The Percentage Volume Oscillator (PVO) is the percentage difference between two moving averages of volume. The indicator is calculated with the following formula:
PVO = ((Vol 12-day EMA - Vol 26-day EMA)/Vol 12-day EMA) x 100
Because of its formula, the PVO has a maximum value of +100, but no minimum value. The absolute value is not as important as the direction or the crosses above and below the zero line.
The PVO can be used to identify periods of expanding or contracting volume in three different ways:
· Centerline Crossovers: Like the PPO, the PVO oscillates above and below the zero line. When PVO is positive, the shorter EMA of volume is greater than the longer EMA of volume. When PVO is negative, the shorter EMA of volume is less than the longer EMA of volume. A PVO above zero indicates that volume levels are generally above average and relatively heavy. When the PVO is below zero, volume levels are generally below average and light.
· Directional Movement: General directional movement of the PVO can offer a quick visual assessment of volume patterns. A rising PVO signals that volume levels are increasing and a falling PVO signals that volume levels are decreasing.
· Moving average crossovers: When PVO moves above its signal line, volume levels are generally increasing. When PVO moves below its signal line, volume levels are generally decreasing.
Movements in the PVO are completely separate from price movements. As such, movements in PVO can correlated with price movements to assess the degree of buying or selling pressure. Advances combined with strength in the PVO would be considered strong. Should the PVO decline while a security's price fell, it would indicate decreasing volume on the decline.