Skip to main content
Track Rate of Change
17 / 46
Search the archiveLibrary
Library

1993issue C011-6

Constructing a volume oscillator from average ratios and smoothed rate of change

Volume is specified as an independent oscillator, then compared with price on matching moving-average and rate-of-change rules so a confirmation reading can be accepted or rejected.

  • Specify volume as an independent volume-oscillator rather than inferring participation from the histogram under price.
  • A trend-deviation construction divides a shorter moving average of volume by a longer one and plots the ratio around an equilibrium-line.
  • Compare the volume-oscillator with the price trend and with a matching price-oscillator so a confirmation hypothesis can be rejected.
  • Volume momentum can also be written as a smoothed-rate-of-change and compared with a similarly smoothed price series.
Entries in this reading3 entries
Current trackRate of Change50 readingsVolume-price analysis129 readingsMoving average449 readings

Volume as an independent series

Most common technical indicators are transformations of price. Volume is therefore presented as an independent series that can confirm or question a price trend.

A volume-oscillator is a plotted comparison of recent volume against a longer volume baseline, so expansions and contractions are easier to see than on a raw histogram.

A trend-deviation volume-oscillator

One construction is a trend-deviation: divide a shorter moving average of volume by a longer moving average, and plot the ratio as an oscillator around the equilibrium-line, the level at which the two averages are equal.

On daily charts the illustrated pairing is a 10-day moving average of volume divided by a 25-day moving average. The spans can be changed to target short, intermediate, or long-term volume trends.

A price-comparison rule that can fail

Reading the volume-oscillator requires comparing its direction and level with the prevailing price trend. In a typical setting, volume and price are expected to move in roughly the same direction, and volume is expected to contract when prices move sideways or decline.

An elevated volume-oscillator reading can coincide with a washed-out price because volume often expands in a selling climax. Rising price with declining volume is treated as a cautionary volume-price mismatch, and that mismatch can also produce a depressed volume reading at a market high.

Nikkei volume oscillator (10-day / 25-day averages)

Spikes near +50 mark the September 1991 and April 1992 selling climaxes, while the November 1991 and May 1992 price highs printed much weaker volume — a bear-market pattern, not a healthy confirmation. Numbers were read off the published Nikkei pane; the article prints no table.
Spikes near +50 mark the September 1991 and April 1992 selling climaxes, while the November 1991 and May 1992 price highs printed much weaker volume — a bear-market pattern, not a healthy confirmation. Numbers were read off the published Nikkei pane; the article prints no table.Nikkei Stock Average · daily · 1991-07-01T00:00:00.000Z to 1992-10-31T00:00:00.000Z

Pring’s daily construction is a 10-day moving average of volume divided by a 25-day average, drawn around the zero line where the two averages are equal. The printed vertical scale is −50 to +50. Turning points are digitized from the raster and are only accurate to a few oscillator points.

A matching price-oscillator

A price-oscillator can be built with the same 10-day over 25-day moving-average ratio. Divergences between volume and price momentum can then be inspected on identical construction rules.

A trendline drawn on the volume-oscillator is treated as a completed signal only after a confirming price-trend reversal. A break in the volume series alone is not enough.

A smoothed-rate-of-change

Volume momentum can also be written as a rate of change and then smoothed, because the unsmoothed series is typically jagged. The result is a smoothed-rate-of-change that can be read as an underlying trend.

One illustrated long-horizon construction is a nine-month rate of change of monthly volume, smoothed with a six-month moving average and compared with a similarly smoothed price rate of change.

Long-horizon volume and price momentum

On that long-horizon pairing, volume momentum is described as usually leading price momentum at market peaks, with more mixed evidence at bottoms. When both series decline together, the historical workflow associates the pattern with a bear market or a sharp intermediate correction, while noting exceptions such as 1985 and 1986.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
17 of 46 in the Rate of Change track
19941-5 pp.Next on Rate of ChangeGold as a cycle clock for commodities and yieldsIf gold is read through its inflation-hedge-role, its major swings should anticipate the cycle-season-split between an inflationary half and a deflationary half of the business cycle.
All readings on this track · 46 readings
  1. 1985Constructing excess and momentum difference-curve oscillators
  2. 1988Five reading rules for smoothed indicator charts
  3. 1989Momentum overlays that speed moving-average oscillators
  4. 1990A laboratory template that constructs Rate of Change as a pane module
  5. 1991Volume-scaled rate of change as a momentum construction
  6. 1991Three-indicator market overview from tape, sentiment and rates
  7. 1991Three-component trend model with rate-of-change filters
  8. 1992A KST oscillator from a weighted rate-of-change stack
  9. 1992Four-window weighted rate-of-change composite
  10. 1992Constructing multi-span smoothed rate-of-change filters
  11. 1992Constructing a four-horizon summed rate of change
  12. 1992Constructing KST from four weighted smoothed rates of change
  13. 1992Constructing a composite from weighted smoothed rates of change
  14. 1992Three-horizon KST maturity alignment
  15. 1992Construct a bond-led dividend-to-bond-yield regime first
  16. 1992Constructing relative-strength KST from weighted rate-of-change
  17. 1993Constructing a volume oscillator from average ratios and smoothed rate of change
  18. 1994Gold as a cycle clock for commodities and yields
  19. 1994Constructing a composite from weighted, smoothed rate-of-change windows
  20. 1994Constructing gold-mining rate-of-change tripwires for Treasury bonds
  21. 1994A capacity-stress checklist across commodities, bonds, and breadth
  22. 1994Rate of change parameters for testable entries
  23. 1994Constructing rate-of-change midpoints, lookbacks and divergence
  24. 1994Lead oscillator breaks need price trendline confirmation
  25. 1994Nested averages for an annual momentum curve
  26. 1994Evaluating a Coppock-style rate of change as a bottom-regime filter
  27. 1995A weighted eleven-month Dow rate of change as one testable timing procedure
  28. 1996Named lookbacks, thresholds, and streaks for entry rules
  29. 1997A midpoint rate-of-change test for bond trend follow-through
  30. 1997Constructing a short-rate-adjusted equity momentum filter
  31. 1998Daily momentum rank-churn as a portfolio-construction problem
  32. 1999Constructing a lagged rate of change cycle system
  33. 2000A triple delay line then a one-bar elliptic oscillator
  34. 2001Confirming rate of change divergences with price
  35. 2001Momentum trendline breaks need price confirmation
  36. 2001Market breadth, On-balance volume, and Rate of Change as a combined timing framework
  37. 2001Know Sure Thing with stacked horizons and trendline confirmation
  38. 2003Constructing a mechanical system from a rate of change condition
  39. 2003Constructing momentum from two closes and spotting divergence
  40. 2003Formula choice tilts which momentum mismatches count as divergences
  41. 2004RSI and momentum agreement as an asymmetric filter
  42. 2005Constructing price-normalized moving-slope hybrids
  43. 2005Unsigned speed gates on a fixed average-cross pair
  44. 2007Rebuilding rate of change as a path-weighted oscillator
  45. 2008Construct Special K so short-horizon signals stay inside the primary trend
  46. 2013Restore volume balance before adding another price-time indicator
By fieldIndicators and filters682 readingsBy year199376 readings
All 50 readings tagged Rate of Change
Also on Rate of Change5 readings
2013Restore volume balance before adding another price-time indicator1985Constructing excess and momentum difference-curve oscillators1988Five reading rules for smoothed indicator charts1989Momentum overlays that speed moving-average oscillators1990A laboratory template that constructs Rate of Change as a pane module