You should never trade just on the basis of trend indicators. The volume oscillator (VO) is another indicator to help you determine if a trend is breaking support or resistance. Basically, the truth is the old saying: without volume there is no price movement, and without price movement there is no volume. Use that old saying to your advantage.
Several oscillators such as the percentage volume oscillator (PVO) and the market volume oscillator (MVO) are also based on VO.
The VO calculation is based on two moving volume averages (VMA). The basis of the budget is simple:
VO = [Fast VMA] / [Slow VMA]
A fast MMA is a short-term moving average, and a slow MMA is a long-term moving average.
If we use the VO set (5, 20) as an example, the setting would be Fast VMA at 5 bar and Slow VMA ito 20 bar. With 5 bar, a fast MMA is a shorter period, and with 20 bar, a slow MMA is a longer period.
Basically, VO calculates the difference between 2 VMAs. This calculation reveals volume jumps and possible abnormal volume activities. The VO tells us where the current volume is relative to the average volume over a long period of time.
If we look at the above VO setting, it means that when the VO is over 1 then the fast MMA is over the slow MVA and we can conclude that the amount of activity in the market is higher than usual. In other words, we can conclude that there is an unusual volume jump based on the parameters we set (5.20).
Knowing how the basis of calculation works in VO, the indicator becomes a very effective tool in your trading. You should never rely solely on trend-based technical indicators. By doing this, you will only see half of the overall picture and this will lead to more losses than wins. When you combine your trend indicators with an oscillator like VO, you will be able to differentiate whether trend changes are based on abnormal quantitative activities and make a better decision about whether to enter the trade.
The final thought is that a break in support combined with unusual volume activity should be considered a panicked sale, and the opposite with a break in resistance with an unusual volume jump which should be considered a greedy purchase.