Understanding Volume Oscillator and Its RoleUnderstanding Volume Oscillator and Its Role in Technical Analysis
Navigating the complex terrain of trading requires a grasp of various technical analysis tools. One such tool is the Volume Oscillator, a potent indicator that offers insight into market trends and their strength. This article provides a comprehensive look at this tool, its interpretation, principles, and limitations.
What Is the Volume Oscillator?
The Volume Oscillator is a vital tool in technical analysis, utilising two moving averages of trading volume to generate signals about the strength and weaknesses of trends. Unlike price oscillators which focus primarily on the direction and momentum of price movements, this tool delves into the undercurrents of the market.
Volume, in the context of financial markets, is the number of asset units traded during a given period. As such, it is a measure of market activity.
So what does a Volume Oscillator do? This indicator goes a step further by comparing short-term and long-term buying and selling activity flow to help traders identify potential reversals, breakouts, and other market events. However, it's important to note that this tool doesn't signify bullish or bearish behaviour but rather indicates whether a move has supporting volume.
Calculating the Volume Oscillator Technical Indicator
The calculation of the Volume Oscillator is straightforward. It begins with selecting two lengths of moving averages, often referred to as the short and long periods. The default Volume Oscillator settings used are 5 and 20, but these can be adjusted as per your trading needs.
The indicator is then calculated using the formula: * 100.
This calculation produces a percentage that oscillates above and below zero. If you’d like to practise your Volume Oscillator skills, you can use FXOpen’s free TickTrader platform to get started within minutes.
Principles of Volume Analysis
The principles of volume analysis are integral to understanding and interpreting this indicator. These principles encompass two primary signals: signs of strength and signs of weakness in the prevailing trend.
A sign of strength is identified when the price of an asset moves concurrently with a rise in buying or selling activity. This suggests that the prevailing price movement – whether upwards or downwards – has solid support from traders, leading to a stronger confirmation. Hence, when the fast volume moving average is above the slow volume moving average, the indicator is above the zero line, indicating a stronger market direction.
Conversely, a sign of weakness is indicated when the price movement is not supported by strong activity. This means that the price is increasing or decreasing while trading activity is declining. In such a case, the Volume Oscillator is below the zero line, implying a potential lack of conviction in the current price direction, thereby signalling a potential reversal or slowdown.
Volume Oscillator Interpretation
This tool’s interpretation is primarily based on its trend direction in relation to the zero line. When trending upward and above the zero line, it indicates growing conviction in the current price movement, whatever its direction. Conversely, a downward trend above the zero line suggests diminishing confidence in the ongoing price action.
Below the zero line, an upward trend in the oscillator points to a potential shift in momentum, indicating that the conviction in the current price direction might be returning, while a downward trend implies that the uncertainty in the market's direction is intensifying.
It can also provide divergence signals, which occur when its direction deviates from the price movement direction. For instance, if prices reach new highs while the indicator fails to achieve new highs, it may suggest a weakening upward price trend, potentially heralding a downturn. Conversely, if prices hit new lows and the tool does not follow suit, it could be a sign of an impending upward reversal.
Limitations
Despite its usefulness, this indicator is not infallible and has certain limitations. Primarily, it may produce false signals in periods of low trading activity or in thinly traded assets where the market participation data can be sporadic. Moreover, while it is excellent at confirming price movements, it may be less effective at predicting reversals, particularly in highly volatile markets.
The Bottom Line
By gauging the intensity behind trends, the Volume Oscillator adds a depth dimension to market analysis. While it has its limitations, its ability to identify the strength of price movements and potential reversals makes it a beneficial part of any trader's toolkit.
If you would like to put your Volume Oscillator knowledge into action, you can open an FXOpen account. Once you do, you will access lightning-fast execution speed and competitive trading costs. Happy trading!
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Volumeoscillator
Rapid Accumulation Pattern: COHRNYSE:COHR rebounded upward from a strong support level due to Rapid Accumulation by Derivative Developers. The company had a good earnings report on August 15th. This is NOT an all-time high. A shift to a platform or sideways trend would be ideal to reset for the next swing-style run. Chaikin Osc is overextended and floating as oscillators tend to do. Sideways trends pattern that out rather quickly most of the time.
Mind the gap! What next for Broadcom?Broadcom (AVGO) has been a major beneficiary of the AI boom, with its stock soaring 53% since the beginning of 2024 and more than doubling year-to-date. While not reaching the astronomical heights of NVIDIA (NVDA), Broadcom's performance remains remarkable.
