What Is the OBV (On-Balance Volume) Indicator?

In stock and cryptocurrency markets, trading volume plays a crucial role in understanding the direction and strength of price movements. On-Balance Volume (OBV) is a technical indicator that helps predict trends by analyzing the relationship between price changes and trading volume.

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Understanding OBV

OBV represents the cumulative volume of trades. It is calculated by adding volume when prices rise and subtracting volume when prices fall. This method visually illustrates how buying and selling pressure impact market trends.

How OBV Is Calculated

• If today’s closing price is higher than yesterday’s:
  OBV = Previous OBV + Today’s Volume
• If today’s closing price is lower than yesterday’s:
  OBV = Previous OBV - Today’s Volume
• If today’s closing price is the same as yesterday’s:
  OBV remains unchanged

Closing PriceDaily VolumeOBV

1000 KRW	1000	1000
1300 KRW	1100	2100
1400 KRW	900	3000
1200 KRW	900	2100
1200 KRW	1200	2100
1000 KRW	1000	1100

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How to Interpret OBV

When OBV Moves in the Same Direction as Price

• If OBV is rising, it signals strong buying pressure, supporting a price increase.
• If OBV is falling, it suggests decreasing trading volume, which may lead to a price drop.

When OBV and Price Move in Opposite Directions

• OBV rising while price stays flat or drops → Bullish Signal (Indicates accumulation; price may rise soon).
• OBV falling while price rises → Bearish Signal (Indicates distribution; price may soon decline).

(Example: OBV increases while price remains stagnant, signaling potential future upward movement.)

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How to Use OBV in Trading

1) Identifying Trends

• A rising OBV suggests a strong uptrend and may indicate a buying opportunity.
• A falling OBV signals a downtrend, often interpreted as a sell signal.

2) Spotting Divergence

• If price and OBV show divergence, it may indicate an upcoming trend reversal.

3) Using OBV with Other Indicators

• Combining OBV with trendlines or moving averages can provide clearer trade signals.

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Strengths and Limitations of OBV

✅ Strengths

• Helps detect strong trends by incorporating both price movement and trading volume.
• Can identify whether the market is in an accumulation or distribution phase.

❌ Limitations

• OBV only tracks cumulative volume, so it may produce false signals in stocks with low liquidity or artificial trading volume.

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Conclusion

OBV is a simple yet powerful tool for evaluating buying and selling pressure in the market. When combined with other technical analysis tools, it can improve trade decision-making and help traders spot key market trends.