Many people ask what the OBV indicator is and how to utilize it effectively. In fact, if you understand OBV well, it will help you see the true buying and selling pressure, which price alone cannot tell us.

Since Joseph Granville developed the OBV indicator in 1963, he believed that trading volume is the true driver of price, not just random price movements. This concept still holds true today because for the price to move up or down, it must be supported by trading volume; otherwise, it’s just weak movement.

The OBV indicator is an indicator calculated from accumulated trading volume. The basic principle is: if the closing price is higher than the previous day, volume is added; if the closing price is lower, volume is subtracted; if the closing price remains the same, volume does not change. This method allows us to see which buying or selling pressure is stronger.

The most beneficial way to use OBV is to detect divergence, which occurs when the price reaches a new high but OBV does not rise accordingly or rises less. This signals that buying pressure is weakening. Conversely, if the price drops to a new low but OBV does not fall or falls less, it indicates that selling pressure is diminishing, often a point where the price may reverse upward.

I have used OBV together with Moving Averages to confirm breakouts. The idea is: if the price breaks through the MA line and OBV does not make a new low, that’s a strong buy signal. I would set a stop loss at the previous low and let the price follow the trend.

Combining OBV with Bollinger Bands also works well. When the price hits the upper band of the BB while OBV signals divergence, it indicates the price is about to reverse downward. At this point, I would enter a short position and set a stop loss at the previous high.

However, OBV should not be used alone because it only considers volume. Combining it with trend indicators like MA or Bollinger Bands helps improve accuracy. Good price prediction requires confirmation from multiple perspectives.

Understanding OBV means recognizing that it is a tool that helps us "read" the intentions of large investors, as they tend to buy and sell in large quantities, which is clearly reflected in the accumulated volume. Therefore, knowing OBV adds an extra tool to our trading system, enabling us to enter and exit more precisely.