OBV and MFI: Simplified Volume – Closer, but Still Not Order Flow

OBV (On-Balance Volume) adds a candle's entire volume when the close rose and subtracts it when the close fell. MFI (Money Flow Index) is a volume-weighted RSI. Both try to take volume into account, but treat it very crudely.

What it is

Joseph Granville popularised OBV in the 1960s. The idea was good: volume precedes price. The execution, however, is simplified, because a candle's entire volume goes to one side based only on the close.

MFI calculates “money flow” from the typical price and volume, then converts it to a 0–100 scale like RSI.

How people use it

confirming a trend with rising OBV
OBV divergences with price
MFI 80/20 as overbought and oversold

What the research and evidence say

Volume indicators from a candlestick chart lose the most important information: who initiated the trades. A candle that closed higher may have had a majority of aggressive selling that got absorbed. On top of that, on spot forex the platforms show tick volume – the number of price changes at a single provider – not real turnover.

Weaknesses

a candle's entire volume assigned to one side
on spot forex it's tick volume, not real volume
the same market gives a different OBV on different timeframes
MFI inherits RSI's problems

What order flow shows

Order flow does what OBV tries to do, only precisely: it splits the volume of every trade into buying at the ask and selling at the bid. Delta shows the real balance of aggression in every candle and at every price level. On CME futures this is real data from a central exchange.

Indicators vs order flow

Every indicator and every pattern in this section is built from the same data: a candle's open, high, low, close and sometimes volume. They're derivatives of price, showing the effect rather than the cause. Order flow looks at what price is made of: who was buying and selling aggressively (delta), where limit orders were waiting (the order book) and at which prices the market accepted trade (the volume profile).

On CME futures this data is real and comes from one central market. Spot forex doesn't have it: platforms show tick volume, the number of price changes at a single provider.

To be fair: order flow isn't the Holy Grail. It takes learning, it can be noisy, big players hide some of their orders, and an edge only comes from a process and risk control. But it gives you information that simply isn't on a candlestick chart.

How to use it sensibly

if you want to analyse volume, move to data split into bid and ask
on spot forex, don't treat the platform's volume as market turnover
compare OBV with delta to see how much information it loses

Glossary: Volume
Glossary: Delta
Glossary: Cumulative delta
Atlas of biases: Illusory correlation
Order flow: Absorption on a real market: 51,300
Order flow: How to read charts from a real market
Also under the microscope: RSI
Also under the microscope: MACD
Also under the microscope: The stochastic oscillator and Stochastic RSI

Frequently asked questions

What does the OBV indicator show?

Cumulative volume, added on up candles and subtracted on down candles. It's a rough approximation of buying and selling pressure.

How is OBV different from delta?

OBV assigns a candle's entire volume to one side based on the close. Delta counts every trade at the ask and at the bid separately, so it shows the real balance of aggression.

Educational content, not investment advice. No signals, entries, stops or position sizes.