What Is The On-Balance Volume (OBV) Indicator Used For When Trading Stocks
So what is the on-balance volume (OBV) indicator used for when trading stocks?
On-balance volume (OBV) is used to measure volume. The OBV indicator will tell you how much money is flowing in and out of a stock.
In theory if the OBV line is dropping on a stock chart then that is suppose to indicate that people are selling that stock. Where as if the OBV line is rising then in theory people are buying into that stock.
So in theory, this typically would mean if the OBV is dropping then you should sell, and if the OBV is rising then you should buy.
As we have stated several times though, remember you should never rely on a single indicator. Many times indicators will give you false signals. So it is always wise to compare different indicators to ensure you are getting true signals.