On-Balance Volume (OBV)

On-Balance Volume (OBV) is a momentum indicator developed by Joe Granville in 1963 that uses cumulative volume flow to predict price changes. The concept is simple: on days when the price closes higher than the previous close, that day's volume is added to the running OBV total; on down days, volume is subtracted. The actual OBV number is less important than its direction and pattern. Rising OBV indicates that volume is heavier on up days (accumulation), suggesting that smart money is buying. Falling OBV indicates distribution — heavier volume on down days. The most powerful OBV signals come from divergences with price: if the stock makes a new high but OBV fails to make a new high, it suggests the advance lacks volume conviction and may reverse (bearish divergence). Conversely, if price makes a new low but OBV makes a higher low, accumulation is occurring despite falling prices (bullish divergence). OBV can also confirm breakouts — a price breakout accompanied by an OBV breakout to new highs is more likely to sustain than one without volume confirmation. Granville famously argued that "volume precedes price," making OBV a leading indicator.