volume is added to the previous OBV value. If today's close is lower than the previous close, today's volume is subtracted from the previous OBV value. If the close is unchanged, OBV remains the same as the previous value.
What OBV Represents
OBV reflects a cumulative measure of positive and negative volume flow, intended to capture the idea that volume often precedes price — meaning shifts in OBV might, in some instances, become visible before a corresponding shift in price itself.
The Absolute OBV Value Is Not Meaningful
It's specifically noted in technical analysis education that the absolute numerical value of OBV is not meaningful on its own, since it depends entirely on the arbitrary starting point of the calculation. What matters is the direction and shape of the OBV line over time — whether it's rising, falling, or diverging from price — not the specific number it displays.
OBV Divergence
Similar to the divergence concepts covered with MACD, RSI, and KDJ earlier in this group, OBV divergence occurs when price and OBV move in different directions — for example, price making a new low while OBV fails to make a corresponding new low, sometimes discussed as suggesting underlying volume flow isn't confirming the price move. As with all divergence concepts covered in this Learning Hub, this is a commonly discussed observation, not a guaranteed signal.
Summary
On-Balance Volume (OBV), developed by Joseph Granville, builds a cumulative running total by adding volume on up-close days and subtracting it on down-close days, with the specific numerical value being unimportant — only the direction and shape of the line matters. OBV divergence, comparing OBV behaviour to price similarly to the MACD/RSI/KDJ divergence concepts, is a commonly discussed observation rather than a guaranteed signal.
Frequently Asked Questions
If today's close is higher than the previous close, add today's volume to the previous OBV; if lower, subtract it; if unchanged, OBV stays the same.
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