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. The Volume Oscillator indicator displays the difference between two moving averages of a security’s volume expressed as a percentage.
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 value 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 attaching process of the Volume Oscillator indicator to Reliance Industries share price chart.
In all Oscillators are common primarily due to their ability to predict sideway movements. This doesn’t mean at all that Oscillators can only be used for the sideways movement of this indicator. Oscillators give a clear figure of the short term extreme positions likes Overbought and Oversold situations. In the same way, Volume is considered the second most important Technical Indicator. The Volume gives as a Confirming indicator for Price which is a Primary Technical indicator. This can be measured in terms of shares, futures etc. The Volume can be available for days, weeks, months or years. In this indicator, the Volume is the number of shares switched during a predetermined period of time. In this way, Volume measures the upward, downward, or sideway Trend of the Prices of shares in the market of Volume Oscillator indicator. 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.
The Volume Oscillator (VO) indicator uses the difference between two Moving Averages of a Security’s Volume to determine future trends. The two Moving Averages are usually 5 and 20 Days Long for Future Markets of this indicator. The main part of two moving averages is 14 and 28 days or weeks. The Long Period Moving Average acts as the base to determine shot Period Moving Average fluctuations of this indicator. The difference between the short period and long period moving averages can be expressed in terms of points or percentages of Volume Oscillator indicator.
Volume Oscillator = [(Shorter Period SMA of Volume – Longer Period SMA of Volume) / Longer Period SMA of Volume ] * 100
Interpretation from Upstox and FYERS
Now, we are going to present charts of CIPLA and ADANI PORTS with Volume oscillator, taken from Upstox and FYERS platforms.
Whenever an increase in volume is reflected, 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 line and the market lacks strength and conviction.
In the Volume Oscillator indicator, Volume plays a significant role in confirming a strong or weak Price Trend. A positive value on Histogram indicates that buyer pressure exists of this indicator. Mainly, when there are negative values, it shows that a selling pressure exists of Volume Oscillator indicator. The Central Line on the Histogram of Volume Oscillator depicts a neutral zone of zero. A Value plotted above the Central Line of Volume Oscillator indicator indicates that the Short Term Volume is Greater than Long-Term Volume. As same as, a Value below the Central Line depicts that Long Term Volume is Greater than the Short-Term Volume. In this indicator, when Price activity follows a buying pressure but Volume Oscillator disapproves further upward trend. In that time, short-term Volume is insufficient to boost higher prices. Soon after nonconformity, the Price activity would follow Volume Oscillator Trend of this Volume Oscillator indicator.
Whenever a market is gaining its previous peak, the Volume Oscillator indicator should get up. When the market gains a Short Term extreme position, then this situation say overbought, the Volume Oscillator indicator will immediately reverse its direction towards the Central Line. This change in direction happens before any Price Activity, that’s why Volume Oscillator is considered an important tool to predict future trends of this indicator. Whenever Prices of shares increase, along with a diminishing Volume depicts Bearish Trend of Volume Oscillator indicator. As same way, when the prices are falling but the Volume is rising, it also shows that a bearish trend prevails in the market.
Advantages of Volume Oscillator Indicator :
- Mainly the key benefits of using Volume indicators like Volume Oscillator helps in pinpointing whether a share is potentially moving upward or downward. Volume Oscillator 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.
- Volume Oscillator indicator precedes Price Activity in depicting the possible change in direction of a particular stock. This system when a Volume Oscillator shows nonconformity to Price Activity of this indicator. This situation means that Upward or Downward trend is clearly evident on Volume Oscillator Histogram before it is manifested on Charts of Price Indicators.
- In this indicator doesn’t any kind of exotic Mathematical Formulas and Calculations. 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.
Disadvantages of Volume Oscillator Indicator :
- In the biggest flaw in Volume indicators including Volume Oscillator is that it uses a very limited span of time to predict future trends. Some traders believe that 14 and 28 days for Short Period Volume and Longer Period Volume respectively is a too conservative approach to the task.
- Volume Oscillator indicator could be disordered by the fact that some shares aren’t traded constantly in the Market. This creates a Gap in the time span used for measuring Exponential Moving Average of this indicator. The effect on this of the outcome of predictions made by the Volume Oscillator.
- 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. Because Price Indicators like Price Moving Average prove to be the main source of information of this indicator.
Ankita has done her Diploma Engineering in Computer Science & Technology. She is pursuing her degree in Engineering and also well experienced in the equity market and real estate related content writing. She is the one who has developed the technical indicators section of our site.