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The on-balance volume indicator (OBV) is a momentum indicator that uses volume flow information to help traders better predict stock price changes. Another way to look at the OBV indicator is to reflect the way the crowd sentiment predicts the bullish or bearish market outcomes. Alternatively, how to measure the buying and selling pressure.

The indicator was introduced by Joseph Granville back in 1963. He published the concept in his book “New Key to Stock Market Profits,” where he analyzed the importance of volume for tracking the changes in security prices.

The concept for the indicator is based on the idea that when there is an increase in trading volume, even if it doesn’t affect the price at first, at some point, it will. The price will then go up or down, depending on what types of orders prevail.

When the indicator was first introduced, it was considered something revolutionary. Even today, it remains widely popular among technical traders. However, as soon as market volume became a target for manipulations, the principles most volume indicators are based on started losing their usefulness.

Today, traders also use the on-balance volume indicator as a tool to help them find out when institutional and retail investors are present on the market. It also lets them distinguish the volume generated by either group. If, for example, the volume increases, but the price remains relatively flat, at first, it is considered an indication that pension and mutual funds might be buying the instruments retail investors are selling. Once the price follows the volume and goes up, institutional investors start selling, while retail investors start buying.

0:00 Music Intro
0:13 Intro
0:47 Disclaimer
1:00 On Balance Volume
3:19 How it works
4:55 The calculation
5:25 Using the tool
7:10 Bearish divergence
7:55 Bullish divergence
8:30 Trend confirmation
9:42 Breakouts
11:02 Exhaustion
12:30 Final thoughts


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