On-Balance Volume (OBV)

On-Balance Volume (OBV) is a technical analysis indicator used in crypto trading to measure buying and selling pressure. It adds volume on up days and subtracts volume on down days, producing a cumulative total. The theory is that volume precedes price movement; thus, OBV can signal bullish or bearish trends before they appear on price charts.

For example, if Bitcoin's price rises but OBV remains flat or declines, it suggests weakening buying pressure, potentially signaling a trend reversal. Conversely, if OBV rises while prices remain stable or decline slightly, it indicates strong buying interest, foreshadowing a potential price increase.

In a case study, consider Ethereum's OBV during a period of consolidation. If OBV shows a steady increase despite sideways price movement, it implies accumulation by investors, suggesting a potential breakout to the upside. Conversely, declining OBV during consolidation may indicate distribution, hinting at a forthcoming price drop.