On-Balance Volume (Obv)
| On-Balance Volume (OBV) is a technical indicator that uses volume flow to predict an asset's price fluctuations. OBV is based on the premise that volume precedes price. In other words, if the OBV is increasing, it is likely that the price of the asset will increase, and vice versa. OBV is calculated by taking the difference between the volume of an asset that is traded on an up day and the volume of an asset that is traded on a down day. If the volume on an up day is greater than the volume on a down day, then the OBV will be positive. Conversely, if the volume on a down day is greater than the volume on an up day, then the OBV will be negative. The OBV can be used to confirm price movements and trend reversals. For example, if the price of an asset is increasing and the OBV is also increasing, this is considered to be a confirmation of the price movement. However, if the price of an asset is increasing and the OBV is decreasing, this is considered to be a sign that the price movement is losing momentum and may be about to reverse. The OBV can also be used to identify divergences. A divergence occurs when the price of an asset and the OBV are moving in opposite directions. A bullish divergence occurs when the price of an asset is falling but the OBV is rising, which is considered to be a sign that the price decline is losing momentum and may be about to reverse. A bearish divergence occurs when the price of an asset is rising but the OBV is falling, which is considered to be a sign that the price rally is losing momentum and may be about to reverse. The OBV is not a perfect indicator, and there are a number of false signals that can occur. However, the OBV can be a useful tool for confirming price movements and identifying potential trend reversals. |
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