Volume Oscillator Explained

The Volume Oscillator is a momentum-based volume indicator that measures the difference between two moving averages of trading volume. It quantifies the rate of change in buying and selling pressure by comparing short-term volume trends to longer-term ones.

At its core, this indicator calculates the percentage difference between a fast volume moving average (typically 5-10 periods) and a slow volume moving average (usually 20-30 periods). The result oscillates around a zero line, showing whether current volume is above or below its historical average relationship.

When the Volume Oscillator rises above zero, it signals that recent volume activity has exceeded the longer-term average, suggesting increasing market interest or participation. Conversely, values below zero indicate declining relative volume, which may reflect waning interest or consolidation phases.

The indicator does not measure price direction directly but instead reveals the intensity behind price movements. High positive readings often accompany strong breakouts or trending moves, while extreme negative values can highlight periods of low volatility or potential reversals.

Traders utilize the Volume Oscillator to confirm price actions, identify divergences, and anticipate changes in trend strength. A rising price with decreasing oscillator values might suggest weakening momentum, whereas a falling price with increasing volume could hint at accumulation or distribution occurring beneath the surface.