It is an indicator that measures volume flow in the market, and it is used to determine whether money is entering the market (accumulation) or leaving it (distribution).
In other words:
📥 If liquidity is entering → the trend is likely to rise
📤 If liquidity is leaving → the trend is likely to fall
📌 How is it calculated?
The idea is very simple:
If the candle closes bullish → we add its size to OBV
If the candle closed bearish → we subtract its volume from OBV
If it closed unchanged → nothing happens
This produces a line that represents the true liquidity flow behind the price movement.
📌 What does the OBV indicator tell us?
1️⃣ Reveals the true trend (Trend Confirmation)
If OBV is rising while the price is rising → the bullish trend is 'healthy'.
If OBV is dropping while the price is dropping → the bearish trend is 'healthy'.
2️⃣ Reveals accumulation and distribution (Wyckoff Logic)
Price is stable but OBV is rising → Accumulation
Price is stable but OBV is dropping → Distribution
And this is one of the strongest uses of OBV.
3️⃣ It reveals reversals before they happen (Divergence)
🔥 Bullish Divergence
Price makes a new low
But OBV does not make a new low
→ Entry of new liquidity → possibility of a bullish reversal.
🔥 Bearish Divergence
Price makes a new high
But OBV does not make a new high
→ Exit of liquidity → possibility of a drop.
📌 How to use OBV in trading?
✔️ Method 1: Breaking the trend line on the OBV indicator
If OBV breaks trend before the price →
Typically, price follows OBV → very early signal to enter.
✔️ Method 2: Comparison with support and resistance lines
If OBV broke resistance →
It may precede the price breaking itself.
✔️ Method 3: Identifying the true trend
When the price is sideways but OBV is rising →
Very early buy signal.
📌 Best OBV settings?
No settings are needed, as it is based solely on size.
But it’s best to draw:
Trend line on OBV
Support and resistance areas
To make the signals more accurate.
📌 Quick summary:
OBV measures the flow of real money.
Reveals accumulation before the breakout.
Reveals distribution before a drop.
It provides strong divergences before reversals.
Often, OBV moves before the price.
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