Percentage Volume Oscillator

The Percentage Volume Oscillator (PVO) is a momentum volume oscillator used in technical analysis to evaluate and measure volume surges as well as compare trading volume to longer-term average volume. PVO does not consider price and is solely concerned with volume. It contrasts fast and slow volume moving averages by demonstrating how short-term volume differs from long-term volume averages. This technical indicator cannot be used alone to predict changes in a trend because it does not consider a trend’s factor in its calculation (only volume data are used).

What is the Percentage Volume Oscillator?

The Percent Volume Oscillator (PVO) measures volume change using two moving averages. There are “fast” and “slow” moving averages. The fast-moving average has a lower period and thus responds more quickly to changes in volume. The slow-moving average has a faster period and thus is less reactive. The difference between these two moving averages is then subtracted. The rate of volume change will ebb and flow over time. Volume, in particular, cannot increase or decrease exponentially over long periods of time. As a result, the indicator will cycle or oscillate over time.

Setting up the Percentage Volume Oscillator
Setting up the Percentage Volume Oscillator

Percentage Volume Oscillator Strategy

In the Percentage Volume Oscillator Strategy, the PVO moves continuously up and down based on changes in volume in the market where it is used. The direction of PVO movement and the crossing of the midline can be used to determine whether trading volume is above or below average. Typically, the EMA of one of the indicators is used in conjunction with the PVO. The PVO Histogram displays the difference between PVO and its EMA.

In general, a second line is plotted alongside the PVO, which is an exponential moving average of the PVO itself. In other words, if PVO is compared to the first derivative of volume – i.e., the rate of change in volume – then the exponential moving average of PVO is roughly the second derivative of volume, or the rate of change in the rate of change in volume. Some people use the PVO’s exponential moving average, while others don’t. It is usually included in the default settings of charting software, but it can be disabled.

The PVO will only operate in markets where volume data is available. This means that the PVO will not plot on certain markets and charting timeframes due to a lack of associated volume. Many charting platforms, for example, only aggregate volume data for individual stocks. On some markets (for example, stock indices), volume may not be collected on charting timeframes lower than the daily level.


SigMA9 and SigMA12: They are used to generate crossover signals in order to identify market trends. The bullish crossover is signaled when SigMA9 rises above SigMA12. For bearish crossover market trend signals, SigMA9 must fall below the SigMA12 threshold.

PVO Bars: PVO bars filter crossover signals and provide additional confirmation to trade signals. Positive PVO bars indicate confirmation of the bullish trend with Buy signals. When PVO bars turn negative, it indicates that the bearish trend is still valid and that short entries are appropriate.

Buy Signal

The following could be your checklist for a buy trade:

  • When the SigMA9 moves above the SigMA12.
  • When the PVO bars turn positive in value.

Once these two events occur, you could do the following:

  • Open a buy position just immediately after you notice the crossover.
  • Set your stop loss just below the nearest support level.
  • Set your take profit at the nearest resistance zone or exit trade when the SigMA9 goes below the SigMA12 with negative PVO bars.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Percentage Volume Oscillator Buy Setup
Percentage Volume Oscillator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:


  • When the SigMA9 moves below the SigMA12.
  • When the PVO bars turn negative in value.

Once these two events occur, you could do the following:

  • Open a sell position just immediately after you notice the crossover.
  • Set your stop loss just above the nearest resistance level.
  • Set your take profit at the nearest support zone or exit trade when the SigMA9 goes above the SigMA12 with positive PVO bars.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Percentage Volume Oscillator Sell Setup
Percentage Volume Oscillator Sell Setup

Percentage Volume Oscillator Pros & Cons

Pros

  • The PVO is a great tool for confirming support and resistance breaks.
  • The PVO assists traders in determining how price may move as a result of the underlying rate of change in volume.

Cons

  • The PVO can sometimes be out of sync with price action.
  • Because volume does not trend, this oscillator can be quite choppy.

Conclusion

The Percentage Volume Oscillator (PVO) is a volume-based momentum indicator. Due to the fact that volume does not trend, this oscillator can be quite choppy. The PVO does not respond well to bullish and bearish divergences. Instead, chartists should look for signs of rising volume with a move into positive territory and signs of falling volume with a move into negative territory. A support or resistance break can be validated by increasing volume. A surge or significant support break on low volume, on the other hand, may be less robust. The Percentage Volume Oscillator (PVO), like all technical indicators, must be used in conjunction with other aspects of technical analysis, such as chart patterns and momentum oscillators.

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