On Balance Volume (OBV) was developed by Joseph Granville. This indicator compares volume to price movements. Final bar volume is positive if the bar close price is higher than the close price of the preceding bar and vice versa. Cumulative value is calculated by adding and deducting volume depending on the movements of the close price.
Note that On Balance Volume (OBV) indicator interpretation is based on the direction of the curve not actual values:
- If a new price high is confirmed by a new On Balance Volume (OBV) indicator high it means that the bullish trend is strong.
- If a new price bottom is confirmed by a new On Balance Volume (OBV) indicator bottom it means that the bearish trend is strong
- Bullish divergence (bearish convergence) warns of the weakness of the downtrend (uptrend).
- A breakout of the trend line drawn on the On Balance Volume (OBV) indicator warns of a breakout of the trend line on the price chart.
