OBV — On-Balance Volume
OBV, developed by Joseph Granville in 1963, is one of the oldest cumulative volume indicators. Its logic fits in one sentence: volume precedes price. When buyers are truly convinced, they accumulate — OBV rises before price fully reflects this enthusiasm. Conversely, a price rising on decreasing volume reveals a fragile advance, supported by few participants. Volume remains the most overlooked indicator for novice traders, even though it validates or invalidates every technical signal.
Definition and formula
OBV is a simple cumulative: add the volume if closing price rises, subtract it if it falls, keep the previous value if unchanged.
If Close(t) < Close(t−1): OBV(t) = OBV(t−1) − Volume(t)
If Close(t) = Close(t−1): OBV(t) = OBV(t−1)
The absolute value of OBV has no importance — what matters is its slope and its divergences with price. OBV is always compared against itself over a given window (typically 20-100 sessions).
How to read OBV
Confirmation and divergences
- Price ↑ and OBV ↑: healthy uptrend, engaged buyers. Continuation likely.
- Price ↑ and OBV ↘ (bearish divergence): the rise is not supported by volume. Exhaustion signal, anticipate reversal.
- Price ↘ and OBV ↗ (bullish divergence): the decline is no longer convincing, sellers running out of steam. Possible rebound to come.
- Price ↘ and OBV ↘: confirmed downtrend. Avoid longs without a clear reversal signal.
- OBV breaking a resistance before price: extremely valuable leading signal — institutions are accumulating before the visible breakout.
Volume spike (anomaly)
A volume suddenly more than 2× the 20-session average signals a notable event — earnings surprise, news, institutional accumulation. The direction of price on that day gives the signature of the flow:
- Volume spike + price +5 % or more: bullish marubozu on heavy volume. Accumulation signal, very likely continuation in the following days.
- Volume spike + price −5 % or more: capitulation or panic-selling. Possible bottom if confluence with bullish RSI/OBV divergence.
- Volume spike + stagnant price: massive change of hands (distribution or stealth accumulation depending on context). To be analyzed with the following days.
How Cash Scanner uses OBV and Volume
Cash Scanner integrates two volume-related signals in the /100 score:
- vol_confirmation — recent sessions' volume confirms price direction. Score bonus when the trend detected by RSI/MACD is supported by consistent volume. Essential filter against false and fragile rallies.
- volume_anomaly — today's volume z-score > 2 (statistical anomaly vs 20-day average). Displayed as "Volume↑" badge. Indicates a notable event to investigate rather than a mechanical entry signal.
- Momentum Mode: a momentum signal (RSI exiting oversold, bullish MACD) accompanied by
vol_confirmationreceives a confluence bonus. Conversely, a signal without volume confirmation sees its score penalized. - Phoenix Mode: volume spikes accompanying bullish divergences (RSI / MACD / OBV) are strongly rewarded — these are the most statistically reliable reversal setups (capitulation then recovery).
Limits and common pitfalls
- OBV very noisy on small caps: erratic volume, OBV value often dominated by 2-3 large sessions. Prefer OBV on liquid-volume assets (mid/large caps).
- ETF volume is not equivalent: on synthetic ETFs (swap replication), volume reflects market-maker activity more than real accumulation. OBV less reliable.
- Divergences to validate: an OBV/price divergence can last 1-3 months before resolving. Don't trade the divergence alone — wait for an additional trigger (break of support/resistance, RSI or MACD signal).
- OBV insensitive to intra-day: any positive volume is added equally, whether it comes from session open or close. Other indicators (Accumulation/Distribution, Money Flow Index) are more granular.
- Volume missing from some brokers: on forex, some crypto, aggregated volume doesn't truly exist — OBV not applicable.