|Volume Accumulation Oscillator (Chaikin Oscillator)|
Volume Accumulation Oscillator (Chaikin Oscillator)
Volume analysis is important for identifying internal strengths and weaknesses in a market. Very often, a divergence between volume and price movements can offer clues to an impending reversal.
The Volume Accumulation Oscillator (VAO) -- also called the Chaikin Oscillator after its designer Marc Chaikin -- is more sensitive to volume versus price than the On Balance Volume indicator.
VAO assigns a proportional amount of volume to the price according to the relationship between the closing price and the average price for the day.
In general, volume oscillators are designed based on the following premises:
Divergence between volume and price movement is often the sign that a reversal is about to take place. In the short and intermediate term, the VAO helps to identify market tops and bottoms by sensitively comparing volume to price action.
Most indicators are most effective when used in conjunction with other, complimentary indicators. An effective short and intermediate-term combination of indicators, for example, might include VAO, along with a 21-day moving average and an overbought/oversold oscillator (e.g., Momentum, ROC and CCI.
The VAO is most valuable when:
Buy or sell signals are considered reliable only when they are in keeping with the overall (long-term) trend.
The default VAO is created by subtracting a 10-period exponential moving average of the Accumulation-Distribution Line from a 3-period moving average of the Accumulation-Distribution Line.
Also see the On-Balance Volume, Price and Volume Trend (PVT) and Williams' Accumulation/Distribution indicators.