Calculation of Values of Histogram
In order to calculate the values of Histogram, use the following formula:
Volume Oscillator Histogram = Percentage Volume Oscillator – Single Line
The Volume Oscillator determines Volume by determining the Relationship between
two Different Moving Averages. The Outcome of above mentioned formula is then diagrammed
as a histogram. The Shorter Moving Average is normally over a 14 days period whereas
a Longer Moving Average contains data for 28 days. The Histogram, just like an oscillator,
fluctuates up and beneath the Center Line.
Volume plays a significant role in confirming a Strong or Weak Price Trend. A positive
value on Histogram indicates that buyer pressure exists. Similarly, when there are
negative values, it shows that a selling pressure exists.
The Central Line on the Histogram of Volume Oscillator depicts neutral zone i.e.
zero. A Value plotted above the Central Line of Indicator idicates that the
Short Term Volume is Greater than Long Term Volume. Similarly, a Value below
the Central Line depicts that Long Term Volume is Greater than the Short Term Volume.
In order to evaluate the Volume Oscillator, watch out for the nonconformity of Price
Activity with the VO Histogram. When Price Activity shows a buying pressure but
VO disapproves further upward trend, then short term Volume is insufficient to boost
higher prices. Soon after nonconformity, the Price Activity would follow Volume
Whenever a market is gaining its previous peak, the Volume Indicator should get
up. When the market gains a Short Term extreme position, say overbought, the Volume
Oscillator will immediately reverse its direction towards the Central Line. This
change in direction happens before any Price Activity, that’s why Volume Oscillator
is considered an important tool to predict future trends. But for instance, if the
market isn’t going in vertical direction i.e. moving in horizontal direction,
then the Volume Oscillator would show a contract in the volume of shares traded
on the market. One shouldn’t forget that Volume increases as the number of
shares traded i.e. Sell Off increases. Whenever Prices of Shares increase, along
with a diminishing Volume depicts Bearish Trend. Similarly, when the prices are
falling but the Volume is rising, it also shows that a bearish trend prevails in
The Number of days used to calculate the Exponential Moving Average may be entered
subjectively. Most common values used for the Number of days used in Long Term Moving
Average and Short Term Moving Average are 28 and 14 days. Positive Value of Volume
Oscillator indicates a Strong Trend i.e. an upward or downward price trend. On the
other hand, a Negative Value of Volume Oscillator indicates a Weak Trend.
Advantages of Volume Oscillator
- One of the key benefits of using Volume Indicators like Volume Oscillator helps
in pinpointing whether a Share is potentially moving upward or downward. Volume
Oscillator signifies that a trend would continue to move in the same direction or
change its direction after travelling some distance in a particular direction.
Volume Oscillator precedes Price Activity in depicting possible change in direction
of a particular stock. This happens when a Volume Oscillator shows nonconformity
to Price Activity. This means that Upward or Downward trend is clearly evident on
Volume Oscillator Histogram before it is manifested on Charts of Price Indicators.
Volume Oscillator doesn’t any kind of exotic Mathematical Formulas and Calculations.
It simply deploys a Exponential Moving Average of data for Predetermined number
- In order to predict market turnaround, Technicians must use both
Price as well Volume Indicators. In order to determine the strength of a future
trend, Volume Indicators like VO, PVO or MVO must not agree with the Price Indicators.
Disadvantages of Volume Oscillator
- Analysts believe that the biggest flaw in Volume Indicators including Volume Oscillator
is that it uses a very limited span of time to predict future trends. Some believe
that 14 and 28 days for Short Period Volume and Longer Period Volume respectively
is a too conservative approach to the task.
- Volume Oscillators could be disordered
by the fact that some shares aren’t traded constantly in the Market. This
creates a Gap in the time span used for measuring Exponential Moving Average. This
has its effect on the outcome of predictions made by the Volume Oscillator.
Volume Oscillators can mislead investors and give wrong signals primarily due to
the non transactional tenure of stocks in the past.
- Investors are unable to
make decisions solely on the basis of outcomes of Volume Indicators because Price
Indicators like Price Moving Average prove to be the main source of information.