OBV: What the On-Balance Volume Line Shows
OBV adds volume with a plus sign on up days and a minus sign on down days. The absolute value of the line is meaningless — only its shape matters, and whether that shape agrees with price.
The OBV indicator: how it is calculated
The calculation is as simple as it gets: a bar's volume is added to a running total if the close is higher than the previous one and subtracted if it is lower. No smoothing and no parameters. Because it accumulates, the line depends on where you started counting, so comparing its values across instruments is meaningless.
How many signals it produces on real data
- Rule tested: OBV above its own SMA(20)
- State changes over the sample: 53 — about 35.1 a year
- Share of bars in the signal state: 34.9%
The measurement was made on an EUR/USDT series from a crypto exchange — the only series available to us with genuine volume. It is a proxy, not a forex broker's quotes, and the figures cannot be transferred to forex directly. This measures frequency, not profitability: it shows how many decisions the tool demands of a trader. The data is public and the calculation is reproduced by a script in the repository.
How it differs from similar tools
OBV's problem on forex is not the indicator but the data. No single volume exists on an over-the-counter market, and in our forex files the volume field is zero on all 518 bars. That is why we measured signal frequency on an EUR/USDT series from a crypto exchange, where volume is genuine — a proxy, not forex data.
How to apply it
There is one sensible use: looking for divergence. When price makes a new high and OBV does not, accumulation is not confirming the move. The measurement on a series with genuine volume gave about 35 state changes a year relative to its own average, roughly three a month: a medium-term tool, not one for intraday decisions.
Common mistakes
The first mistake is looking at OBV's absolute value: it depends only on where you began counting. The second, specific to forex, is trusting volume-based conclusions on data where volume comes from one broker's tick counter. Such a series reflects activity, not the quantity traded.
This material is for educational purposes and is not individual investment advice.
Frequently asked questions
What does the OBV indicator show?
Accumulated volume signed by the direction of price. The value itself means nothing — only the shape of the line and its agreement with price are read.
Can OBV be used on forex?
With a serious caveat. There is no single volume on an over-the-counter market, and platforms show one broker's tick counter — activity, not quantity traded.
What is OBV divergence?
A disagreement in which price makes a new extreme and the volume line does not. It reads as accumulation failing to confirm the move.
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