“Price action shows you where the market is, but volume shows you who’s controlling it.”
~ Unknown
The Normalized Volume Zone (NVZO) is an advanced adaptation of the classic Volume Zone Oscillator (VZO), originally developed by Walid Khalil and David Steckler.
Designed for traders who rely heavily on volume analysis, this indicator normalizes volume data, thus it uses price data along with volume.
It gives a more consistent and accurate view of volume-based market behavior.
NVZO is a great tool for identifying trends, reversals, and market strength across varying timeframes and asset classes.
What is the Normalized Volume Zone Indicator?
The NVZO stands out by introducing normalization to volume data, making it easier to compare volume trends across different assets and timeframes.
It maintains the core calculation of the VZO while adding other features, such as customizable smoothing options and dynamic normalization, to reduce noise and provide a clearer picture of market conditions.
Key Features of the NVZO
Volume Zone with Normalization
NVZO normalizes the raw volume data using one of the methods.
Percentile, Z-Score, Min-Max, and Log transformations.
This enables for a more consistent comparisons across different timeframes and assets.
Smoothing
Just like its predecessor SVZO, NVZO allows you to smooth out data using MA types such as EMA, SMA or HMA, helping you adjust the sensitivity of the indicator to your liking.
Dynamic Moving Average (MA) Line
An optional moving average line is included for added context, showing smoothed volume trends in conjunction with price movements.
Visuals & Signals
Color-coded lines and optional dots provide clear visual signals, marking significant changes in volume trends, helping traders identify key moments in shifts of trend / divergence.
Automatic Divergence Detection
The NVZO also features built-in divergence detection, identifying potential bullish and bearish divergences between price and volume.
This is a powerful feature for spotting hidden shifts in momentum that might not be visible through price action alone.
How to Use the NVZO in Trading
The NVZO is best suited for traders who prioritize volume-based analysis.
It helps spot entry and exit points, anticipate potential reversals, and measure the strength of ongoing trends.
For example, in a trending market, the NVZO’s normalized volume data makes it easier to see whether volume is increasing or decreasing relative to the price action.
When the indicator shows that the market is overbought or oversold, it provides a visual cue for traders to anticipate potential price reversals or trend continuations.
Example using the NVZO with Bitcoin
In volatile assets like Bitcoin, the NVZO excels at pinpointing volume-driven reversals. We walked through the Bitcoin chart in the video.
By applying Fourier smoothing and Min-Max normalization, the NVZO can clearly show when Bitcoin’s volume is disproportionately high or low compared to previous periods, helping traders spot significant market movements in advance.
Customizing the NVZO
One of the key strengths of the NVZO is its customization options.
Calculation Sources: Traders can choose from HLC3, OHLC4, or other price points to base their VZO calculations on.
Smoothing Options: Adjust the smoothing methods (e.g., HMA, EMA, Fourier), and tweak the MA length to suit different assets and timeframes.
Normalization
Choose how to normalize the data using Percentile, Min-Max, or Z-Score methods, giving you the flexibility to fine-tune the indicator to market conditions.
Conclusion
The Normalized Volume Zone (NVZO) indicator provides traders with a unique, normalized view of market volume.
It smooths out data inconsistencies and enhances the accuracy of volume trend analysis, making it a powerful tool for both day traders and long-term investors.
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Further Reading and Resources
For more articles on technical analysis & indicators, check out these articles:
Technical Analysis: Beginner’s Guide & The Ribbon Trend Indicator