What Is Volume Oscillator?
The Volume Oscillator measures the difference between two volume moving averages (typically 5-day and 20-day), expressed as a percentage. When the short-term average is above the long-term average, the oscillator is positive — indicating increasing volume participation. When below, it's negative — indicating declining participation.
How Volume Oscillator Works
A positive volume oscillator during a price advance confirms that the move has genuine buying support. A negative oscillator during an advance warns that the rally lacks conviction. The oscillator crossing from negative to positive often precedes significant breakouts, as it indicates that volume is accelerating from a low base.
Why It Matters for Traders
Volume oscillator divergences from price are particularly powerful: if price makes new highs but the volume oscillator is declining, the advance is weakening. In crypto, where volume can be inflated by wash trading, the volume oscillator's comparison of relative volume trends is more useful than absolute volume numbers.
