Volume analysis is a key component of analyzing and predicting the future direction of an asset. This leads many technical analysts to build trading tools that try to use the advantage of volume in their trading decisions.

At Technical Analysis of Stocks and Commodities Magazine Issue May 2011 Mr. Walid Khalil, MFTA, CFTe, CETA introduced his Volume Zone Oscillator (VZO) as a component of his trading system.

VZO depends on calculations of close and volume. If today’s closing price is higher than yesterday’s, then the volume will have a positive value (bullish). Otherwise, it will have a negative value (bearish).

VZO uses a volatility filter to find signals in trending markets only.

How it works

• VZO will give buy signals only if the trend filter is strong and price is trending to the upside.
• VZO will give sell signals only if the trend filter is strong and price is trending to the downside.
• If volatility is weak, any signal is ignored and no arrows appear on the chart.
• When VZO crosses its overbought level (whether dynamic or fixed), then the trend might reverse direction to the downside.
• When VZO crosses its oversold level (whether dynamic or fixed), then the trend might reverse direction to the upside.
• Default number of candles used in calculation is 14 candle and we suggest not changing it except for a good reason.
• Default calculation price is Close price but I added the ability to change it to other prices like High, Low and Open.
• As a leading oscillator, divergence between the price line and VZO could help you find a reversal area in trend direction faster.

Features

• Blue VZO shadow for uptrend with high volatility.
• Red VZO shadow for downtrend with high volatility.
• No shadow means low volatility and no trade signals.
• Trend filter label that reads in percent between 0 and 100%.
• Users can switch between both Ordinary and Dynamic levels.
• Buy, Sell arrows to help identifying PZO oversold, overbought signals.
• Sound, email and mobile alerts depending on user choice.
• Well-designed style that user can control.

Parameters

1) VZO Line Inputs

• VZO Price: price used in calculation (Open, High, Low…). Default is Close.
• VZO Bars: number of bars or candles used in calculation. Default is 14 bars.
• VZO Width: Default is two.

2) Shadows & Trend Filter Inputs

• VZO Style: Choose to show VZO main line with trend filter shadow around it. Default is to Show Shadow.
• Trend Filter Bars: Number of bars or candles used in Trend Filter calculation. Default is 100.

3) Levels Style Inputs

• Choose Levels Style: Users can choose between dynamic or fixed levels for the overbought and oversold conditions. Default is Dynamic.
• Over Bought in Fixed Style: Default is +45.
• Midline in Fixed Style: Default is zero.
• Over Sold Line in Fixed Style: Default is -45.

4) Arrows & alert Settings

• Show or Hide Arrow Signals: Choose to show or hide VZO Arrow Signals. Default is to Show Arrows.
• alert: Users can choose to see an alert message when a new trading signal appears on the chart. Default is yes.
• Send email: Users can choose to see an email to his inbox when a new trading signal appears on the chart. Default is no.
• Send Notification: Users can choose to send push notifications to the mobile terminals. Default is no.

5) Color Settings

• Over Bought Line & Buy Arrows Color: Default is Green.
• VZO & MidLine Color: Default is White.
• Over Sold Line & Sell Arrows Color: Default is Red.