Price–OBV divergence

Price and OBV divergence is indicated when the price double tops to the same (or a higher) high or double bottoms to the same (or a lower) low but the OBV doesn’t follow suit. This divergence flashes a warning that there’s insufficient volume to sustain the new high or low price. You’ll probably recognise that price–OBV divergence is very similar to price–RSI divergence discussed in chapter 8.

I’ve illustrated price–OBV divergence in figure 9.7 (overleaf). For simplicity’s sake, I’ve shown price as a line chart.

Tip

Price–OBV divergences often indicate that the new price high or low could be unsustainable.

Figure 9.7: price–OBV divergences in uptrends and downtrends

Divergence trading signals