Williams %R Explained: Reading Momentum Inside the Range
Williams %R shows where the close sits in the recent high-low range. Here is how it flags overbought and oversold, how it stacks up against stochastics, and why extremes lie in strong trends.
OBV adds volume on up days and subtracts it on down days, turning raw participation into a line you can watch. Here is how to read it without fooling yourself.
Most traders stare at price and forget that every candle is built from two things: how far it moved, and how much trading it took to move it. Volume is the second half of the story, and it usually gets ignored until a move falls apart and everyone asks why. On-balance volume is one of the oldest ways to put that second half back on the chart where you can see it.
On-balance volume explained in one sentence: it is a running total that adds the period's volume when price closes up and subtracts it when price closes down. That is the entire engine. The number itself is meaningless. The direction it travels is the point.
Joseph Granville popularized OBV back in the 1960s, and the core idea has aged better than most indicators from that era. His bet was simple: volume tends to move before price. When a large buyer is quietly accumulating, the buying shows up as participation before the trend becomes obvious to the crowd. OBV tries to make that accumulation visible as a single line you can watch instead of squinting at individual volume bars.
On-Balance Volume Explained: The Core Idea
Think of OBV as a tug of war scoreboard. Every closed candle, one side wins.
- If today closes higher than yesterday, all of today's volume is added to the total.
- If today closes lower, all of today's volume is subtracted.
- If the close is unchanged, the total stays put.
Notice what it ignores. It does not care how far price moved, only which direction it closed. A candle that closes up by a hair adds the same volume as one that closes up hard. That bluntness is a feature and a flaw at the same time. It keeps the calculation honest and simple, but it treats a tiny green close and a massive green close as the same vote.
The result is a line that rises when up days are carrying more volume than down days, and falls when the sellers own the volume. You are not reading a price. You are reading a balance of participation over time.
The reading, not the number
The absolute value of OBV depends entirely on where the chart started counting, so comparing one symbol's OBV number to another's is pointless. Only the slope and the shape matter. Is the line making higher highs and higher lows? Buyers are in control of volume. Is it grinding lower while price chops sideways? Someone is distributing into that chop.
How to read the OBV line
Start with the simplest question: does OBV agree with price?
When price and OBV rise together, the trend has participation behind it. Buyers are not just nudging price up on light volume, they are showing up in size on the up days. That is confirmation, and confirmation is boring in the best way. It tells you the move is standing on something.
The interesting information shows up when the two disagree. That gap is where OBV earns its keep, because it can hint that the surface story and the underlying pressure have split.
A quick way to sort the four cases:
| Price | OBV | What it suggests |
|---|---|---|
| New high | New high | Move confirmed, volume is behind it |
| New high | Flat or lower | Bearish divergence, buying pressure lagging |
| New low | New low | Selling confirmed |
| New low | Flat or higher | Bullish divergence, selling pressure fading |
Divergence is the headline use of OBV, but it is also the one most people abuse. A divergence is a note that says pay attention, not a green light. Pressure can stay out of sync with price for a long time, and OBV can drift the wrong way far longer than your account can comfortably wait. Treat it as context that raises or lowers your confidence, then let your actual entry rules do the deciding.
If the idea of price and an indicator pulling apart is new to you, the same logic drives RSI divergence, and reading both together is a good habit.
Confirmation is the underrated use
Everyone hunts for divergences because they feel like a secret. The quieter, more reliable use of OBV is confirmation. When you already have a reason to be long, a rising OBV that keeps posting higher highs is a gentle nod that participation is still there. When you are long and OBV rolls over and starts carving lower highs while price holds, that is the market telling you the fuel is thinning even if the tank still reads full.
This is really the same question a trend follower is always asking: is there real pressure behind this move, or is it running on fumes? A trend tool that stays flat most of the time and only commits when the evidence lines up, which is how Vektor is built, is trying to answer that from the price side. OBV answers it from the volume side. Neither is gospel, but when they agree you are on firmer ground.
Where OBV falls short
Honesty first, because a tool you trust blindly is a tool that will eventually hurt you.
It is close-driven and binary. Because OBV counts the full volume on any up close, a session that grinds higher on almost no conviction gets the same credit as a genuine buying stampede. On choppy, low-range days the line can jump around in ways that overstate what really happened.
It depends on clean volume data. On centralized markets like stock indexes and futures, exchange volume is trustworthy. On spot gold and crypto, trading is spread across dozens of venues, and the volume your chart shows is only the slice from whatever feed you are using. OBV still works there as a rough participation gauge, but do not read it as a precise headcount. If you trade those markets, pair it with something like volume profile on TradingView to see where the activity actually clustered.
It is not a standalone system. OBV tells you about pressure. It says nothing about where support sits, how much room a trade has, or where your risk should go. It is a confirming voice, not a strategy.
Gaps and thin sessions distort it. Around holidays, rollovers, and low-liquidity hours, a small amount of volume can push the line in ways that mean very little. Zoom out before you trust a wiggle.
How to use OBV without fooling yourself
A few rules of thumb that keep OBV useful instead of misleading.
Adding it to your chart
On TradingView, OBV is a built-in indicator, so you do not need any custom code to get it. The default settings are fine for most people, and there is very little to tune because the calculation has almost no parameters. That simplicity is part of why it has survived sixty years while flashier indicators came and went.
One last framing. OBV is not trying to predict the future. It is trying to describe the present more honestly than price alone, by reminding you that a move without participation is a move on thin ice. Used that way, as a second opinion rather than a crystal ball, it quietly makes you a better reader of what the tape is doing.
FAQ
What does on-balance volume actually measure?
It measures a running total of volume, added on up closes and subtracted on down closes. The raw number is meaningless on its own. What matters is the direction the line travels, because that is meant to reveal whether buying or selling pressure is building underneath price.
Is OBV a leading or lagging indicator?
It is usually treated as leading, since the original theory was that volume shifts before price. In reality it is a mix. It can flag accumulation early, but it also just follows closes, so much of the time it moves right alongside price rather than ahead of it.
What is OBV divergence?
Divergence is when price and OBV disagree. Price prints a new high but OBV does not, hinting the rally is running on thin participation. Or price makes a new low while OBV holds firm, hinting that selling is fading. It is a warning to look closer, not an automatic trade.
Does OBV work on any market and timeframe?
It works wherever you have trustworthy volume data, which is why it is common on stocks and futures. On spot gold and crypto, volume is scattered across venues, so read OBV as a rough participation gauge rather than a precise count.
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