Our team uses the On Balance Volume (OBV) line as a type of secondary trend indicator to help validate new ‘Buy’ & ‘Sell’ signals. OBV is an indicator that measures volume flow with a single Easy-to-Read Line. Volume flow precedes stock price movement and helps sustain the price trend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line. The numerical value of the OBV line is not important. We simply want to see which way the OBV line is sloping to confirm a stock’s price trend.
When looking at an OBV line chart an up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. Conversely, a down-sloping line indicates that the volume is heavier on down days and selling pressure is exceeding buying pressure. So, On Balance Volume is a simple indicator to use that confirms a stock’s price trend and its sustainability.