The On Balance Volume indicator (OBV) combines price and volume to determine whether price movements are strong or are weak or possibly lacking conviction. The On Balance Volume calculation is as follows:
- On an up day, the volume is added to the previous day’s OBV
- On a down day, the volume is subtracted from the previous day’s OBV.
The OBV indicator is interpreted as:
- Increasing or decreasing price accompanied by increasing volume, confirms the price trend.
- Increasing or decreasing price accompanied by decreasing volume, indicates that the price movement is weak and lacking conviction.