What On-Balance Volume shows
On-Balance Volume (OBV) is a running total of volume. Volume is the amount of trading activity in each bar. OBV adds a bar's volume when price closes higher and subtracts it when price closes lower. The result is a line under the chart that rises when activity is concentrated on up-closes and falls when it is concentrated on down-closes.
Beginners can read OBV this way: it asks whether trading activity has been heavier on rising bars or on falling bars. The absolute value of the line has no meaning. Only its direction and shape matter.
For a wider view of volume tools, see Volume Indicator.
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The formula
OBV is calculated bar by bar:
- If today's close is above the previous close: OBV = previous OBV + today's volume.
- If today's close is below the previous close: OBV = previous OBV − today's volume.
- If the close is unchanged: OBV = previous OBV.
There is no period setting. The line starts from wherever the loaded history begins, so its level differs between platforms and between charts with different amounts of history. Compare the slope, not the number.
Tick volume in forex
Spot forex has no central exchange, so there is no single record of traded volume. MetaTrader charts for currency pairs and most CFDs show tick volume: the number of price changes in a bar, not the number of contracts or lots traded. Tick volume often tracks real activity reasonably well, but it is a proxy. OBV built on tick volume describes how busy the quotes were. It does not show how much money changed hands.
How to add OBV in MT4 and MT5
In both MetaTrader 4 and MetaTrader 5: open Insert → Indicators → Volumes → On Balance Volume, or find it under Volumes in the Navigator window and drag it onto the chart.
- MT4 lets you choose the "Apply to" price. Close is the standard choice.
- MT5 lets you choose the volume type: Tick or Real. Real volume is only available where the data feed supplies it. Forex CFDs usually do not.
OBV opens in a separate window below the price chart. Some traders add a moving average of OBV to smooth it. In MetaTrader you can do this by dropping a moving average onto the OBV window and setting it to apply to "Previous Indicator's Data".
How to read OBV: a drawn example
The chart below is illustrative only. It contains no real prices.
- A–B: Price and OBV rise together. Volume is heavier on up-closes, and the move is confirmed.
- C: Price makes a higher high, but OBV makes a lower high. This is a divergence: the new high came with less up-volume.
- D–E: OBV turns down before price breaks lower.
The general reading rules:
- OBV moving in the same direction as price is confirmation.
- OBV moving against price is a divergence. See Divergence.
- OBV breaking its own trendline or range sometimes happens before price does the same. This is a common basis for an "OBV indicator strategy", but it is a condition to study, not a trading signal.
Typical uses
- Confirming a trend seen on price. See Market trends.
- Checking whether a breakout has volume behind it. See Breakouts.
- Spotting divergences near support and resistance.
Where OBV misleads
- All-or-nothing counting. A bar that closes slightly higher adds its whole volume, even if most of the bar traded lower. Accumulation/Distribution and Chaikin Money Flow weight volume by where the close falls inside the range.
- Single spikes. A news bar with huge tick volume can shift the line for a long time afterwards.
- Session effects. Tick volume rises and falls with trading sessions. OBV can trend simply because a busy session happened to close up.
- Gaps and weekends. A gap close counts like any other close, so a gap bar can distort the line.
- Ranging markets. OBV swings without useful direction.
- Different data feeds. Brokers record ticks differently, so OBV can look different for the same pair on different platforms.
Notes for experienced traders
- On lower timeframes OBV is noisy. Many traders read it on higher timeframes alongside multiple timeframe analysis.
- Trendlines drawn on OBV need clear swing points. Weak touches tend to break.
- A moving average on OBV adds lag. That trade-off is covered in Leading vs lagging.
- Backtests that use OBV inherit every flaw of tick-volume data.
Leveraged forex and CFD trading can lose money fast, and no indicator removes that risk. See Risk management.
Frequent questions
What is the OBV indicator in simple words?
It is a running total of volume. Volume is added on up-closes and subtracted on down-closes, so the line shows which side carried more activity.
Does OBV have default settings?
It has no period. In MT4 you choose the applied price, and in MT5 you choose tick or real volume.
Is OBV reliable in forex?
It uses tick volume, which only approximates real activity. Treat it as supporting evidence, not proof.
How to use OBV with other tools?
Most traders compare it with price structure, trendlines and support and resistance, and look for agreement or divergence.
Why is my OBV value different from someone else's?
The starting point and the data feed differ between charts. Compare direction and slope, not the number on the scale.