Chartered Market Technician (CMT) Practice Exam 2025 - Free CMT Practice Questions and Study Guide

On-Balance Volume (OBV) is a technical analysis indicator that measures buying and selling pressure as a cumulative indicator, which can help predict price movements. The fundamental premise of OBV is that changes in volume typically precede price changes. When volume increases on up days, it indicates bullish sentiment, suggesting that the price may rise soon after. Conversely, when volume increases on down days, it suggests selling pressure, indicating that the price may fall.

This concept reflects the belief that volume is a leading indicator; therefore, as traders and investors accumulate stock, the price is likely to follow. The calculation involves adding the day's volume if the price closes higher and subtracting it if the price closes lower, allowing traders to see the underlying strength or weakness behind price movements. As such, the correct answer highlights the critical role of volume in forecasting price movements, establishing that volume indeed precedes price.