How to use volume oscillators and trend indicators to make money


You should never trade solely on the basis of trend indicators. A volume oscillator (VO) is another indicator to help you determine if a trend is breaking support or resistance. Basically, the old saying holds true: without volume there is no price movement, and without price movement there is no volume. Use that old saying to your advantage.

Several oscillators such as the Percent Volume Oscillator (PVO) and the Market Volume Oscillator (MVO) are also based on VO.

The VO calculation is based on two moving volume averages (VMA). The basis of the calculation is simple:

VO = [Fast VMA] / [Slow VMA]

A fast MMA is a short-term moving average, and a slow MMA is a long-term moving average.

If we use the VO set (5, 20) as an example, the setting would be Fast VMA at 5 bar and Slow VMA ito 20 bar. With 5 bar, Fast VMA is a shorter period, and with 20 bar, Slow VMA is a longer period.

Basically, VO calculates the difference between 2 MMAs. This calculation reveals volume jumps and possible abnormal volume activities. VO tells us where the current volume is relative to the average volume over a long period of time.

If we look at the VO setting above, it means that when the VO is greater than 1 then the fast MMA is over the Slow MVA and we can conclude that the amount of activity in the market is higher than usual. In other words, we can conclude that there is an unusual volume jump based on the parameters we set (5.20).

Knowing how the basis for calculation works in VO, the indicator becomes a very effective tool in your trading. You should never rely solely on trend-based technical indicators. That way you will only see half of the total picture and this will lead to more losses than wins. When you combine your trend indicators with an oscillator like VO, you will be able to recognize whether trend changes are based on abnormal quantitative activity and make a better decision about whether to enter a trade.

The last thought is that a break in support combined with unusual volume activity should be considered a panic sale, and vice versa with a break in resistance with an unusual volume jump which should be considered a greedy purchase.