The Volume Oscillator indicator is a Volume Based Technical indicator. This indicator works on the technical premise that it is not the actual level of volume, but the change in volume relative to the recent past that has more technical significance.
Volume Oscillator FAQ
A volume oscillator defines volume by measuring the relationship between two MA (moving averages). Volume determines the strength or weakness of a price trend. This is a technical analysis indicator. Traders use it for identifying periods of expanding or contracting volume.
There are some basic and easy ways by which one can read the volume oscillator. A rising volume oscillator indicates a rallying market. On another way, when an issue becomes overbought, the oscillator reverses its direction. And if the market moves in a horizontal direction, the volume should contract.
The particular volume oscillator indicator calculates a fast and a slow volume MA (moving average). The difference between the two (fast VMA -slow VMA). It is then plotted as a histogram. The fast VMA is generally over a period of 14 days or weeks.
Volume Oscillator = [(Shorter Period SMA of Volume – Longer Period SMA of Volume) / Longer Period SMA of Volume ] * 100
What are the Main Features of the Volume Oscillator?
- Just remember that changes in volume are being measured, and generally, the volume expands during a sell-off.
- Another most important thing is an increasing price, along with declining volume, is maximum time, without exception, bearish.
- When there is a positive reading for the particular volume oscillator, in the short-term there is strength in the direction of the primary trend.
How to Set Up the VO on Charts?
The traders are getting more details regarding the Volume Oscillator indicator, then please open the STUDIES section of Zerodha Kite. The traders are also visiting in Kite mobile App. The Short Cycle is 12 and the Long Cycle is 26. If you want to change these values of Short and Long Cycle then you can change it. This indicator is available includes daily, weekly, monthly or intraday. The traders can also check the attaching process of the Volume Oscillator indicator to the Reliance Industries share price chart.
Now, we are going to present charts of CIPLA and ADANI PORTS with Volume oscillator, taken from Upstox and FYERS platforms.
Whenever you see an increase in volume, market strength is in the maximum position. Here, the fast volume moving average is below the slow volume which means VO is below the zero lines and the market lacks strength and conviction.
How to Trade VO Professionally?
One part of this the Volume will be low when prices of shares move sideways. As same as, Volume will be high when Prices move in the upward or downward direction. In the Volume Oscillator (VO) indicator the difference between the short period and long period moving averages can be expressed in terms of points or percentages of the Volume Oscillator indicator.
- An increase or decrease in asset price accompanied by an increase in volume can be considered a sign of strength in the current trend. Hence, if the fast VMA or volume moving average (default 14-period) is above the slow volume moving average (default 28-period), the VO is above the zero levels. And cay be determining price direction, whether it be up or down.
So, a positive value on the Histogram indicates that buyer pressure exists for this indicator. Mainly, when there are negative values, it shows that a selling pressure exists of the Volume Oscillator indicator. The Central Line on the Histogram of Volume Oscillator depicts a neutral zone of zero.
Here, I add stochastics along with the volume oscillator. I take the buy signal when the volume is above and the stochastics fast line is above the slow line. Oppositely, the sell signal appears once the volume is going down and stochastics slow line is above the fast line.
If price doesn’t match with the oscillator, divergence created. Like here, the price made higher highs but the indicator made lower lows, a bearish divergence occurs. And, the price went down later.
Advantages of Volume Oscillator:
- Mainly the key benefits of using Volume indicators like Volume Oscillator helps in pinpointing whether a share is potentially moving upward or downward.
- The indicator signifies that a trend would continue to move in the same direction or change its direction after traveling some distance in a particular direction.
- The indicator precedes Price Activity in depicting the possible change in direction of a particular stock.
- The calculation of this simply deploys an Exponential Moving Average of data for a predetermined number of days.
- In order to predict the market turnaround, Technicians must use both Prices as well as Volume Indicators among all of the indicators.
- In order to determine the strength of a future trend, Volume Indicators like VO, PVO or MVO must not agree with the Price Indicators among all of the indicators.
Limitation of Volume Oscillator:
- In the biggest flaw in Volume indicators including Volume Oscillator is that it uses a very limited span of time to predict future trends.
- Volume Oscillator indicator could be disordered by the fact that some shares aren’t traded constantly in the Market.
- In this indicator, Volume Oscillators can mislead investors and give wrong signals primarily due to the non-transactional tenure of stocks in the past.
- Traders are unable to make decisions solely on the basis of outcomes of Volume Indicators.