OBV (On-Balance Volume)
OBV is a cumulative volume indicator. When price closes up, that day's volume is added. When price closes down, it's subtracted. The running total creates a line that should confirm price trends.
Understanding the Concept
OBV reveals whether volume is flowing in or out of an asset. If price makes higher highs but OBV makes lower highs, that's bearish divergence—rallies aren't backed by volume. If price makes lower lows but OBV makes higher lows, that's bullish divergence—selling pressure is drying up. OBV often leads price, making it valuable for anticipating reversals. The actual number doesn't matter—only the direction and divergences. It's one of the simplest volume indicators but surprisingly effective.
Real-World Example
Bitcoin makes new highs at $50,000, but OBV is trending down and making lower highs. That divergence warns the rally lacks conviction. Smart traders start reducing positions or tightening stops.
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