Volume Zone Oscillator: Directional Volume and Reversal Levels
Summary
The Volume Zone Oscillator (VZO) compares smoothed volume associated with rising closes against smoothed total volume. For each bar, it assigns volume a positive sign when the close exceeds the previous close and a negative sign otherwise, then expresses the ratio of the two averages as a percentage. The indicator has adjustable settings for its calculation period and four threshold levels.
The document interprets readings at or above 40 as bullish accumulation and readings at or below -40 as bearish accumulation. Values near zero, within roughly 20 points either way, are associated with consolidation or proximity to support or resistance. Readings near either 60 threshold may signal that a move is tiring, with a possible reversal especially when it runs counter to the longer-term trend. These are proposed interpretations, not evidence from a backtest; the document gives no performance results, entry rules, or risk controls. Its volume input is tick volume, so the signal’s meaning may depend on the data source and market.
Key ideas
- VZO signs volume according to whether the close rose or fell from the previous bar.
- The indicator divides smoothed signed volume by smoothed total volume and scales the result as a percentage.
- Readings of 40 or more are described as bullish accumulation, while readings of -40 or less indicate bearish accumulation.
- Values near zero are associated with consolidation or nearby support and resistance.
- Readings near either 60 level may indicate a tiring move, but the document supplies no backtest evidence.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.