On Balance Volume

On Balance Volume was developed by Joseph Granville in 1963 and introduced in his book "Granville's New Key to Stock Market Profits." The concept is elegantly simple: if today's close is higher than yesterday's, today's entire volume is added to a running cumulative total. If the close is lower, the volume is subtracted. The resulting line shows whether volume is generally flowing into or out of an asset.

The absolute value of OBV doesn't matter. Whether it reads 50,000 or 5,000,000 is irrelevant. What matters is the direction and shape of the OBV line over time. A rising OBV indicates that volume on up days consistently exceeds volume on down days — this is accumulation, suggesting smart money is buying. A falling OBV indicates distribution — smart money selling.

The most powerful OBV signal is divergence with price. If price is making new highs but OBV is flat or declining, it suggests the rally isn't supported by strong buying volume. This bearish divergence often appears weeks before a meaningful price decline, giving OBV users an early warning that most other indicators miss. The reverse — price at new lows with rising OBV — signals accumulation beneath the surface.

OBV trend lines are another valuable technique. Just as you draw trend lines on price charts, you can draw them on the OBV line. A break of an OBV trend line often precedes a break of the corresponding price trend line, providing an early exit or entry signal. Some analysts consider OBV trend line breaks to be more reliable than price trend line breaks because volume is harder to manipulate than price.

In the forex context on MetaTrader, OBV uses tick volume rather than actual traded volume. While this is a limitation, the indicator still produces useful signals because tick volume correlates with real volume. The relative changes in OBV — rising versus falling, making new highs versus diverging — remain valid regardless of the underlying volume metric.

OBV works best on daily charts and higher timeframes where volume patterns are more meaningful. On intraday charts, individual volume bars can be noisy and dominated by single large orders or low-liquidity periods. If you're day trading, consider using a volume-weighted approach like VWAP instead of or alongside OBV.

The OBV trend line breakout strategy draws trend lines on the OBV line just as you would on price. When OBV breaks its descending trend line while price is still flat or falling, it signals accumulation — smart money buying before the price move. Enter long when price confirms with a close above a key level. OBV trend line breaks often lead price trend line breaks by 2-5 bars.

For OBV divergence trading, mark divergences on the daily chart and execute entries on H4. If daily price makes a new high but daily OBV doesn't, switch to H4 and wait for a bearish confirmation (break of support, bearish candle pattern). This multi-timeframe approach gives you the early warning of daily divergence with the precise timing of H4 execution.

Use OBV as a filter for breakout trades. Before entering any breakout, check if OBV is trending in the same direction. A bullish breakout with rising OBV has volume confirmation — enter aggressively. A bullish breakout with flat or falling OBV lacks conviction — skip it or take a smaller position. This simple check significantly improves breakout success rates.