What Is OBV? - On Balance Volume - Fidelity (2024)

FAQs

What Is OBV? - On Balance Volume - Fidelity? ›

On Balance Volume (OBV) measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days. When the security closes higher than the previous close, all of the day's volume is considered up-volume.

OBV shows crowd sentiment that can predict a bullish or bearish outcome. Comparing relative action between price bars and OBV generates more actionable signals than the green or red volume histograms commonly found at the bottom of price charts.

While the OBV and Accumulation/Distribution (A/D) indicators incorporate volume, there's a critical distinction. The OBV focuses solely on the closing price's relation to the previous closing price, whereas A/D also considers the day's trading range.

Net volume is also similar to on balance volume, in that both technical indicators look at volume changes, but OBV adds up volume on up days and down days over time rather than looking at a single period. Other indicators, like the relative strength index, look at the magnitude of gains or losses to provide insights.

How to interpret on balance volume? Experts recommend interpreting the OBV changes together with the price chart moves. If the OBV value is rising along with the price, the trend should continue. If the OBV value goes down while the price goes up (divergence), the trend should reverse.

During a trading range, if the OBV is rising, accumulation may be taking place—a warning of an upward breakout. During a trading range, if the OBV is falling, distribution may be taking place—a warning of a downward breakout.

These values allow market participants to receive trading signals on the indicator in advance, making the OBV the best volume indicator. In particular, OBV (On-Balance Volume) confirms the trend for a traded asset. But it can also predict the asset's further dynamics in consolidation.

Cons: Leading indicator: The OBV indicator is a leading indicator, which means that it may provide false signals if the market conditions change suddenly.

The best timeframe for the on-balance volume (OBV) indicator depends on individual trading goals and strategies. Short-term traders may prefer shorter timeframes such as 5 or 15 minutes to capture quick market movements, while swing traders might opt for daily or weekly charts to identify longer-term trends.

It might be due to positive news or adverse developments. High volume means shares change hands often, showing market activity and how easy it is to buy or sell. More volume usually means more buyers and sellers. On a trading day, volume is often higher at the start and end when short-term traders act quickly.

What are the advantages of OBV? ›

For a given period, if the A/D indicator is rising, then accumulation (buying pressure) may be higher and is a sign of the future upward breakout. For a given period, if the A/D indicator is falling, then distribution (selling pressure) may be higher and is a sign of the future downward breakout.

obviously: Obv they didn't know each other till today.

The OBV formula generates a smooth indicator line that carves out highs, lows, and trendlines similar to price bars. Comparing relative action between price bars and OBV generates more actionable signals than the green or red volume histograms commonly found at the bottom of price charts.

For stocks, volume is measured in the number of shares traded. For futures and options, volume is based on how many contracts have changed hands. Investors and day traders look to volume to determine liquidity and combine changes in volume with technical indicators to make trading decisions.

OBV is based on the change from one period to the next, but the Accumulation Distribution Line is based on the level of the close relative to the high-low range within a given period. OBV ignores price action within a given period. The Accumulation Distribution Line ignores price action outside a given period.

On-balance volume (OBV) is another leading momentum-based indicator. It looks at volume to enable traders to make predictions about the market price – OBV is largely used in shares trading, as volume is well documented by stock exchanges.