On-Balance Volume (OBV) is a momentum-based technical indicator that uses volume flow to predict price movements. It assumes that volume precedes price action. When volume increases on up days, OBV rises, and when volume increases on down days, OBV falls. A rising OBV suggests that buyers are accumulating, potentially signaling an upward price trend, while a falling OBV indicates distribution and possible price decline. OBV is best used in combination with other indicators and works well in trending markets. Traders monitor OBV divergences to anticipate reversals or confirm trend strength before entering or exiting trades.
Example:
A trader notices rising OBV while price remains flat, suggesting accumulation before a potential breakout.
