OBV explained: On-Balance Volume, and how to use it
On-Balance Volume is the simplest volume indicator there is: a running total that grows on up closes and shrinks on down ones. This guide is what that total measures, why only its direction means anything, and the comparisons you can build a SixOne8 condition from. It needs trading volume, which US stocks and ETFs carry — coming soon on Elite — and the forex and crypto feeds do not.
What OBV measures
Start a count at zero. On each bar that closes higher than the one before, add that bar's whole volume; on each bar that closes lower, subtract it; on an unchanged close, leave the count alone. That count is OBV. It rises while volume on up closes outweighs volume on down closes, and falls while the reverse is true.
Its level means nothing on its own. The number depends entirely on where the count started, so an OBV of two million on one chart and minus five hundred thousand on another tell you nothing between them. What carries information is the direction of the line, and how it compares with its own recent past. That is why SixOne8 offers no "OBV greater than" comparison: a level would describe the start of the count rather than the market.
OBV settings: the average and smoothing
- Average period. The number of bars in the simple average OBV is compared with, twenty by default. It appears only for the two "its average" comparisons; rising and falling read the line against its own previous value.
- Smoothing. Off by default. Choose SMMA, EMA, SMA or WMA to have the condition read a moving average of OBV instead of the raw line, over a smoothing length of fourteen bars by default.
Smoothing matters more here than on most indicators. The raw line steps by a whole bar's volume every bar, with nothing in between, so "raw OBV rising" is true exactly when the last close was higher than the one before — it answers a question about one candle, not about accumulation. A smoothed OBV rising says the running balance has been tilting one way over several bars, which is the reading the indicator exists to give. When smoothing is on, the chart draws the smoothed line and the alert names it.
A strategy using OBV applies only to markets with volume, and a bar that arrives without its volume gives no reading rather than being counted as zero.
How to use OBV in a strategy
These are the comparisons SixOne8 offers for OBV, in the builder's own words.
- Rising / falling. The line — smoothed, if you chose smoothing — is higher, or lower, than it was the bar before.
- Above its average / below its average. The line is on that side of the simple average of OBV over the average period. A state, so an alert fires when the strategy first becomes satisfied and not again while it stays there.
EMA(14) of OBV on 1h · is rising
Read it as a sentence: on the hourly chart, a fourteen-bar EMA of On-Balance Volume is higher than it was an hour ago. That is what the scanner evaluates at each hourly close, and what the alert will say if it is the condition that completed the strategy.
OBV against price
The classic reading compares the two lines: price making a new high while OBV does not, or OBV climbing while price goes sideways. Chartists call the first a divergence and the second accumulation. Neither is an OBV comparison in SixOne8 — the builder compares OBV with itself — but you can write the pieces as separate conditions, such as price above a moving average while smoothed OBV is falling. For a ready-made divergence between price and an oscillator, see the divergence guide.
Does OBV work on your market?
Run an entry check. It will tell you whether, on the stock or ETF you care about, the moments this condition fired moved any differently from a random moment over the history tested. That is a fact about the past on that market, and it is the only kind of fact a test here produces.