Back

Description and methodology

Percentage Volume Oscillator (PVO) is the difference of two moving averages calculated for volume. The indicator is calculated the following way:

[latex]PVO(\%)=\frac{ShorterEMA(Volume)-LongerEMA(Volume)}{LongerEMA(Volume)}\times 100[/latex]

The value of PVO can be maximum +100 and it has no lower limit. PVO fluctuates around the zero-value. Usually 12- and 26-day moving averages are used. If the 12-day EMA is 2,000, and the 26-day EMA is 8,000, then the value of the PVO is:

[latex]PVO(\%)=\frac{2000-8000}{8000}\times 100=-75[/latex]

Trading signals

The value of the PVO is less important than its direction and the crosses with the zero-line. PVO can signal changes in the trading volume in three ways:

  • Midline crosses. PVO fluctuates around the zero-line. When PVO is positive, the shorter-term EMA is larger than the longer-term EMA. When PVO is negative, the shorter-term EMA is smaller than the longer-term EMA. If PVO crosses the midline from below, a new above-average volume trading period may start with increased long positions. If PVO crosses the midline from below, a new below-average volume trading period may start with increased short positions.
  • Direction of the movement. Usually PVO reacts to changes in the trading volume quickly. An increasing PVO signals increased trading volume, a decreasing PVO signals decreased trading volume.
  • MA crosses. For instance, a PVO(12,26,9) contains a 9-day EMA. If the PVO rises above the Signal line, the volume is increased. If the PVO sinks below the Signal line, the volume is decreased.

Movements of the PVO indicator are not reflecting movements in share prices. However, comparing PVO with share prices can help to draw conclusions about the buying and selling pressure. When PVO decreases while the share price increases, the trading volume is going to decrease.

Use

The direction of PVO movement and the midline crossing can be used to determine whether the trading volume is above or below average. Usually one of the indicators’ EMA is used together with the PVO. The difference between PVO and its EMA is shown on the PVO Histogram.

Examples

There are two PVOs used in the following example: PVO(12,26,9) and PVO(5,60,1). In the latter PVO, there is no Signal line, because its third parameter is 1. At the end of August and in September, the share price was around USD 10 and the PVO was below 0. When the share broke out from this channel, PVO increased above the zero-line. The change was enhanced by the break of the resistance line and the increased volume. A break-out with a large trading volume indicates a strong buying pressure.

Use of Percentage Volume Oscillator

Use of Percentage Volume Oscillator