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Volume
Oscillator
Description
The Volume
Oscillator displays the difference between two
moving averages of a security's volume.
The difference between the averages can be
expressed in either points or percentages.
Interpretation
As
volume levels are increasing, shorter-term volume
moving averages will rise above longer-term volume
moving averages. This
is similar to how shorter-term price moving
averages rise above longer-term price moving
averages when prices are increasing.
Thus,
the difference between two volume moving averages
of varying lengths (i.e., this indicator) can be
used to see if overall volume trends are
increasing or decreasing.
When the Volume Oscillator rises above
zero, it signifies that the shorter-term volume
moving average has risen above the longer-term
volume moving average, or that the short-term
volume trend is higher (i.e., more volume) than
the longer-term volume trend.
There
are many ways to interpret changes in volume
trends. One
common belief is that rising prices coupled with
increased volume, and falling prices coupled with
decreased volume, is bullish.
Conversely, if volume increases when prices
fall, and volume decreases when prices rise, the
market is showing signs of underlying weakness.
The
theory behind this is straight forward.
Rising prices coupled with increased volume
signifies increased upside participation (more
buyers) that should lead to a continued move.
Conversely, falling prices coupled with
increased volume (more sellers signifies increased
downside participation). |
