OBV Indicator Unlocks the Secrets of Trading Volume: A Tool Traders Should Not Overlook

In the world of trading and investing, the importance of reading the market is not solely about predicting prices based on assumptions. It also requires studying the actual trading volume occurring in each period. Because the true price movements stem from the behavior of market participants, the OBV indicator is a tool that helps traders understand this dynamic more effectively.

Why is the OBV Indicator Important?

The OBV (On Balance Volume) indicator exists because of a principle long accepted in technical analysis: “Trading volume is the true driver of price.” If we can measure the accumulated buying and selling pressure, we can better see how sustainable the current trend might be.

It is no coincidence that Joseph Graniville developed this OBV indicator back in 1963, because his idea is simple yet powerful: prices rising with high volume are strong, while prices rising with low volume are weak and prone to breakdown.

What is the OBV Indicator: Basic Understanding

Simply put, On Balance Volume is a momentum indicator calculated from the accumulated trading volume, following these rules:

• When the closing price increases compared to the previous candle → volume is added to OBV
• When the closing price decreases → volume is subtracted from OBV
• When the closing price remains unchanged → OBV does not change

The calculation process is straightforward, but the results are highly useful for trend analysis because OBV helps us see “who is buying” and “who is selling” in each period.

OBV Formula and Calculation Method

Basic formula