What is On-Balance Volume (OBV)?
On-balance volume is a momentum indicator that adds volume on up days and subtracts volume on down days, measuring buying and selling pressure to predict price movements.
On-Balance Volume (OBV) Explained
OBV is based on the idea that volume precedes price. If OBV is rising while price is flat or declining, it suggests accumulation — smart money is buying before the price moves up. Conversely, declining OBV during rising prices suggests distribution. Divergences between OBV and price are considered reliable leading indicators.
Real-World Example
A stock has been flat at $50 for two weeks, but OBV has been steadily rising. This suggests quiet accumulation. Two days later, the stock breaks above $52 on high volume and rallies to $58. Traders who noticed the OBV divergence were positioned ahead of the move.
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