• On-Balance Volume indicator is a technical indicator used for analysing the stock market.
• It is a momentum indicator which uses the volume flow to predict changes in the price. 
• The indicator is based on the logic that if there is a significant increase in the volume level without much change in price, then the price will eventually rise or fall.

Formula for On-Balance Volume Indicator:

OBV = OBV(prev) + volume, (if close > close(prev))

OBV = OBV(prev) , (if close = close(prev))

OBV = OBV(prev) – volume, (if close < close(prev))

Where, 

• OBV(prev) = previous On-Balance Volume,
•  close(prev) = previous close price,
• Volume = latest trading volume amount

This is the 1 day chart of Infosys Ltd (NSE) around Dec, 2019 to Aug, 2020

• The main advantage of OBV is that it can be used to track the institutional investors.
• When the institutional investors buy the shares sold by the retail investors, there is a rise in the volume without much rise in the price level.
• Eventually, the rise in volume drives the price upward. Again at that point, large investors start buying whereas small investors begin to sell.
• Since the OBV is a cumulative value, a significant change in the value indicates a significant change in the volume traded, which takes place only when the institutional traders step into the market. Thus OBV is used to track the large investors.

• The main disadvantage of an OBV indicator is that it is a leading indicator.
• So, not much information can be extracted about what actually happened, which can lead to false results.
• Traders should use add few lagging indicators (moving averages) to balance the effect.