Volume Oscillator

The Volume Oscillator identifies trends in volume using a two-Exponential Moving Average system. The Volume Oscillator measures the difference between a first short-period Moving Average and a second longer-period one.

Calculation Method

Volume Oscillator = 100 * (EMA(St) - EMA(Lt)) / EMA(St)

where:

• St: the short period
• Lt: the long period
• EMA(St): the value of the Exponential Moving Average for period St
• EMA(Lt): the value of the Exponential Moving Average for period Lt

By construction, the Volume Oscillator has a maximum value of +100% and no minimum limit.

Example

Interpretation

The Volume Oscillator can be used to identify periods of volume expansion and contraction in several different ways:

1. By crossing the zero line: This indicator oscillates on both sides of the zero line. When it is above, the short average is greater than the long average, and conversely when it is below. A positive indicator means that the volume level is generally above average and relatively high.
   With a negative indicator, the volume level is low and below average.
2. According to the direction of the indicator's movement: An increasing indicator signals that the volume level is rising, and conversely when it moves in the other direction.

Variations in this indicator are completely independent of price evolution. Thus, the correlation between the evolution of this indicator and that of prices confirms buying or selling pressure.