V.11:1 (27-29): The Volume Oscillator by Martin Pring

V.11:1 (27-29): The Volume Oscillator by Martin Pring
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The Volume Oscillator by Martin Pring

Price and volume is important for technical analysis of markets. Here's how noted author and technician Martin Pring presents two of his favorite ways of looking at volume.

Most technical indicators we deal with are derived from price data. After all, moving averages, relative strength index (RSI) and moving average convergence/divergence (MACD) as well as all the others are really techniques for manipulating the same data but in different forms. That is why it is often a good idea to also monitor some measure of volume, as volume is a variable that is totally independent of price. Volume is usually represented as a series of histograms appearing just under the price series itself. This approach is generally acceptable, because it is possible to spot significant expansions and contractions in trading activity that confirm or throw into question trends in the price itself.

A better approach is to express volume in oscillator form. This way, subtle changes in volume levels are easier to identify. After all, textbooks tell us that it is not the actual level of volume, but changes relative to the recent past that have greater technical significance. What better way to express these comparisons than in the form of an oscillator? Several techniques represent volume momentum. Two of my favorites are trend deviation, where a moving average of volume is divided by another, and a smoothed rate of change.

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