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Kinda sounds like it works when fluid is thick and not after it warms up. If it has been awhile since trans fluid and filter were changed it is the most simple thing to change. The torque converter is a big pump, it may be going and not providing enough pressure. This could be checked on most transmissions by a shop expert. Sometimes pressure can be adjusted externally.
What is happening is the tranny is going. They can try to replace the selenoid, but really, you need a rebuild. Whomever charged you to remove the light, probably messed things up more. Volvo's typically lose overdrive before losing all the other gears. It is time for a rebuild. Go to a reputable tranny shop who knows volvos.
check gearbox oil level remove gear lever switch check feed to switch with meter or test lamp no feed check fuse if ok put 2 wires together car in 4th gear ignition on should hear click from overdrive solenoied if ok fit new switch if not check wires from lever to gearbox for breaks think you might find problem here if not check inhibitor switch and then solenoid hope this helps you
When the button is pressed and the arrow indicator light is on the overdrive gear is not being used and you only have 3 speeds. When the button is pressed and the light is off you have overdrive. Normal use you should not see the arrow.
It may be a faulty relay - usually behind the radio - it makes a clicking sound when you hit the button on the shift lever. Or it may be the overdrive solinoid which is mounted on the top of the tranny. Check all of your connestions first. One other thing - the wire from the shift lever overdrive button to the overdrive solenoid on the tranny may run over the top of the drive shaft - check for wear
More likely that the solenoid in the transmission is shorted to ground. Has any new electronic equipment been installed recently, like stereo, alarm, etc?
Sounds like your overdrive solenoid is dirty or broken. Take off the solenoid and clean it really well, put it back on and see if it works. If not you will have to replace it. This happened to my fathers and I had to clean it. Sometimes the tranny oil is so dirty that little bits of metal get stuck in the solenoid area and you have to scrape them off. You might want to do a tranny flush if it's bad.
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