Volume Oscillator: A Beginner’s Secret to Smarter Trades

Are you tired of using the same old indicators and still missing good trades? You’re not alone. Most beginner traders start with tools like moving averages or RSI, but often ignore the power of volume. That’s where the Volume Oscillator comes in.

This simple but powerful indicator doesn’t just follow price—it listens to the market’s energy. And that makes a big difference.

In this guide, we’ll walk you through what the Volume Oscillator is, how to use it, and why it might just be the secret weapon your strategy needs.

Whether you're just getting started or looking to upgrade your signals, this article is written with you in mind.

🎬 Watch the Video First!

Want to see the Volume Oscillator in action?

📺 Avoid Beginner Traps! 📈 Use Volume Oscillator the RIGHT Way!

In this short and friendly video, we cover:

• What the Volume Oscillator does

• How to set it up

• Real examples using Japanese Yen and S&P 500 strategies

• And why typical settings often fail

💡 Watching the video will make this article even easier to follow.

📊 What Is the Volume Oscillator?

The Volume Oscillator is a technical tool that shows how fast or slow trading activity is moving—using volume, not price.

It compares a fast and a slow moving average of volume. Then, it shows the difference as a number.

• If the number is positive, it means volume is rising fast.

• If it’s negative, volume is cooling down.

This tells traders whether momentum is growing or shrinking using volume not price.

🔁 Why It's Different from Regular Volume Charts:

Regular volume bars just show how many trades happened. That’s helpful—but not enough.

The Volume Oscillator goes further. It shows how fast things are changing. Think of it like a speedometer, not just a snapshot.

⚡ Why It Matters:

Most indicators only look at price. But the Volume Oscillator listens to the crowd behind the price. That means:

• You get early warnings before big moves.

• You can filter out noise and avoid false breakouts.

It’s like hearing a crowd cheer before a team scores. Volume gives you the heads-up.

⚙️ How the Volume Oscillator Works (No Math Needed!)

Let’s keep it super simple.

The Volume Oscillator uses two numbers:

• A fast moving average (short period)

• A slow moving average (long period)

These are just averages of volume over a few days.

Then it does this:

Volume Oscillator = Fast MA – Slow MA

That’s it!

🟢 When the number is above zero:

It means volume is rising quickly. This could show growing excitement—or fear—in the market.

🔴 When the number is below zero:

It means volume is dropping off. Traders may be losing interest or waiting for something to happen.

🎯 Why the "Zero Line" is So Important:

The zero line is where the fast and slow volume averages cross each other.
This “cross” can act like a buy or sell signal, depending on the setup.

🧠 Best Volume Oscillator Settings for Beginners (Hint: Not the Default!)

Most platforms use 14 and 28 days as the default setting. But guess what?

📉 That usually doesn’t work very well.

🚫 The Problem:

Default settings are often too basic. They may not match your market or strategy.

✅ What Works Better?

"The surprising takeaway is that the slow moving average is shorter than the fast moving average—and that’s what worked best." – Ali Casey

In backtests shared in our YouTube video, the best results came from using “opposite” values like:

• Fast: 16, Slow: 14

• Fast: 70, Slow: 30

• Fast: 60, Slow: 40

Strange, right? The fast average is bigger than the slow one. But it works—because volume behaves differently than price.

A 3D Chart showing stable volume oscillator optimization with fast vs. slow moving averages

This shows that testing different values matters. Don’t just guess—test what works for your strategy and market.

🖥️ How to Add the Volume Oscillator to Your Chart

Most trading platforms offer the Volume Oscillator. Here’s how to add it:

1. Open your chart.

2. Click on Indicators.

3. Search for Volume Oscillator.

4. Add it and adjust the settings in the gear ⚙️ icon.

A chart showing volume oscillator and regular volume with fast and slow volume averages

🧠 3 Smart Ways to Use Volume Oscillator in Real Trading

The Volume Oscillator isn't just about looking fancy—it can help you trade smarter. Here are three practical ways beginners can use it today:

✅ 1. Use It as a Signal Generator

This means: use the oscillator to tell you when to enter a trade.

Example: Shorting the Japanese Yen

• When the Volume Oscillator crosses below zero, it shows the volume is losing steam.

• You enter a short trade right after the cross.

• Exit after a few bars (like 4 days).

This simple setup was tested in our YouTube video and showed great results on the Japanese Yen!

 🌀 2. Use It for Reversal Trades

Sometimes you want to catch a bounce, not a trend. That’s where this shines.

Example: Going Long on the ES (S&P 500 Futures)

• When the oscillator crosses below zero, it shows a short-term drop in volume.

• That could signal a reversal—a chance to buy low.

• In tests, this setup worked well for long entries in mean-reverting markets.

Long trade entries on ES Futures using volume oscillator cross below zero

🧪 3. Use It as a Filter for Other Indicators

This is super useful. It means: only take trades when volume confirms your main indicator.

Example: Enhancing RSI-2 Strategy

• Original strategy: Buy when RSI-2 < 25.

• Improved strategy: Only buy if RSI-2 < 25 AND Volume Oscillator is below zero.

