Many traders use oscillators like the MACD to track price momentum. But what about volume momentum? The Percentage Volume Oscillator (PVO) is a technical analysis indicator that does exactly that. It’s often called “the MACD for volume.”
This volume oscillator indicator helps traders confirm if a price trend is supported by real market participation (“smart money”) or if it’s running on empty. This guide explains what is a PVO, how it’s calculated, and how traders use it to spot strong trends and potential reversals.
Key Takeaways
- A Percentage Volume Oscillator that measures the momentum of volume, not price.
- It’s “the MACD for volume,” showing the percentage difference between a fast and slow EMA of volume.
- A positive PVO (above zero) signals rising volume (bullish confirmation). A negative PVO signals fading volume (bearish warning).
- A price breakout with a rising PVO is a strong signal. A breakout without a rising PVO is a weak signal (potential “fake-out”).
- Watch for divergences. If the price makes a new high but the PVO makes a lower high, the trend is weakening.
1. What Is the Percentage Volume Oscillator (PVO)?
The Percentage Volume Oscillator (PVO) is a momentum oscillator used to measure the percentage change in trading volume over different time periods.
The PVO works by comparing two Exponential Moving Averages (EMAs) of volume, a fast one and a slow one. It then shows the difference between these two EMAs as a percentage. The main purpose of this indicator is to confirm the strength of a price trend by showing the momentum of its volume.
Here are the key points to understand:
- PVO > 0: A positive PVO means short-term volume is higher than the long-term average volume. This is a bullish sign, suggesting strong participation in the trend.
- PVO < 0: A negative PVO means volume is weak or fading. This is a bearish sign, suggesting a lack of conviction.
- The Analogy: The easiest way to think of the PVO is that it is very similar to the Percentage Price Oscillator (PPO). However, instead of analyzing price, the PVO analyzes what is percent of volume change.
As noted in John Murphy’s “Technical Analysis of the Financial Markets,” this tool is valuable for adding credibility to a price trend.
2. How to Calculate the Percentage Volume Oscillator
The calculation for Percentage Volume Oscillator is almost identical to formula for Percentage Price Oscillator (PPO). Only difference is that PVO uses volume data instead of price data.
The formula compares a fast (short-term) moving average of volume to a slow (long-term) moving average of volume and shows this difference as a percentage.
The formula for the main PVO line is:
PVO = [(Fast EMA of Volume – Slow EMA of Volume) / Slow EMA of Volume] * 100
This calculation tells you exactly what is percent of volume change is happening relative to the long-term average.
The Standard Settings
The volume oscillator indicator uses three standard settings, which are the same as the MACD:
- Fast EMA (Short): 12 periods (This is the EMA_short)
- Slow EMA (Long): 26 periods (This is the EMA_long)
- Signal Line: A 9-period EMA of the PVO line itself. Many platforms also plot the difference between the PVO and its signal line as a histogram.
Calculation Example
Here is a simple example of the PVO calculation in action:
- Let’s say the 12-period EMA of volume is 1.6 million shares (1.6M).
- Let’s say the 26-period EMA of volume is 1.4 million shares (1.4M).
The calculation would be:
PVO = [(1.6M – 1.4M) / 1.4M] × 100 = +14.3%
This positive 14.3% value is a bullish signal. It shows that the recent, short-term volume is over 14% higher than the long-term average volume, which helps to confirm that the current price trend has strong participation.
3. How to Interpret the Percentage Volume Oscillator
The Percentage Volume Oscillator (PVO) provides three main types of signals. These signals help traders understand the strength and momentum of trading volume.
3.1. Positive vs. Negative PVO Values
The most basic way to read the PVO is by observing its position relative to the zero line. This tells you if the current volume is strong or weak compared to its recent history.
- Positive PVO (above 0): When the PVO line is above the zero line (providing a positive value), it means the short-term volume average is higher than the long-term volume average. This signals increasing volume and confirms that the current price trend has strong participation.
- Negative PVO (below 0): When the PVO line is below the zero line (providing a negative value), it means short-term volume is lower than the long-term average. This signals declining volume and warns that a price trend is weak or a correction may be starting.
3.2. Signal Line Crossovers
Signal line crossovers provide short-term timing signals, similar to a MACD crossover. The PVO has two lines: the PVO line (fast) and a signal line (a 9-period EMA of the PVO, which is slower).
- Bullish Crossover: When the PVO line crosses ABOVE its signal line, it shows that volume momentum is starting to increase – a sign of increasing volume.
- Bearish Crossover: When the PVO line crosses BELOW its signal line, it shows that volume momentum is starting to decrease.
3.3. Centerline Crossovers (Zero Line)
A centerline crossover is considered a major, long-term signal. The zero line (or centerline) is the exact point where the fast and slow volume EMAs are equal.
- When the PVO line crosses ABOVE the zero line, it confirms that the primary trend of volume has shifted from negative to positive. This is a strong bullish confirmation.
- When the PVO line crosses BELOW the zero line, it confirms that the primary trend of volume has shifted from positive to negative.
4. Validating Price Breakouts with PVO
This is the most popular and practical use for the Percentage Volume Oscillator (PVO). Traders use it to confirm if a price breakout is legitimate or a “false breakout” (a fake-out).
Volume is like the “fuel” behind a price move. A breakout without volume is weak. A breakout with strong volume is much more reliable.
- Valid Breakout (Strong Signal): This happens when the price breaks above a key resistance level (a resistance break) AND the PVO line is also rising strongly (moving above its signal line or the zero line). This confirms the breakout, showing that a surge of increasing volume supports the new, higher price.
