On Balance Volume (OBV) indicator: formula, divergence and how to read it
What is On Balance Volume (OBV)?
On Balance Volume, or the OBV indicator, is a running total of volume that adds a candle's volume when price closes up and subtracts it when price closes down. Joseph Granville introduced it in 1963 with a simple idea: volume often moves before price.
The absolute number of OBV means nothing; it depends on where you start counting. What matters is its direction and how it compares with price. If OBV is rising, more volume is happening on up-closes than down-closes. If price is flat but OBV is climbing, buyers may be quietly accumulating.
If Close < Previous Close: OBV = Previous OBV − Volume
If Close = Previous Close: OBV = Previous OBV
How the OBV formula works
OBV starts at zero (or any value). For each candle:
- Up close: add the full candle volume.
- Down close: subtract the full candle volume.
- Unchanged close: OBV stays the same.
Illustration
Three NIFTY futures 5-minute candles: the first closes up on 40,000 volume, the second closes down on 15,000, the third closes up on 30,000. OBV goes 0 → 40,000 → 25,000 → 55,000. Up-volume clearly dominated.
The obvious limitation
OBV assigns all of a candle's volume to one side based only on the close. A candle that closes up by 1 point with huge selling inside it still adds its entire volume. That is why OBV is a rough tool compared with true buy/sell volume from order flow.
Note that index values like spot NIFTY have no traded volume of their own, so OBV is applied to NIFTY futures, BANKNIFTY futures or stocks.
How to read the OBV indicator
Trend confirmation
In a healthy up-trend, OBV makes higher highs along with price. In a healthy down-trend, it makes lower lows. Agreement means volume supports the move.
OBV divergence
If price makes a new high but OBV makes a lower high, the new high came on weaker up-volume. That is a bearish divergence. If price makes a new low but OBV holds a higher low, selling volume is weakening: a bullish divergence.
OBV breakouts
Sometimes OBV breaks out of its own range before price does. Traders draw trendlines or horizontal levels on OBV itself and note when it breaks, as an early clue that price may follow.
Best OBV settings for NIFTY intraday
OBV has no period setting; it is a cumulative line. What you can choose is:
- Session reset: for intraday use, resetting OBV at 9:15 IST each day keeps the reading focused on today's volume rather than weeks of history.
- A signal line: some traders plot a 20-period EMA of OBV. OBV above its EMA shows recent up-volume strength.
- Timeframe: on 5-minute NIFTY futures OBV is readable; on 1-minute it becomes noisy.
OBV strategy ideas (educational)
1. Confirming breakouts
When price breaks a range high, a rising OBV that also makes a new high supports the move. If OBV stays flat, the breakout has less volume behind it, raising the chance of a fakeout.
2. Divergence at key levels
A bearish OBV divergence at the previous day's high or at a liquidity level carries more weight than one in the middle of nowhere.
3. Accumulation in ranges
During a tight range, OBV drifting up suggests buyers are absorbing supply; drifting down suggests distribution.
OBV vs cumulative delta: an important difference
OBV and cumulative volume delta (CVD) look similar but are built differently. OBV only looks at the close direction and gives the whole candle's volume to one side. CVD adds up the actual difference between volume traded at the ask (aggressive buyers) and at the bid (aggressive sellers) for every trade.
So a candle that closes up with more aggressive selling than buying adds volume to OBV but subtracts from CVD. When the two disagree, CVD is the more precise picture of who was aggressive. OBV is still useful where tick-level data is not available, or as a simple smoothed view.
Combining OBV with the footprint chart
On a footprint chart you can see the buy and sell volume at each price inside each candle. If OBV is rising but the footprint shows heavy selling being absorbed at the highs, the OBV rise may be overstating buyer strength. If both OBV and footprint delta are positive at a breakout, the reading is consistent.
OBV also pairs well with volume profile: OBV tells you the direction of volume over time, while the profile tells you where volume traded by price.
Worked NIFTY futures example (illustration)
Illustration with plausible numbers. NIFTY futures rally from 24,150 to 24,280 by 11:00 and OBV (reset at 9:15) climbs steadily with each push. At 13:30 price makes a slightly higher high at 24,295, but OBV stays below its 11:00 peak because the new high came on light volume.
A trader studying this would read it as a bearish OBV divergence at the day's high. Checking the footprint, they might see delta turning negative near 24,290. Together these suggest the second push lacked commitment. Trading F&O carries a high risk of loss; this example is only to show how OBV divergence appears.
Common OBV mistakes
- Reading the OBV number itself instead of its direction.
- Applying OBV to spot index data with no real volume.
- Ignoring that one big candle can distort OBV for a long time.
- Treating every divergence as a reversal; trends can carry divergences for a while.
- Not resetting OBV for intraday analysis, so yesterday's volume dominates today's reading.
- Ignoring rollover: around monthly expiry, volume shifts from the near-month to the next-month future, which can distort OBV on a single contract. See futures basis and rollover.
Seeing it on the TradingMarble chart
On the TradingMarble chart you can add OBV beside footprint delta and cumulative delta, so you can compare the simple close-based OBV with actual aggressive buying and selling. See the features page for the tool list.
OBV checklist
- Is OBV confirming the price trend or diverging?
- Is the divergence at a meaningful level?
- Does cumulative delta agree with OBV?
- Did OBV break its own range before price?
On Balance Volume is a simple, old tool, but used with order flow it remains a quick way to see whether volume is backing the move.
Frequently asked questions
What does the OBV indicator tell you?
OBV tells you whether more volume is happening on up-closing candles or down-closing candles over time. A rising OBV suggests buying volume dominates; a falling OBV suggests selling volume dominates. Its direction and divergences from price matter more than its absolute value.
What is OBV divergence?
OBV divergence is when price and OBV disagree. Bearish divergence: price makes a higher high but OBV makes a lower high. Bullish divergence: price makes a lower low but OBV makes a higher low. It warns that volume is not supporting the price move.
Can OBV be used on NIFTY?
Spot NIFTY is an index with no traded volume, so OBV must be applied to NIFTY futures or to individual stocks. Intraday traders often reset OBV at the start of each session to focus on that day's volume.
What is the difference between OBV and cumulative delta?
OBV assigns all of a candle's volume to buyers or sellers based on whether it closed up or down. Cumulative delta sums actual aggressive buying minus aggressive selling from trade data. Cumulative delta is more precise; OBV is simpler and works where tick data is unavailable.
Is OBV a leading indicator?
OBV is often described as leading because volume can shift before price does, for example during accumulation in a range. In practice it can give early clues, but it can also stay divergent for a long time, so it is best used as confirmation with price structure.
What settings does OBV use?
OBV has no period setting; it is a cumulative running total. Traders sometimes add a moving average of OBV, such as a 20-period EMA, as a signal line, and choose whether to reset it daily for intraday use.