Skip to content
Course contents
Indicators

Volume indicators

Volume indicators turn raw volume into readable tools. OBV is a running buy-minus-sell volume tally that confirms trends and flags divergence, and VWAP is the volume-weighted average price, an intraday benchmark of who controls the day.

7 min readChapter 22 of 26
What you will learn
  • Explain OBV and VWAP in plain terms
  • Use volume tools to confirm price
  • Keep them as confirmation, not standalone signals

Volume, from an earlier chapter, is the conviction behind a move. Volume indicators take that raw volume and turn it into something easier to read and act on. Two are worth knowing well: On-Balance Volume and the volume-weighted average price.

On-Balance Volume

Volume, and a volume line like on-balance volume, confirm a price move when they rise with it and warn when they diverge from it.
Volume, and a volume line like on-balance volume, confirm a price move when they rise with it and warn when they diverge from it.

On-Balance Volume, or OBV, is a running total. On a day price closes up, that day's volume is added to the total; on a day it closes down, the day's volume is subtracted. The result is a single line that rises when volume is flowing into buying and falls when it is flowing into selling. Its value is not the number itself but its direction and how it compares with price. A rising OBV confirms a rising price, and an OBV that stalls or falls while price climbs is a divergence, warning the rally lacks the volume to back it, the same idea RSI divergence captured, now measured with volume.

VWAP

VWAP is the volume-weighted average price, the average price over the day with each trade weighted by its volume. In plain terms, it is roughly the average price everyone paid today. It is watched closely intraday, especially by large institutions, as a benchmark: price trading above VWAP suggests buyers are in control of the day, and below it suggests sellers are. It acts as a kind of moving level within the day, one that dips toward it are often bought from in an up day. VWAP resets each day, so it is mainly an intraday tool.

What to carry forward

Volume indicators make the conviction behind a move easier to read. OBV accumulates volume up on up days and down on down days into a single line, confirming a trend when it agrees with price and warning through divergence when it does not. VWAP marks the volume-weighted average price of the day and serves as an intraday benchmark of whether buyers or sellers hold the upper hand. Both are confirmation tools, strongest when they agree with price and context, and neither is a signal to trade by itself.

You have now met indicators for trend, momentum, volatility, and volume. The last chapter of this part is about using them together without fooling yourself.