How it works
Net Volume is the per-bar version of On-Balance Volume. Instead of accumulating a running total, it plots each bar's signed volume as a histogram around zero: the full volume as a positive bar when the close rose against the previous close, the full volume as a negative bar when it fell, and nothing when the two closes are equal. Take the running sum of Net Volume and you get OBV exactly.
That relationship is the point of using it. A cumulative line is good at showing a trend in flow and bad at showing individual contributions — a long, steady rise in OBV looks identical whether it was built from forty ordinary sessions or from three enormous ones and thirty-seven small ones. The histogram makes the composition visible, which matters when you are trying to judge whether the flow behind a move is broad or concentrated.
It is read like any histogram: the size of individual bars against their neighbours, the sequence of signs, and whether the biggest bars line up with the important price events. A breakout accompanied by the largest positive net volume bar in weeks is a different event from one accompanied by a bar barely above average. A cluster of negative bars while price holds a level is the shape of distribution into a stalling market.
The signing rule is the crudest part, and worth being explicit about. Splitting a bar's volume by comparing two closes is not a measure of buying and selling — every trade has both — and it is not the same as the tick-rule or order-flow classification that professional platforms use, which assigns each individual print to the bid or the offer side. A bar that traded overwhelmingly at the offer but happened to close a tick lower is scored entirely negative here.
Within the family, this is the raw material. Everything cumulative in the list is either this series summed, or this series with a different weighting rule applied before summing. Looking at the histogram first, before reading any of the derived lines, keeps you honest about what the derived lines are actually made of.
Calculation
The arithmetic in words, in the order it happens.
For each bar, compare the close with the previous close. If it is higher, plot the bar's full volume as a positive value; if it is lower, plot the full volume as a negative value; if the two closes are equal, plot zero. The result is a histogram around a zero baseline, and its running cumulative sum is On-Balance Volume by definition. Some professional data feeds compute a finer version by classifying each individual print as buyer- or seller-initiated from tick or order-book data; the study charted here uses the close-to-close rule.
Source
An AlgoBeamScript implementation of the formula above, written by us from the arithmetic so the code and the calculation agree line for line.
Runs unchanged on the platform and in the AlgoBeamTS runtime. The language reference is in the documentation.
Inputs
Defaults are the values most charting packages ship with. They are conventions, not optimal settings — the right length depends on your instrument and your holding period.
| Input | Default | What it changes |
|---|---|---|
| Signing rule | Close versus previous close | Determines which side each bar's volume is assigned to. The close-to-close rule is what standard chart studies use. Feeds with order-flow data can instead split a single bar between buy and sell volume, which is a materially better measurement and is not available from ordinary OHLCV bars. |
| Offset | 0 | Shifts the histogram horizontally for visual alignment against price. Cosmetic; the arithmetic is unchanged. |
How to read it
What practitioners take from the plot. Read these as descriptions of market state, not as entry signals.
- The largest positive bar in weeks arriving on a breakout
- The move through the level was made with concentrated participation. The single most useful confirmation this histogram provides.
- A run of negative bars while price holds a level
- Volume is being assigned to down closes even though price is not yet giving way. Distribution into a stalling market, and a reason to tighten risk rather than to add.
- Alternating signs with shrinking magnitude
- Two-sided, decaying activity. A balance signature that usually precedes an expansion in range; it says nothing about the direction of that expansion.
- A rising OBV built from a few very large positive bars
- The cumulative flow is concentrated in a handful of events rather than broad. Trends built this way depend on those events continuing and unwind quickly when they stop.
Limitations
Where this indicator misleads. None of these are fixed by a better parameter.
- The close-to-close sign is a binary approximation of something continuous. A session that fell for hours and closed a tick higher is scored as fully positive, and the histogram gives no hint that this happened.
- It is not buy versus sell volume, whatever the colours suggest. Every transaction has both sides; genuine buyer- and seller-initiated classification requires tick data that standard OHLCV bars do not contain.
- Bars whose close exactly matches the previous close contribute nothing, so in low-tick-size or illiquid instruments a meaningful share of the volume is simply discarded.
- Because nothing is smoothed, the histogram is as noisy as the underlying volume series, including every expiry, rebalance and holiday session.
Educational reference. This page explains how an indicator is built and how it is commonly read. It is not investment advice, not a recommendation and not a signal service. No indicator is profitable on its own — each is a way of describing a market, and any rule built on one has to be tested with realistic costs before it is traded.