Using the Volume Oscillator to Assess Trend Strength
Summary
The volume oscillator compares short and long exponential moving averages of trading volume. It expresses their difference as a percentage of the long-period average, with positive readings indicating that recent volume is above its longer-term baseline and negative readings indicating it is below that baseline.
The document presents the indicator as a way to assess whether volume supports a price move: rising or falling prices accompanied by increasing volume may reinforce the prevailing direction, while declining volume may signal weakening momentum. It also describes divergences in negative territory as possible warnings of a reversal. These are interpretive signals rather than demonstrated trading results; the text supplies no parameter guidance, empirical tests, or rules for entries and exits. Volume behavior alone does not establish trend strength or predict reversals, so the oscillator is best understood as a potential confirmation tool.
Key ideas
- The indicator compares short and long exponential moving averages of volume.
- Positive readings mean the short-term average volume exceeds the long-term average.
- Price movement accompanied by rising volume may support the prevailing trend direction.
- Below-zero readings and negative-area divergences may indicate weakening trends or possible reversal risk.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.