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The OBV explained simply

The OBV adds volume on up days and subtracts it on down days. When the line rises, more was traded on up days than on down days.

5 min read Last checked: 2026-09-24

OBV stands for On Balance Volume. Joe Granville made it popular in 1963. The idea: if much more is traded on days when prices rise than on days when they fall, there's probably real buying interest behind it. More on volume itself on the trading volume page.

What it's about

The OBV is a line below the price. Its exact value doesn't matter, only its direction does. When it rises, volume on up days dominates. When it falls, volume on down days does.

An example: a stock has been moving sideways around €40 for weeks, but the OBV is slowly rising. So on the days it edges up, more is traded than on the days it edges down. Some read that as bigger investors quietly buying.

How it's calculated

You start at zero. If the price closes higher than the day before, you add today's volume. If it closes lower, you subtract it. If it's unchanged, nothing happens.

With numbers: on day 1 the price rises on 2 million shares, the OBV is at 2 million. On day 2 it falls on 1 million shares, the OBV drops to 1 million. On day 3 it rises on 3 million shares, the OBV is at 4 million.

What signals traders read from it

  • Confirmation: When price and OBV rise together, the rise counts as backed by volume.
  • Divergence: The price rises to a new high but the OBV doesn't. That can mean fewer and fewer buyers are behind the rise.
  • OBV ahead of the price: When the OBV rises while the price moves sideways, some expect an upside breakout.

Where it misleads you

The OBV assigns a whole day's volume to one direction, even if the price only rose by a cent. A single day with huge volume, such as an index change, shifts the line for a long time.

Its value also depends on when the calculation starts. Two charting tools with different start dates show completely different numbers. That's why only the direction of the line counts, never its level.

An example trade with made up numbers

Mehmet has €10,000 in his account and risks at most €150 per trade. A stock has been sitting at €40 for weeks while the OBV rises steadily. Mehmet buys at €40 and sets his stop loss at €38.50. With €1.50 of risk per share, he buys 100 shares for €4,000. Costs: €1 each to buy and sell, plus about 2 cents of spread per share on each order.

If it works: The stock breaks out and rises to €43. Mehmet is €300 ahead. After €2 in fees and €4 in spread, €294 is left.

If it goes wrong: The rising OBV came from a few high volume days for some other reason. The stock falls and the stop fills at €38.40. That's a €160 loss, €166 with costs.

The OBV gave Mehmet a hint. How much he could lose if the hint was wrong, he decided himself.

Price and OBV over the same periodPriceOBV in millions of shares0OBV turns upzerotoinvest.com
Price and OBV over the same period Made up price data, the OBV is calculated for real (in millions of shares). On up days the volume is added, on down days it's subtracted.

Summary

  • The OBV adds volume on up days and subtracts it on down days.
  • Only the direction of the line counts, not its level.
  • Single days with huge volume distort it heavily.

Did you get it?

The price rises on day 1 on 2 million shares and falls on day 2 on 1 million. Where is the OBV?

At 1 million, because 2 million is added and 1 million subtracted.

Why does only the direction count with the OBV?

Because its value depends on when the calculation starts.

What does a divergence between price and OBV mean?

The price reaches a new high, but the OBV doesn't. That can hint at fading buying interest.

Sources and further reading

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