The company's Q2 revenue report was a resounding success, showing a 43% year-over-year increase, while EBITDA grew 31% year-over-year. This strong performance prompted Broadcom to announce a 10:1 stock split on July 15th, a move that will make the stock more accessible to smaller retail investors.
The sustainability of this growth in the rapidly evolving AI landscape remains a key question for any AI-related company. However, Broadcom's forward P/E ratio of 35 appears relatively modest compared to its AI peers like NVIDIA (50), CrowdStrike (95), and AMD (46). This suggests that Broadcom may still have room for further valuation expansion.
Following the impressive earnings report, the stock surged 12% on June 13th and continued to trade higher in after-/pre-market activity. The technical picture is also positive, with the price comfortably above its short, mid, and long-term moving averages, indicating strong momentum. The recent surge in volume, reflected in the Volume Oscillator, further underscores the heightened interest in the stock.
While the Relative Strength Index (RSI) is currently in overbought territory at 79.23, this is not unusual following a major earnings announcement. Importantly, the RSI's moving average has been trending upwards since early May, suggesting that the bullish momentum behind AVGO may not be exhausted yet.
Furthermore, the overall market sentiment towards AI remains positive, which could continue to support Broadcom's growth trajectory. Yet it remains important to monitor Broadcom's competitive position in the Semiconductor Solutions & Infrastructure Software market, as the landscape is constantly evolving.
Risk Management: Despite the positive outlook, investors should be mindful of potential risks, such as a slowdown in AI adoption or increased competition, and employ appropriate risk management strategies.
AMZN Under Pressure to Offer a DividendInventory adjustments are underway for $NASDAQ:AMZN. These adjustments are minor as Dark Pools are holding AMZN long-term, but there are other opportunities to boost ROI in younger companies.
AMZN needs to provide a dividend now that it is a Dow 30 stock. The mild rotation is a gentle reminder to the Board of Directors from their most critical and important investors, the Giant Buy Side Institutions. AMZN is the only fortune 500 company on the S&P500 that doesn't provide a dividend YET. The company's CEO is seasoned and aware that the Board must soon offer dividends, as it is no longer merely a "growth" company.
The pressure is increasing to force a dividend by the Giant investors. This should happen this year. There are no buybacks going on right now either. So the lowering of inventory is a warning to get this done. The Buy Side has the clout to influence the Board's decisions. This would benefit all investors big and small.
The support is at the lows of the red box on the chart, as indicated by the gap down white candle that quickly ended the previous selling by smaller funds.
WHEN, not if, AMZN announces a dividend, there is likely to be some brief momentum activity to the upside.
Bending Trends Can Warn of Institutional RotationThe Daily chart of NASDAQ:PANW shows a short term bend in the trend which is common when Giant Buy Side Institutions are in quiet rotation mode to lower inventory, attempting not to disturb price.
Also, Volume Oscillators and Money Flow indicate selling hidden mostly in price that is being carefully controlled.
The stock reports today. This doesn't mean that HFTs have this information nor does it mean that HFTs won't gap it up. It means IF you are holding this stock for a swing trade, risk has increased for a possible run or gap down.
Swing Trade Patterns: $NKE ExampleNYSE:NKE stock has a 2-day resting pattern and then a candlestick buy entry signal that is slightly longer than its average price gains in a single day.
Most Volume Oscillators are not at the top of the chart yet. Flow of funds indicators indicates money flowing into this stock.
The higher line is the bottom completion level for this short-term bottom. The resistance is moderate for a swing trade, but the stock could break through if momentum to speculative buying continues.
Dark Pool Buy Zone Signals: AEISNASDAQ:AEIS was one of the darlings of the '90s. So much fun to swing trade this stock. It is now moving up to test the all-time highs of 2021. Electronic Components are cyclical stocks typically with huge revenues ahead of holidays, school openings and summertime. The cycle is starting again.
Notice that Volume Oscillators and Money Flow indicators are rising from the bottom of the chart. This pattern has been very reliable in determining the end of the run down this year. Many stocks have this pattern at the moment. This signals the Buy Zone.
CCHHL - trend analysisNSE:CCHHL has been trading in a tight consolidation and also taking support at the trendline. Volume Zone Oscillator is showing increase of volume momentum. It is also in a ttm squeeze which indicates that a big move is due. If it breaks above 7.35 price resistance. It will activate two potential harmonic PRZ patterns.
