On-Balance Volume (OBV) is a cumulative volume-based indicator that tracks the flow of volume in relation to price movements. Unlike typical volume bars that simply show how much was traded, OBV assigns direction to volume, turning it into a running total that either increases or decreases based on whether the closing price moved up or down.

The core measurement of OBV is the accumulation or distribution of volume over time. Each period, volume is added to the total if the price closes higher than the previous period, and subtracted if the price closes lower. When price remains unchanged, the OBV level stays flat. This creates a single line that represents the net volume flow.

OBV does not measure actual buying or selling pressure in absolute terms, but rather the relative dominance of buyers or sellers based on volume participation. Rising OBV suggests that volume is accompanying upward price moves, implying accumulation. Falling OBV indicates that selling volume is dominating, suggesting distribution.

Because OBV is cumulative, it acts like a volume-driven momentum indicator. It smooths out individual volume spikes by focusing on the net effect over time, helping traders identify whether volume is confirming or contradicting price trends. Divergences between OBV and price often signal potential reversals, as they reflect a shift in underlying volume dynamics.

This makes OBV a tool for measuring volume commitment to price direction, rather than measuring raw trading activity. It reveals whether the market is conviction-driven or merely speculative, by observing how much volume is behind each price movement.