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Indicator:

OBV

On-Balance Volume is a momentum indicator that measures the cumulative flow of trading volume to predict price movements. By adding volume on days with price increases and subtracting it on days with decreases, OBV provides a running total that helps traders gauge the strength of buying and selling pressure. This indicator is widely used for confirming price trends and identifying potential reversals, making it an essential tool for technical analysis and trend-following strategies.

OBV (On-Balance Volume) Indicator


What is the OBV Indicator?

The OBV (On-Balance Volume) indicator is a technical analysis tool that combines price changes with trading volume. It was created by Joseph Granville in 1963 and is used to assess market strength by analyzing volume flow in relation to price movements. OBV is classified as a momentum indicator, which means it helps identify the strength of a market trend.


What is OBV Used For?

The primary purpose of OBV is to identify potential trend reversals and confirm existing trends. This indicator helps in:

  • Detecting divergences between price and volume, which can signal an impending trend change.

  • Confirming the strength of the current trend – a rising OBV suggests a strong upward trend, while a falling OBV may indicate a weakening trend.

How is OBV Calculated?

OBV is simple to calculate, which is one of its strengths. It is calculated as follows:

If today’s closing price is higher than yesterday’s closing price:

If today’s closing price is lower than yesterday’s closing price:
If today’s closing price is equal to yesterday’s closing price:

The initial value of OBV can be set to zero, and subsequent values are calculated based on the above…

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