On-Balance Volume (OBV)

On-balance volume (OBV) is a technical indicator that uses volume flow to predict changes in stock price. It is calculated by adding the volume on up days to a cumulative total and subtracting the volume on down days. A rising OBV indicates that buyers are more aggressive than sellers, while a falling OBV suggests that sellers are more aggressive than buyers.

OBV is often used in conjunction with other technical indicators to identify potential trading opportunities. For example, a bullish divergence between OBV and the price of a stock can indicate that a trend reversal is imminent.

There are a few things to keep in mind when using OBV. First, it is important to remember that OBV is a lagging indicator, meaning that it will not always signal a change in trend before it happens. Second, OBV can be subject to false signals, especially in periods of low volume. Finally, OBV is not a standalone indicator and should always be used in conjunction with other technical analysis tools.

Despite these limitations, OBV can be a useful tool for identifying potential trading opportunities. By understanding how OBV is calculated and how it can be used in conjunction with other technical indicators, traders can improve their chances of making profitable trades.