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Supply and Demand · OBV

OBV — On-Balance Volume Complete Guide
Reading Accumulation Signals

OBV (On-Balance Volume) accumulates trading volume based on price direction. Even if the stock price is stagnant, if OBV steadily rises it signals that accumulation is quietly taking place at lower price levels.

Written by Dawn · IT Engineer · Published
💡 Key Takeaway — When the price is quiet, if OBV rises, it suggests suspected accumulation (buyer identity is not determined). This is based on the idea that volume moves before price, making it an indicator that reads buy/sell imbalance on the chart first.

What is OBV (On-Balance Volume)?

OBV (On-Balance Volume) is a supply and demand indicator that shows "whether money is coming in or going out" as a single line based on the direction of price. It is a classic indicator introduced by Joe Granville in 1963, and the core premise is simple — volume moves before price. Even when the price is quiet, the flow of volume reveals buy/sell imbalance first (buyer identity is not determined).

Calculation Method — The Direction of Accumulation is Everything

OBV is a simple cumulative total.

  • If the closing price is higher than the previous day → add that day's volume to the total
  • If the closing price is lower than the previous day → subtract that day's volume from the total
  • If unchanged → no change

Therefore, the absolute number of OBV is meaningless; direction and trend are key. If the stock price is stagnant but OBV continues to rise, it means that the volume on up days is greater than on down days — indicating quiet accumulation.

How to Read Accumulation Signals

Buying that avoids driving up the price tends to happen in chunks (buyer identity is not determined), so during accumulation, an imbalance in volume appears before price changes. This can be quantified as the ratio of the sum of volume on up days to the sum of volume on down days (updown volume).

DawnScan Criteria — Not a calendar "last 10 trading days": DawnScan sums the volume of the last 20 up-day observations and the volume of the last 20 down-day observations separately, then takes the ratio. If that ratio is 1.3 or higher, it's an OBV accumulation signal, and if the price has also moved less than 18% over the last 20 trading days (sideways), the weighted score is set higher.

OBV Divergence

The strongest signal is the divergence between price and OBV.

  • Bullish Divergence — Price is stagnant or falling while OBV is rising → indicates hidden accumulation, and the price tends to follow OBV upwards
  • Bearish Divergence — Price is rising while OBV is falling → indicates a weak rise unsupported by volume

Why It Should Be Viewed with Other Signals

OBV indicates the direction of supply and demand but is weak in timing and trend strength. Therefore, DawnScan does not use OBV accumulation alone, but combines it with Bollinger Squeeze (volatility contraction)· ADX (trend formation)· RSI (momentum)· Relative Strength (strength compared to the market). Accumulation + Contraction + Strength overlapping on a single stock is a significant position. For the overall combination method, refer to pre-breakout early signal overview and methodology.

Warning — An OBV accumulation signal does not guarantee a rise. False signals and reversals in buying pressure can occur, and all information is for reference only. Investment responsibility lies with the individual.

Check Now

Stocks with OBV accumulation detected today can be checked along with other signals in Today's Scan.

📮 Daily US Market Morning Brief — We send an analysis of the previous day's top 10 US gainers (TOP10) and what they had in common, every day at 8am (KST). Telegram @dawnbrief · Free · No ads · Not stock recommendations.

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Frequently Asked Questions

How is OBV calculated?

OBV is calculated by adding the day's volume to the cumulative total when the closing price is higher than the previous day, and subtracting it when it is lower. Direction and trend are more important than absolute numbers. If the stock price is stagnant but OBV continues to rise, it means that the volume on up days is greater than on down days.

What are the key conditions for an OBV accumulation signal?

DawnScan sums the volume of the last 20 up-day observations and the last 20 down-day observations separately (not a calendar 10-day or 20-day window) and takes the ratio. An OBV accumulation signal fires when that ratio is at least 1.3, and the weighted score is set higher when the price has also moved less than 18% over the last 20 trading days (sideways).

What is OBV divergence?

When the price is falling (or stagnant) but OBV is rising, it is called 'bullish divergence'. This suggests that hidden accumulation is taking place, and chart-reading convention holds that the price often rebounds following OBV afterward (DawnScan has not itself measured this rebound rate). Conversely, when the price is rising but OBV is falling, it is 'bearish divergence'.

Can I buy based solely on the OBV signal?

It is not recommended. OBV shows the flow of supply and demand, but conventional practice treats it as more reliable when viewed alongside trend direction (ADX), momentum (RSI), and volatility contraction (Bollinger Squeeze). DawnScan combines these signals into a composite score, but has not separately measured the effect of that combination.
Bollinger Band Squeeze
Volatility contraction viewed with OBV
RSI Momentum
Confirming momentum after OBV accumulation
Relative Strength (RS)
Assessing strength of supply and demand compared to the market

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