PVO (Price Volume Oscillator)
The Price Volume Oscillator (PVO) is a momentum indicator that compares two volume moving averages to identify trends and potential reversals in trading volume. Similar to the MACD, it helps traders analyze volume trends and their relationship with price movements.
Formula
PVO = ((Short-term Volume MA - Long-term Volume MA) / Long-term Volume MA) × 100
Signal Line = n-period EMA of PVO
PVO Histogram = PVO - Signal Line
Where:
Short-term MA = Typically 12-period EMA
Long-term MA = Typically 26-period EMA
Signal Line period = Typically 9 periods
How PVO Works
The PVO measures the relative change in trading volume by comparing fast and slow moving averages of volume. When the shorter-term volume MA rises above the longer-term MA, the PVO becomes positive, indicating increasing volume momentum. Conversely, when it falls below, the PVO turns negative, suggesting declining volume. The signal line helps identify changes in volume trends.
Trading Strategies Using PVO
Strategy Examples
- Trade PVO crossovers with signal line
- Use PVO histogram for volume momentum
- Monitor divergences between PVO and price
- Combine with price-based indicators
- Use extreme readings for reversal signals
Support and Resistance
- PVO levels can act as volume S/R zones
- High volume nodes show strong support/resistance
- Zero-line acts as neutral volume reference
- Historical PVO extremes mark key levels
- Volume climax points indicate potential reversals
Trend Identification
- Rising PVO confirms bullish volume trend
- Falling PVO indicates bearish volume trend
- Histogram expansion shows trend strength
- Signal line slope confirms trend direction
- Volume trend changes precede price moves
Advantages and Limitations
Advantages
- Helps identify volume trends and momentum
- Provides clear signals through crossovers
- Can identify potential trend reversals
- Works well with other technical indicators
Limitations
- Can generate false signals in choppy markets
- Lag due to moving average calculations
- May not work well in low volume periods
- Requires confirmation from price action
Best Practices When Using PVO
- Use multiple timeframes to confirm PVO signals
- Combine with price action and other volume indicators
- Wait for signal line crossovers for entry confirmation
- Monitor PVO divergences with price for reversal signals
- Use the zero-line crosses for trend confirmation
- Consider market conditions when interpreting PVO readings
- Look for extreme PVO values for potential reversals
- Backtest different PVO calculation periods
- Document which PVO patterns work best for your trading style
- Regularly review and optimize your PVO-based strategies