Recently reviewing technical indicators, I found that many people's understanding of OBV still stays at a superficial level. Today, I want to share my practical understanding of this indicator.

OBV is called the On-Balance Volume, essentially quantifying and trendifying trading volume. Simply put, when the stock price rises, volume is counted as positive; when it falls, volume is counted as negative, and then accumulated. This logic is quite straightforward—when the price goes up, there are buyers; when it drops, there are sellers. The volume reflects changes in market popularity.

I have used many indicators, but OBV has a particularly practical feature: it can anticipate the actions of big players. For example, if the stock price is still rising but OBV has already started to turn down, that’s a warning sign. Conversely, if the price is falling but OBV is quietly rising, it often indicates that large funds are accumulating at low levels.

Regarding practical application, I most often use a few buy and sell signals. For buy signals, a good indication is when OBV consolidates sideways for more than three months and then breaks out—that longer consolidation often means greater potential for subsequent gains. Also, divergence at the bottom—when the price is falling but OBV is rising—usually signals a reversal. If both the price and OBV are slowly rising together, that’s the healthiest upward trend, and it’s safe to chase the rally.

Sell signals are equally important. Top divergence is the most critical—when the price hits a new high but OBV is declining, it’s time to exit. Another detail is when OBV accelerates upward but the price doesn’t keep pace; this often indicates that big players are distributing at the top.

However, to be honest, while OBV is useful, it has limitations. Its analysis method is quite simple and can be distorted, especially with stocks that hit daily limit-ups or limit-downs. Therefore, I usually combine it with other indicators, such as the PSY sentiment indicator or the CCI trend indicator, to improve reliability.

Here’s a trading secret worth sharing. Instead of focusing on the absolute value of OBV, it’s better to divide the Y-axis into five zones to observe proportions—0-20%, 20-40%, 40-60%, 60-80%, 80-100%. In bull or bear markets, I usually look at a time frame of more than half a year; in sideways consolidation, I look at 1-3 months.

When OBV stabilizes and consolidates in the 0-20% zone for over a month after hitting a bottom, it usually indicates that the selling pressure is waning, and funds are increasing at lows, suggesting a big move could be imminent. Once OBV starts climbing upward, the main force’s accumulation phase is complete. If OBV hovers narrowly in the 60-80% zone while the stock price drops more than 30%, it indicates retail investors are panicking and selling off, trapping the big players. Short-term traders can use other indicators to seize the rebound. Finally, when OBV reaches the 80-100% zone and forms a V-top, M-top, or rounded top, the bullish capital is exhausted. At this point, if OBV turns downward, it’s time to exit.

Ultimately, my biggest insight is that investing is not about prediction but about decision-making. Many people like to guess whether the market will go up or down; occasionally guessing right makes them feel clever, but they often end up losing more. Smart traders don’t predict; they focus on the current situation: what is the most beneficial action right now?

The market is influenced by countless complex factors, and no one can accurately predict with just one or two indicators. Instead of worrying about what might happen in the future, it’s better to constantly observe the current power dynamics—are the bulls and bears aligned or in conflict? When their directions are aligned, that’s when to enter. This way, you can avoid major risks and seize big opportunities. Using indicators like OBV to track actual market movements and adjusting decisions decisively based on changes is far more reliable than any prediction.