- False Breakout (Weak Signal): This happens when the price breaks above the same resistance level, BUT the PVO line is flat or falling. This is a major red flag. It signals that there is no volume momentum behind the move, meaning the breakout is weak and has a high chance of failing and reversing lower, perhaps even causing a support break later.
This method of “price-volume confirmation” adds credibility and is the most common application for the PVO.
5. Fine-Tuning the PVO Settings
While most traders use the default PVO settings (12, 26, 9), you can adjust the EMA periods to fit different assets or time frames.
Adjusting for Different Assets
The standard settings work well for most assets, but some traders adjust them for different market characteristics:
- 12, 26, 9 (Default): This is the most common setting, popular for stocks and standard futures.
- 10, 30, 9 (Alternative): Some traders prefer slightly different settings like (10, 30, 9) for assets with different volatility, such as crypto or commodities.
Adjusting for Time Frames
The settings should also match your trading style:
- Intraday Trading (Day Trading): For faster signals on short-term charts (like 5-minute or 15-minute), short-term traders use shorter EMA periods (e.g., 5, 20, 9).
- Long-Term Trading (Swing/Position): For trading on daily or weekly charts (e.g., 20-50 trading days), traders often use longer EMA periods to see the major, long-term volume trends.
6. Combining PVO With Other Indicators
The Percentage Volume Oscillator (PVO) is a confirmation tool. It is most powerful when used together with other technical indicators that track price.
6.1. PVO + PPO (Percentage Price Oscillator)
This is the most natural combination. These two indicators are calculated in the same way, but one looks at price and the other at volume.
- PPO (Percentage Price Oscillator): Shows you the price momentum.
- PVO (Percentage Volume Oscillator): Shows you the volume momentum.
When both indicators are positive and rising together, it is a very strong confirmation that a bullish price trend is supported by strong volume momentum.
6.2. PVO + RSI
The PVO and RSI combination is excellent for spotting divergences, which can be an early reversal signal.
For example, a strong bearish warning sign occurs when the RSI is overbought and starts to fall, and the PVO is also falling. This shows that both price momentum and volume momentum are weakening at the same time, strongly suggesting the uptrend is running out of “fuel.”
6.3. PVO + MACD
MACD is a price-based momentum indicator. PVO is a volume-based momentum indicator. You can use the PVO to confirm or deny a MACD signal.
For example, if you get a bullish MACD crossover (a “buy” signal), you should look at the PVO. If the PVO is also positive (above its zero line), it confirms that your buy signal is supported by real volume. If the PVO is negative, the buy signal is weaker and more likely to fail, just like a false support break.
7. Using PVO in Trading Platforms
Traders can easily apply the Percentage Volume Oscillator (PVO) to most advanced charting platforms.
7.1. Applying PVO in SharpCharts or TradingView
To add the PVO to your chart, you can typically go to the “Indicators” menu, and select “Percentage Volume Oscillator” (PVO).
By default, the indicator will appear with the main PVO line (fast 12, slow 26) and its 9-period EMA signal line. These EMA overlays (the PVO line itself and its signal line) are what traders use to spot the crossover signals.
7.2. Suggested Scans
The PVO is most powerful when used to confirm price. Many platforms (like StockCharts) allow you to scan the market for combined signals. Here are two classic scan ideas:
- Bullish Setup Scan:
- Look for: Stocks where the Percentage Price Oscillator (PPO) has a Bullish Crossover (price momentum is turning up).
- AND: The PVO is Positive (volume momentum is already strong).
- This scan finds stocks that are starting to move up with strong volume support.
- Bearish Setup Scan:
- Look for: Stocks where the PPO has a Bearish Crossover (price momentum is turning down).
- AND: The PVO is Negative (volume momentum is weak).
- This scan finds stocks that are starting to move down with weak volume support.
8. Advantages and Limitations of PVO
Like any technical indicator, the Percentage Volume Oscillator (PVO) has clear strengths and weaknesses. Understanding both is key to using it effectively.
8.1. Advantages (Pros)
The PVO offers several key strengths for technical traders.
- Standardized percentage: Because it’s a percentage, it allows traders to compare volume-based moving averages across different stocks, regardless of their average volume.
- Clear confirmation: It is excellent for confirming if a price breakout is supported by volume or for spotting divergences that warn of trend weakness.
- Good combination tool: It works very well as a confirmation filter when combined with price-only indicators like the MACD or RSI.
8.2. Limitations (Cons)
However, traders must also understand the indicator’s weaknesses.
- Lagging indicator: Because it is based on EMAs, the PVO is a lagging indicator. Its signals will appear after the price move has already started.
- Noisy in sideways markets: Like most oscillators, it provides many false signals (noise) during choppy or sideways (non-trending) markets.
- Not a precise timing tool: The PVO does not predict exact reversal points. It provides a warning, but the underlying mathematical equations make it a lagging tool.
9. Frequently asked questions about Percentage Volume Oscillator (PVO)
10. The Bottom Line
The Percentage Volume Oscillator (PVO) is a valuable tool that helps traders measure the strength of volume, a critical confirmation factor for any technical strategy. By combining the PVO (and its histogram) with other price-based momentum indicators (like the MACD or RSI), a trader can significantly increase the reliability of their signals.
However, the PVO should never be used in isolation; always confirm its signals with price action (like trendlines or price channels) and the overall market context for the best results. To learn more and discover our complete technical indicators list, follow PipRider for in-depth trading guides.
