VOLUME ZONE OSCILLATOR AFL 

Volume Zone Osillator –  VZO is a technical indicator analyzing volume changes in relation to certain levels (zones). Walid Khalil and David Steckler introduced the volume zone oscillator (VZO) in the 2009 IFTA (International Federation of Technical Analysis) Journal and followed up in Technical Analysis of Stocks and Commodities magazine in May 2011. VZO is a volume based indicator which can be used similarly as price based leading indicators. Here We are going to show some different ways to use this volume indicator.  

 The Formula for Volume Zone Oscillator Is:

• VZO = 100 * VP/TV
• where
• VP= Volume Position = X – period EMA( +/- volume)
• TV= Total Volume = X – period EMA (volume) 

Lets look the indicator. From it Know how it looks like and identify some recommend levels. In figure, Volume Zone Oscillator indicator has a range between 100 to -100. There are some levels shown in the indicator between this range, these levels are, 0.0, 40, 60, -40, -60.

0.0 level is very important for this zone indicator. VZO values are positive above 0.0 and above this 0.0 it is considered as bullish region. Inversely, below 0.0 it is bearish region. So when Volume line is above 0.0 line then the stock is in bullish or up trend and when below 0.0 then the stock is in bearish or down trend.

40 and -40 levels determine whether the stock is overbought or oversold. If Volume Oscillator line is above 40 then the stock is in overbought region. Inversely, if Oscillator is below -40 then the stock is in oversold situation.

The 60/-60 level actually marks extreme optimism or pessimism.

Image of AFL [amibroker formula language].

Buy, when VZO crosses -40 line from below and sell when VZO goes above 40 line and cross this 40 line from above. Another way to buy/sell using VZO is to use the 0.0 or center line crossover. Buy when VZO crosses the 0.0 line from below and sell when VZO goes above 40 line and cross this 40 line from above. Buy when VZO crosses 40 line from below and sell when VZO crosses 40 line from above.

INTERPRETATION OF VOLUME ZONE OSCILLATOR (VZO)

When VZO line crosses 0.0 line, it enters into bullish region or up trend. After entering into uptrend buy crossing 0.0 line, a stock or market tends to get support whenever it comes near 0.0 line due to short correction it tends to bounce back or pullback to the prevailing major trend. So, when the major trend is up as VZO is above 0.0 line, it can be considered as a Buy signal whenever VZO line hits 0.0 line and shows a slight upward turn in VZO line. After buying, sell when VZO crosses 40 line from above.

This technique is quite similar to the technique mentioned above. When VZO crosses 0.0 line from below but fails to cross above 40 line and it cross 0.0 line from above but within a short time it bounce back before entering -40 line and cross 0.0 line 2nd time then it is a pullback Buy signal. After buying a reverse 0.0 line crossover (VZO crossing 0.0 line from above) is Sell signal.

VZO can detects divergences like many other indicators. A trader can detects short term trend reversals by using VZO divergences. Trading and detecting divergences is not so easy so, one should know about different types of divergences well before using it. Bullish Regular Divergence should be considered as a Buy signal and Bearish Regular Divergences should be considered as sell signals. In case of exit signals you can use 40/-40 line crossovers.

Volume Zone Oscillator for Amibroker AFL CODE