What Is the On-Balance Volume (OBV) Formula and How Is It Calculated?

What Is On-Balance Volume (OBV)?

On-balance volume (OBV), creates a running total of positive and negative trading volume for a stock or security. One of the original momentum oscillators, OBV spawns from Joe Granville's theory that volume precedes price in an instructive, measurable fashion. The formula's calculation is simple, rising whenever volume on up days is greater than volume on down days and vice versa.

What Is the On-Balance Volume (OBV) Formula?

To measure a security's OBV, you need to understand the relationship of closing prices between two successful trading days. When the second day's price closes above the prior day's close:

OBV = Previous OBV + Current trading volume \begin{aligned} &\text{OBV} = \text{Previous OBV} + \text{Current trading volume} \\ \end{aligned} OBV=Previous OBV+Current trading volume

If prices close lower on the second day:

OBV = Previous OBV Current trading volume \begin{aligned} &\text{OBV} = \text{Previous OBV} - \text{Current trading volume} \\ \end{aligned} OBV=Previous OBVCurrent trading volume

Understanding On-Balance Volume (OBV)?

Despite being plotted on a price chart and measured numerically, the actual individual quantitative value of OBV is not relevant. The indicator itself is cumulative, while the time interval remains fixed by a dedicated starting point, meaning the real number value of OBV arbitrarily depends on the start date. Instead, traders and analysts look to the nature of OBV movements over time; the slope of the OBV line carries all of the weight of analysis.

Analysts look to volume numbers on the OBV to track large, institutional investors. They treat divergences between volume and price as a synonym of the relationship between "smart money" and the disparate masses, hoping to showcase opportunities for buying against incorrect prevailing trends. For example, institutional money may drive up the price of an asset, then sell after other investors jump on the bandwagon.

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description