On-Balance Volume is a simple, powerful idea: keep a running total that adds the period's volume when price closes up and subtracts it when price closes down. The resulting line rises when volume is flowing into up-moves and falls when it is flowing into down-moves — a cumulative gauge of buying versus selling pressure.
What it shows
OBV's absolute value does not matter; its direction and slope do. A rising OBV says volume is accumulating on the up days — buyers are committing — which tends to confirm an uptrend. A falling OBV says the opposite. Because volume often shifts before price, OBV can lead: smart accumulation can show up as a rising OBV while price is still flat.
Divergence
OBV's most useful signal, like the oscillators, is divergence. If price makes a new high but OBV does not, the move is not being backed by volume — a warning. If price makes a new low while OBV turns up, hidden accumulation may be underway. OBV divergence is a classic early tell of a move running on fumes.
Limits
OBV is crude by design — it counts a full day's volume as 'buying' or 'selling' based only on the close, ignoring where within the range the volume actually traded. That makes it a broad-strokes tool, best for spotting trend confirmation and divergence rather than precise signals. Tools like CVD (later in this module) refine the same idea using actual aggressive buy/sell data.