On-Balance Volume (OBV) is a technical analysis indicator that uses volume information to determine the strength of a price trend. The basic idea behind OBV is that volume should follow price trends: if a security’s price is increasing, then its volume should be increasing as well, and vice versa.
People use OBV as a way to confirm price trends and make decisions about when to enter or exit trades. By combining volume information with price information, OBV provides a more complete picture of the market activity, helping traders to make more informed decisions. Additionally, OBV can be used to identify divergences, where the OBV line is moving in the opposite direction to the security’s price, which can indicate potential reversals in the trend.
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