The On-Balance Volume (OBV) is a technical analysis indicator that measures the flow of volume in a security. It was developed by Joseph Granville in the 1960s.
The OBV indicator adds or subtracts the volume of a security based on whether the price closes higher or lower compared to the previous day's closing price. If the closing price is higher, the OBV increases by the volume traded that day. Conversely, if the closing price is lower, the OBV decreases by the volume traded that day.
The OBV indicator is used to identify and confirm trends in the market. When the OBV moves in the same direction as the price, it suggests a confirmation of the price trend. For example, if the price is increasing, and the OBV is also increasing, it indicates strong buying pressure.
Conversely, if the OBV diverges from the price movement, such as when the price is increasing but OBV is decreasing, it may signal a potential reversal or weakness in the trend.
Traders and analysts use the OBV indicator to identify trends, divergences, and potential price reversals. It is commonly used in conjunction with other technical analysis tools to make more informed trading decisions.