Learn · The Twelve Measurements — Lesson 4 of 12

On-Balance Volume (OBV), explained

OBV is one of the oldest indicators still in daily use — a running total that adds the day's volume when price closes up and subtracts it when price closes down. Its simplicity is the feature: it keeps a long memory of who showed up.

What it measures

A cumulative line rather than an oscillator. Its usefulness is in disagreement: when price makes a new high and this line does not, the move is being carried by fewer participants than it appears.

Because OBV is cumulative rather than bounded, its absolute value is meaningless — what matters is its shape, and whether that shape agrees with price. Sixty years after Joseph Granville popularised it, the reading discipline is unchanged: confirmation when the line and price move together, and a warning worth understanding when they part ways.

Why it moves prices

The premise is that volume precedes price: large participants cannot enter or exit quickly, so their activity shows up in accumulated volume before it has finished expressing itself in price. When price makes a new high and OBV does not, the new high was carried by fewer participants than the last one — the crowd is thinning even as the scoreboard improves. The reverse pattern, OBV holding steady through a price decline, describes selling that lacks weight.

How to read it

Positive: the line is rising, so volume is accumulating on up days. Negative: distributing on down days.

In practice the line has three useful states: confirming (making new highs or lows alongside price), diverging (price and line disagree — the state worth attention), and flat (participation has dried up in both directions). Farlens grades the line's recent slope and its agreement with price rather than publishing the raw total.

How Farlens uses it

On-Balance Volume carries 10.3% of the Farlens composite (weight 1.2 of 11.6 across all twelve measurements). Coverage: Needs volume data.

Two conventions matter here. First, a measurement that cannot be observed for an instrument is skipped, never counted as zero — a zero would read as “neutral” and quietly dilute the composite. Second, on any given day a contribution is the measurement's score times its weight, divided by the total weight of the measurements present that day — so the published breakdown always sums to the score beside it. The full stack, with every weight published, is on the signals page.

A worked example

Farlens publishes one frozen example reading — AAPL on 22 July 2026, deliberately weeks old — so the shape of a reading can be studied without opening the live layer. That day the composite printed +14.7, “Mixed”, and this measurement read +97.4.

Measurement present that day	Reading
Trend	+100.0
Advance/decline pressure	+100.0
On-Balance Volume	+97.4
Momentum (RSI)	−75.7
Money Flow Index	−63.3
Sector rotation	−45.3
Volume surge	−29.7
Short volume share	−23.9

OBV read +97.4 that day, agreeing with trend rather than with the bruised short-term oscillators — the pullback had not been accompanied by meaningful distribution. Note how the same day's volume data feeds two measurements that can still disagree: MFI weighs recent sessions, OBV remembers the whole accumulation.

A real reading, kept deliberately stale. Descriptive of one historical day — not a prediction, and not representative of current conditions.

What it cannot tell you

OBV is all-or-nothing about each day: a close 0.01% higher books the entire session's volume as accumulation, which is obviously coarse. It carries no notion of where within the day volume traded. And because it is cumulative, one anomalous session — an index rebalance, an earnings gap — stays in the line forever. It is a blunt instrument that earns its keep by being hard to fool slowly, not by being precise.

Frequently asked

Why does the composite need both OBV and MFI?

MFI is a bounded oscillator over a short window; OBV is an unbounded running total with a long memory. One catches stretched fortnights, the other catches quarters-long divergences. They overlap less than their shared ingredient suggests.

What is an OBV divergence?

Price setting a new high while the OBV line sets a lower high — the move is being carried by fewer participants than the previous one. Historically a description of weakening moves rather than a timing tool.

Does OBV apply to crypto?

Yes — anywhere volume is reported reliably. It is computed for the major crypto assets in exactly the same way.