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The Volume Accumulation Oscillator, which is also called Chaikin Volume Accumulation and sometimes Accumulation/Distribution Indicator, is used in technical analysis to identify strengths and weaknesses in a market. It is derived from the On Balance Volume -OBV- indicator.
As with many trading indicators, divergence between the VAO and the close price indicates that the security price may reverse (VAO indicator rising and security price falling indicates that the security price direction may reverse and begin to rise).
An increase in the value of the VAO indicates that the asset is being accumulated and that the upward price movement is associated to most of the volume. While a decrease in the VAO indicates that, the asset is being distributed and that the downward movement of this asset is associated to most of the volume.
As a price and volume based indicator, the VAO uses the close and volume time-series in its calculation. There are two different ways to calculate the VAO. The high and low values in the formula can be calculated by taking the high and low prices or by taking the highest close price and the lowest close price over a certain period. The current Chaikin's Volume Accumulation formula uses the second implementation and thus it requires one parameter, which is the period used to calculate the lowest and the highest close price. The default parameter used is the 25-bars period.
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