Crypto glossary
On-balance volume (OBV)
On-balance volume (OBV) is a cumulative indicator that adds volume on up days and subtracts it on down days to track buying and selling pressure.
Introduced by Joseph Granville in the 1960s, OBV keeps a running total. If a period closes higher than the previous one, its full volume is added; if it closes lower, its volume is subtracted; if unchanged, nothing happens. The absolute number is meaningless, so traders look at the direction and slope of the line and how it compares with price.
The idea is that volume precedes price. A rising OBV during a sideways range suggests accumulation, while a falling OBV during a rally suggests the advance lacks broad participation. Divergences between OBV and price, and breakouts of OBV above its own previous highs, are the most common signals. In crypto it is used on spot charts for bitcoin and altcoins.
OBV treats each period's volume as entirely bullish or bearish based only on the close, which is crude. A small gain on huge volume counts the same as a big one. Crypto volume is also fragmented across exchanges and partly inflated by wash trading on some venues, which can distort the line.
Example
For three weeks a token trades flat, yet its OBV climbs steadily to new highs. When the price finally breaks out of the range, traders cite the OBV as evidence of accumulation beforehand.