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NYSE Composite with New Volume Indicator · To: MetaStock Discussion <metastock@xxxxxxxxxxxxx> · Subject: NYSE Composite with New Volume Indicator · From: Joseph Ehardt <jehardt@xxxxxxxxxxxxxx> · Date: Thu, 18 Mar 1999 09:19:11 -0800 · Reply-To: metastock@xxxxxxxxxxxxx · Sender: owner-metastock@xxxxxxxxxxxxx Good morning, fellow MSers, As many of you can gather from my occasional posts of the NYSE Composite Index with official exhange advancing-declining volume data, yesterday being the most recent one, I feel that price should be evaluated in the context of volume information. Price alone tells only half the story, maybe even less than half the story. This belief of mine leads to the next few comments. How can I understand the affect of volume on individual stocks, which are my primary trading devices? Only occasionally do I trade the indexes in the form of SPDRs, such as DIA, SPY, MDY, QQQ, and XLK. But everything I do trade has volume, and yet there is no official source for how much volume involved declining price trades and how much involved rising price trades. By looking at Time and Sales data, one can make an approximation of how to distribute volume between advancing, declining, and unchanged trades, BUT there is no historical source of time and sales data from the exchanges, yet alone for indiviual equities. I would like to approximate this allocation if I want to attempt to meaningfully use volume in conjunction with price data. Other technical analysts have preceded me on this issue. Joseph Granville created the OBV (On Balance Volume) some time ago, but it crudely approximates what I am looking for because it considers ALL daily volume of a stock that closes up on the day to be advancing volume, and all daily volume of a stock that closes down on the day to be declining volume. Very crude, indeed. OBV is available in Metastock, and there is another indicator called ACCUMULATION/DISTRIBUTION which MS includes. This indicator makes a better effort by allocating volume between advancing and declining varieties according to the following formula: the cumulative sum of [ { ( (close-low) - (high-close) ) / (high - low) } * daily volume ] |
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New Volume Indicator ( ( ( (C-L) - (H-C) ) / (H-L) ) * V ) |
It is a definite improvement of the OBV indicator, and yet it does not satisfy me completely. I don't like its allocation formula in numerous situations. What I think is important about price pattern is influenced by Japanese Candlestick theory. That is to say, I believe that where a stock opens, trades to a high price and low price for the day, and then closes somewhere within that context, it is that "picture" which I believe is very revealing. The MS ACCUM-DIST indicator allocates volume according to HIGH, LOW, and CLOSE information, but not consider the importance of the OPEN. I have "created" (only because I am unaware of someone else of having devised the formula that I am using) what I call the Cumulative Allocated Volume Indicator, which in the Japanese Candlestick sense of things examines the body (the range between the open and closing price) in the specific context of the embodying "stick" (the range between the high and low price). By prorating the daily volume to advancing, declining, and unchanged categories in a manner I have calculated, and then accumulating them into a simple variant of the Cumulative Advance-Decline Volume Indicator (which we only get for a few exchange indices), I can produce what I believe is a picture of whether buying (accumulating) or selling (distribution) is driving the specific stock or index. What I have attached is a chart that portrays my indicator, and it clearly suggests that buying has been driving this market higher in a NON-divergent way, in stark opposition to the simple Cumulative A-D line and the Cumulative A-D Volume line. Moreover, IF (because I haven't been able to find the definitive answer) the NYSE compiles advancing, declining, and unchanged volume simply by doing the OBV of each equity in the Composite Index, then my study may be far more accurate than the official exchange data, which is included again today as the second chart for comparison purposes. Thought you might be interested. Joe [12991] Re: NYSE Composite with New Volume Indicator · To: metastock@xxxxxxxxxxxxx · Subject: Re: NYSE Composite with New Volume Indicator · From: Joseph Ehardt <jehardt@xxxxxxxxxxxxxx> · Date: Thu, 18 Mar 1999 16:37:16 -0800 · In-Reply-To: <002d01be7189$1bdd51a0$0300a8c0@xxxxxxxx> · Reply-To: metastock@xxxxxxxxxxxxx · Sender: owner-metastock@xxxxxxxxxxxxx Rick, I appreciate your comments, and the Lazlo Birinyi method is the most precise way to do what I am striving to with my own formula (as yet undisclosed). I simply don't have access to information at the level of time-and-sales detail (with bid-ask information) -- most importantly -- available in the form of readily available historical databases spanning years. My PC and MetaStock Professional couldn't handle the job of keeping track of that quantity of data. Hence my Cumulative Allocated Volume strategy, which uses readily available daily volume data, does that exist to my knowledge among the canned MS indicators that we can apply to our charts. I'm trying to go another level above OBV in accuracy. The formula for the MetaStock ACCUMULATION-DISTRIBUTION Indicator in my post is simply an e-mail form of the one contained in Steve Achelis "Technical Analysis From A to Z", with MetaStock itself, and also documented on the Equis web site. I put is there as a convenience to readers. I didn't like the idea unlying its math, so I came up with my own. At the same time, I probably should spend some time comparing this indicator with my own. As far as my own formula for CAV is concerned, it has not been optimized or hand fitted to produce an intended result. It has yet to be backtested except for the charts that you have seen posted. I simply decided mathematically how it might be appropriate to allocate daily volume to advancing, declining, and unchanged components, and then accumulated the net volume in the same way as the "traditional" advancing and declining volume chart would do. The difference between my CAV versus Granville OBV and anonymous ACCUM-DIST is the underlying idea of what constitutes advancing vs declining volume given only total daily volume. My CAV is an attempt to approximate what is happening on the floor of the exchanges and the computer-based NASDAQ. Everyone, including myself, is simply getting a first look at the results of that idea. Whether it has merit is yet to be established, but I do think it already is showing ways of being superior to a simple adv-decl issues line or an adv-decl volume line or an OBV line. The Birinyi service-for-fee seems like the most accurate way to use volume-price data. My CAV is the less affluent man's analysis of commonly available data in a way that may prove benefical. The fact that we all can look at commonly available O, H, L, C data doesn't mean that we will all draw a common conclusion. Look at the abundance of technical indicators in MetaStock, but then maybe you consider most or all of them to be irrelevant to technical analysis. CAV might be something more substantial that just "fun with numbers," but who knows at this time. Probably I made a mistake in deciding to post this idea in this forum. Joe [12998] Re: NYSE Composite with New Volume Indicator · To: metastock@xxxxxxxxxxxxx · Subject: Re: NYSE Composite with New Volume Indicator · From: Arsk0jn@xxxxxxx · Date: Fri, 19 Mar 1999 13:46:51 EST · Reply-To: metastock@xxxxxxxxxxxxx · Sender: owner-metastock@xxxxxxxxxxxxx Hi Joe, The formula that Granville originated for OBV was: ((H-O) + (C-L))/2(H-L) where: H=High, L=Low, O=Open & C=Close I found that this works well for determining accumulation/distribution on stocks--particularly if the daily numbers are averaged into a weekly figure. It doesn't work well on commodities or very volatility stocks. Good luck, Joe Nemecek [13009] | |
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