The Volume Oscillator

By: Viktor Ka Home | Finance | Investments

VO (Volume Oscillator) is a basic volume based indicator in technical analysis. Such indicators as MVO (MarketVolume Oscillator) and PVO (Percentage Volume Oscillator) are based on the VO and it is essential to understand the physics behind the Volume Oscillator in order to understand the other volume based technical indicators.

The Volume Oscillator formula uses two volume moving averages (VMAs):

Volume Oscillator = [Fast VMA] / [Slow VMA]
Fast VMA is shorter-term VMA
Slow VMA is longer-term VMA

For instance Volume Oscillator (5,25) means that the period of the Fast Volume Moving Average is set to 5 bars (shorter period) and the period of Slow Volume Moving Average is set to 25 bars (longer period).

Basically the Volume Oscillator reveals the difference between two volume moving averages and is used in technical analysis to analyze volume surges (abnormal volume activity). Volume moving average shows average volume over a specified period of bars and applying this understanding to the Volume Oscillator we may say that the Volume Oscillator shows where is the current volume is in relation to the average volume over a longer period of time. Due to the high average volume the good result could be achieved by applying VO to analyze Nasdaq 100, S&P 500, DJI and others indexes with a purpose of trading index derivatives (QQQQ, SPY, DIA and other).

By coming back to our example above of Volume Oscillator (5,25) we have to understand that when Volume Oscillator is above 1 that means that the Fast Volume moving average is above slow moving average. In this case we can make statement that the current average volume over the last 5 bars is higher than the average volume over the last 25 bars, or we may say that we have higher than the normal volume activity (we have volume surge - abnormal volume activity). In other words, the Volume Oscillator gives mathematical evaluation of the volume surge in relation to the average volume over a longer period of time.

Now, when we know the physics behind the Volume Oscillator we can be more confident in using this technical indicator in the analysis. One of the rules of the market "��There is no price movement without volume and there is no volume without price move"�� tells us that when we solely rely on the price based technical indicators we see only a half of the picture and only when we analyze volume and price together we may see what is going on behind the scenes.

By joining Volume Oscillator with price technical indicators we may separate volume surges (when VO > 1) during the price move down from volume surges during the price move up. The high Volume Oscillator assumes abnormal volume activity and we may classify the volume surge during the price decline as panic selling and volume surge during the price advance as greedy buying.

Article Source: http://www.eArticlesOnline.com

About the Author:
Check QQQQ Signals and learn about trading systems based on the S&P 500 and NASDAQ 100 volume technical indicators.

Keywords: Technical Analysis, volume oscillator, Vo, MVO, PVO, Moving Average, MA, Volume

Please Rate this Article

Not yet Rated

Click the XML Icon Above to Receive Investments Articles Via RSS!

Recent Articles From Investments

Forex Trading Demo Helps You Learn Better
By: Traderstrust | Jul 31st 2010
Many traders"�� sign up for these forex trading demo accounts and try trading on a huge sum of money. Once you open up a forex trading demo, you are exposed to the various tricks of online trading. Read
A Forex Broking Know How
By: Traderstrust | Jul 31st 2010
Forex trading is an ongoing learning process. No trader knows it all. This misconception will only lead you into making hasty and unreasonable decisions. You can begin by researching on the internet by visiting Forex broker"��s websites and see what they are giving you. Read
Tips For Your Wealth And Portfolio Management
By: SMC Global | Jul 31st 2010
A good portfolio is the one that maximizes your return on investment. Portfolio management is a complex activity that includes many decisions such as laying down investment objectives, selection of securities to invest in, formulating the investment strategy, and so on. This article aims to provide certain guidelines to hel ... Read
How To Set Up An Online Stock Trading Account
By: SMC Global | Jul 31st 2010
Internet has widened the scope of stock trading. Traders have now got an opportunity to trade online where all the relevant information related to stock prices and latest stock updates are now just a click away. Keeping a track of real time price movements, graph movements and other market movements helps you to take an inf ... Read
Are Investments In Equity And Mutual Fund Safe?
By: SMC Global | Jul 31st 2010
For those investors who have a comparatively low appetite for risk, mutual funds are the best place to invest in. Mutual funds are preferred by many of us over direct investment in equity stocks. Lack of knowledge and expertise in selecting profitable equities is one of the main reasons for this. If you are careful and foll ... Read
Harvest More Pips Today With Mt4 Trailing Stop
By: Warren Seah | Jul 30th 2010
On the MT4 platform, the trailing stop function is insufficient to allow me to trail the market in the way I want it to be and that the trailing function might have its own hiccups during operations. Read
Natal Seems To Have Et Al
By: Aiden Rankin | Jul 30th 2010
Property in Natal, Brazil is set to be one of the most popular investments in the world, according to international property investment consultancy Property Frontiers. The firm believes that the city is on track to become one of the top cities, not only in Brazil but also in the world, and that demand for property for sale ... Read
Canadian Stocks, Canadian Penny Stock, Canadian Stock Research Reports, Canadian Stock Market Tips
By: JigneyBhachech | Jul 30th 2010
Information on Canadian stocks, Canadian penny stocks, Canadian stock research reports, Canadian stock market tips, economists, financial strategies, fund managers, Canadian equities, Toronto Stock Exchange, TSX venture exchange for microcap public companies.

Read
Make More Money With Stock Market India
By: orlagh | Jul 30th 2010
Getting to know these things in case of Indian stock market is very easy because of the transparency of the market. There are so many online resources which you could use to get to know more information about the Indian stock market and its functioning Read
How To Choose A General And Life Insurance Companies?
By: SMC Global | Jul 29th 2010
When it is about choosing an insurance company, reliability should be given more importance as against your expenses. Be it a general insurance or a life insurance that you need, reputation of the insurance company should be the main criterion to choose the best company for your needs. This article talks about things to be ... Read