On-Balance Volume Basics

All or nothing is a crude assumption

The rule that a period's entire volume counts as buying or selling based on the close is a simplification, and a fairly aggressive one. A bar that opens at the low, rallies all session and closes one pip up counts exactly the same as a bar that opens at the low and closes at the high.

• It ignores where price closed within the bar. A doji that finishes one tick higher donates its full volume to the positive column.
• It ignores intraperiod distribution. Volume that traded on the way down and volume that traded on the way up are treated identically.
• A single enormous bar can dominate the line for weeks, because the total never decays.
• Alternative constructions exist. The accumulation and distribution line weights volume by where the close sat inside the range, which is the obvious refinement.

None of that makes OBV useless. It makes it a blunt instrument, and blunt instruments are fine as long as you do not ask them for precision.

When price and OBV part company

The standard use is divergence. Price makes a higher high while OBV makes a lower high, which says the second push was made with less net volume behind it than the first. The reverse, price making a lower low while OBV holds, says selling is thinning out.

The honest caveat is timing. A divergence can persist through several more highs before anything changes, and the swing point you are measuring from only becomes a swing point after price has moved away from it. So a divergence is a reason to stop adding to a position, to tighten management, or to require more before taking the next entry in that direction. It is not a reason to reverse. The signal anatomy guide makes the same point about every early-warning reading: the entry still needs a level and a defined invalidation.

What to do when your feed's volume is one broker's volume

In spot forex there is no consolidated tape, so the volume driving OBV is normally tick volume from your broker. It counts price updates rather than contracts, and two platforms will produce different OBV lines on the same pair.

Three practical responses. Use OBV for the shape of the line rather than its values, since shape survives a different feed better than magnitude does. Compare it against the futures contract for the same currency when one exists, because that volume is real and exchange-reported. And treat OBV readings during rollover, holidays and the thin hours as unreliable, since a low-participation period distorts a cumulative total and never corrects itself afterwards. Position size still comes from stop distance rather than from how convincing the line looks, which the position size calculator settles in a few seconds.