THE HAndbook oF TEcHnIcAl AnAlySISfIgure 6.8 Reading Volume Divergence on Price‐Based versus Non-Price‐Based Vol-
ume Oscillators on the Daily Chart of the Currency Shares Euro Trust.
Courtesy of Stockcharts.com
Figure 6.8 depicts the difference between the smoothed and detrended (PVO)
volume against the price‐based ADL oscillator, and the way divergence is read for
each classification.
Volume as a timing Indicator
Volume may also be used as a timing indicator for breakouts from consolidations.
Whenever volume declines close to its lowest historical level, a breakout is expected.
This is because all the buyers and sellers who are interested in participating in the stock
or market have already done so. The majority of buyers who wanted to buy have al-
ready bought into the stock or commodity, and similarly, the majority of sellers who
wanted to sell have already sold their positions. An accumulation of stop orders above
and below the consolidation over the consolidation period will act as a catalyst for
either an upside or downside breakout, once triggered. Hence, whenever the volume
is testing a significant minimum or its lowest historical levels, a breakout is expected.
We refer to this as a low volume breakout signal. Note that there is no divergence
reading during a consolidation. This is because price is essentially moving sideways
and therefore it is not possible to distinguish between divergence or convergence, let
alone bullish or bearish divergence. It should also be noted that there is a tendency for
price to reverse when volume is at its minimum or lowest historical levels. We refer to