1) Gartley - PRZ level at 7.55
2) Crab - PRZ level at 8.70
WALL STREET INDEX BREAKING THE HEAD AND SHOULDER PATTERN
for that i gave you the opportunity as soon as i saw it,
cause it's an head and shoulder patter, who doesn't wait for it!!!!!
for who trade with the stratgey of 70% 20% 10%, I gave you the rates you need to put the TP,
for whom trade regular trading, you can put the Second TP to gain your profits from the movement,
for all the traders don't forget to put your stoploss of 23,700$ rate, thats what the Fib res is showing,
RSI confirming a start of bullish trend,
Volume oscillator is low,
these two indecators with these to signals, give us a sgood posibllity of strong bulish trend,
lets watch and enjoy it,
regards,
wish us all the best and a lot of profits.
#Stayhome
Mo Momo, yoInterested in buying under $33 and taking partial profit at $57, or long term options.
Amid China's current nCov 2019 epidemic, it seems that the internet/social media based companies are handling things well.
There is a lot of open interest for puts 30-35 on options a few months out. Considering their top holder with 14 million shares is Black Rock and MOMO is backed by Alibaba, I am near certain the puts are merely hedges for their positions should MOMO not be able to reclaim price above $40.
Here is a copy paste from Yahoo Finance:
"Momo Inc. operates a mobile-based social and entertainment platform in the People's Republic of China. The company operates Momo platform that includes its Momo mobile application and various related features, functionalities, tools, and services to users, customers, and platform partners. It offers Momo mobile application that enables users to establish and expand their social relationships based on locations; interests; and recreational activities, including live talent shows, short videos, social games, and other video- and audio-based interactive experiences. The company also operates Tantan, a social and dating app to help its users to find and establish romantic connections, as well as to meet interesting people primarily for young mobile Internet users. The company was formerly known as Momo Technology Company Limited and changed its name to Momo Inc. in July 2014. Momo Inc. was founded in 2011 and is headquartered in Beijing, the People's Republic of China."
Social media is the future.
And this has to be one of my most favorite bullish trading patterns:
EURUSD 1H Volume Zone Oscillator Strategy Long TradeInstall Volume Zone Oscillator & 50sma to your chart.
Find in Indicator Search (type VZO) - Public Library - GMAN indicator
Change levels from 30 to 40
Change 0 level & VZO line to blue colored line
If price is above 50sma bullish bias for long trades, below then short trades.
How to Use Volume Zone Oscillator?
We’re going to reveal how to interpret the volume zone readings.
A move above the centerline will give us a bullish reading. And, a move below the centerline will give us a bearish reading.
The most important volume zones are "+60", "+40", “0", “-40", and "-60".
Additionally, traders also use the “+5”, and “-5” volume zone readings.
Here is how to use VZO in your trading decisions.
Here are the four main volume zones to keep an eye on:
When VZO rises above and maintains the 5% level, it marks the early phase of an uptrend. Conversely, when VZO falls below the -5% level, it marks the early phase of a downtrend.
Oscillations between 5% and 40% volume zones mark a bullish trend zone. Conversely, a reading between -5% and -40% volume zones mark a bearish trend zone.
An overbought signal is generated when we have a reading above the 40% volume zone. Conversely, an oversold signal is generated when we have a reading below the -40% volume zone.
Reading above the 60% volume zone is an extremely overbought reading that can signal a bearish reversal. While a reading below the -60% volume zone is an extremely oversold reading that can signal a bullish reversal.
Let’s see what trading tactics we can use with the volume-based indicators.
During bullish trends, volume rises with rising prices. The same is true in reverse for bearish trends.
This is basic 101 uptrend volume psychology.
For this purpose, let’s examine again the EUR/USD chart.
We’re in a clear, strong bullish trend. The VZO is above the centerline signaling buying pressure. The volume zone reading between 5% and 40% also indicate a sustained uptrend zone. A buy signal is generated when we cross above the centerline.
The EUR/USD chart above demonstrates how during bullish trends, the VZO has the tendency to stay in the higher volume zone fluctuating between 0 and 40.
This is a good method to identify the direction of the trend and trade with the trend.
Go to our TSG website - then blog - find volume oscillator article for complete strategy instructions.
FISV Has MACD/Volume Oscillator Negative DivergenceFISV had a MACD/Volume Oscillator divergence pattern prior to the retracement. The negative divergence has increased during the bounce.
MELI: Trading Range Technical Pattern Reveals Large LotsThe outline in red shows the trading range pattern for MELI stock on the daily time frame. The highs of this range are remarkably level for a trading range. The extreme low rebound is lower than prior range lows. The compression of price before the gap up is a particularly important pattern to watch for in a trading range market condition, to anticipate a breakout. Use volume oscillators along with candlestick patterns to identify the underlying hidden large lot activity.