The volume oscillator measures the relationship between 2 volume
moving averages (VMAs), showing the divergence between two 2 VMAs with different
settings. We call the shorter-term VMA the "fast VMA" (VMA1 on IV chart); the
longer-term VMA is called the "slow VMA" (VMA2 on IV chart).
We are the only source who provides percentage volume oscillator
for U.S. indexes and exchanges on daily and intraday level which allows to use
it in the S&P 500,
Russell 2000 and other
indexes technical analysis and
market timing.
The formula for calculating the volume
oscillator is:
Volume Oscillator =
[Fast VMA] / [Slow VMA]
Accordingly, a percentage volume
oscillator (PVO) can be derived from the above formula; it is calculated as
follows:
PVO = ([Fast VMA] -
[Slow VMA]) / [Slow VMA] * 100%
The VMA itself shows the average
volume over a specific timeframe. By calculating and charting the difference
between a slow and a fast VMA, you can determine the extent to which the fast
VMA trades above or below the slow VMA. This provides an indication of the
intensity of short-term trading activity compared to the average trading
activity over a longer time span.
The volume oscillator allows a mathematical evaluation of
volume surges. Using this tool, you can gauge the impact a volume surge might
have on the market. Large positive oscillator values are indicative of
significant volume surges. If such volume surges occur while an index is
trending higher, they are by our definition buying or bullish volume surges. Conversely,
if such volume surges appear during a bearish market, we call them selling or
bearish
volume surges (for further details on these definitions, please refer to our
Chart School). By further analyzing the corresponding volume oscillator
values, traders can evaluate to what degree a particular surge is likely to
impact the market - over the short-, mid-, and long-term.
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