🧠 Why this works: It avoids buying during “false dips” with weak volume.
📈 The filtered strategy showed:

• Higher profits

• Lower drawdowns

• Smoother equity curves

Comparison of equity curves: RSI2 strategy alone vs. filtered with volume oscillator

This combo—RSI2 + Volume Oscillator—improved trade performance by 48% in our test.

👉 Want to see the full breakdown?
📖 Read the article: Boost Your RSI2 Strategy for SP500 by 48% with This Volume Filter

⚠️ When NOT to Trust the Volume Oscillator

No indicator is perfect. Here's when you should be careful:

❌ Choppy or Sideways Markets

• Volume can be misleading in tight ranges.

• You might get lots of “false crosses.”

❌ Blindly Using Zero Line Crosses

• Not all crosses mean something big.

• Always check the market context (is it trending? volatile?)

✅ What to Do Instead:

• If using VO as an entry/exit signal then combine it with other strategy filters like volatility or direction.

• If using VO as a strategy filter then combine it with other Entry signals, like breakout

⚖️ Volume Oscillator vs. Price-Based Indicators

Most beginner traders use tools like:

• Moving Averages

• RSI

• MACD

But these are all based on price.

The Volume Oscillator is based on volume, which means it’s:

• Less reactive to price noise

• More in tune with trader activity

• Great for spotting “hidden” strength or weakness

🧠 Analogy:

Price-based tools are like looking at the scoreboard.
The Volume Oscillator is like listening to the crowd’s energy.

Which one do you think gives you earlier clues?

💡 Related Read:

If you're looking for another smart alternative to traditional tools, check out our post on the Ultimate C%.
It’s a custom-built indicator that offers unique equity curves and reduces over-reliance on RSI or MACD.
📖 Read: Ultimate C% – A Smarter Mean Reversion Indicator for Beginner Traders

🚫 Beginner Mistakes to Avoid

Even with a great tool like the Volume Oscillator, beginners can still fall into traps. Let’s save you from those:

❌ Mistake #1: Using Default Settings

Most platforms use 14/28 periods. But as shown in our video, this rarely works best.

✅ Tip: Always test other values like 70/30 or 75/25. These gave much better results in real examples.

❌ Mistake #2: Ignoring Market Context

Don’t rely only on the oscillator. If the market is:

• Flat

• Illiquid

• Moving sideways

Then, volume signals can be false.

✅ Tip: Pair the Volume Oscillator with a price action indicator like RSI or a trend filter.

❌ Mistake #3: Overfitting in Backtests

Testing is great. But don’t chase perfect results by tweaking settings endlessly.

✅ Tip: Look for stable zones—where many similar settings perform well, not just one magic combo.

🧾 Quick Recap: What You’ve Learned

Here’s a simple summary of key takeaways:

• Volume Oscillator = Fast MA – Slow MA of Volume

• It helps spot momentum shifts in trader activity

• Typical settings (14/28) aren’t always best

• Real-world examples (Japanese Yen, ES Futures) show it works

• Use it for signals, reversals, or filtering strategies

• Avoid false signals by pairing it with price-based tools

🚀 Next Steps: From Learning to Doing

Learning is great. But doing is better. Here’s how to start:

1.   Add the Volume Oscillator to your chart
Try it in TradingView, MultiCharts, or your favorite platform.

2.   Test different settings
Use values like 75/25, 70/30, or 60/40 and see what works.

3.   Combine it with your current tools
Already using RSI? Try filtering your RSI trades with volume signals.

4.   Watch more strategy videos
🎥 Check out how Bollinger Bands work in strategy design (https://youtu.be/LHZ5lXAsi58)

❓ Frequently Asked Questions (FAQs)

🟢 What’s a good Volume Oscillator setting to start with?

If you're just beginning, skip the defaults. Try Fast: 70 and Slow: 30. These worked well in real backtests and offer a stable starting point.

🟢 Can I use the Volume Oscillator in crypto or stocks?

Yes! It works in any market that provides volume data. Stocks, ETFs, futures, and even many crypto exchanges support volume. Just test it first.

🟢 Is the Volume Oscillator good for day trading?

It can be, but watch out for low-volume sessions. It's more reliable when trading instruments with steady, consistent volume throughout the day.

🟢 How do I avoid false signals?

Avoid trades when the market is flat or choppy. Combine the Volume Oscillator with trend filters, RSI, or support/resistance zones for better results.

🟢 Do I need volume data from my broker?

Yes—your broker or data provider must include volume for the chart to calculate the oscillator. Most major platforms like TradingView, NinjaTrader, and MultiCharts include it.

🟢 What other indicators pair well with the Volume Oscillator?

Try it with:

• RSI for overbought/oversold filtering

• Moving Averages to confirm trend direction

• Bollinger Bands to catch reversals with volume confirmation

🏁 Conclusion: Get Ahead by Going Beyond Price

The Volume Oscillator helps you see what most traders miss—it lets you measure momentum in volume, not just price.

That gives you:

• Early signals before big moves

• Clearer entries and exits

• More confident decisions

Whether you're swing trading, day trading, or just testing strategies, this tool gives you an edge you won’t get from price indicators alone.

Ready to take action?

🧪 Try the Volume Oscillator on your favorite chart—just plug in the settings and see what happens.

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