Volume Oscillator

In this overview we will be looking at something we haven't looked at before, the Volume Oscillator. The Volume Oscillator is used to identify the trend in volume. That is, whether or not volume is increasing or decreasing.  

The Volume Oscillator measures the difference between two moving averages it can be expressed as either points and a percentage. One moving average is the fast volume moving average (MA) and the other is known as the slow volume MA. The fast volume MA will be a lower number than the slow volume MA. The periods vary from person to person, some of the variations are 5/10, 5/20, 9/21 or 14/28. 

The Volume Oscillator will be equal to zero when both moving averages cross. When the fast volume MA is higher than the slow volume MA then the Volume Oscillator will be positive, and when the Volume Oscillator is negative the slow volume MA is higher than the fast volume MA. Therefore a positive Volume Oscillator (VO) signals a strong trend while a negative VO signals a weak trend. 

The VO will provide a bullish signal when prices and the VO are rising or, VO and prices are falling. VO will provide a bearish signal when the VO is rising and prices are falling or when the VO is falling and prices are rising.

Example

The chart below is of St. George Bank (SGB) from December 2006 to mid-February 2007. This bank was taken over by Westpac Banking Corporation (WBC) in 2009.

As you can see above a rising share price and a rising VO gave a very bullish signal on this stock. As in all short-term trading, a single indicator alone is normally not sufficient to enter a trade.