Which Volume Based Indicator....

[Denny]

I wondered which Volume based indicator people on this board favour (if any).
I always try to use one confirming volume based indicator when I make a trade, with varying degrees of success.
In my opinion the one that still gives me the best results is OBV, despite this being such a crude indicator it still seems to work best for me.
I have tried Chaikin Oscillator, Acc/Dist, MFI plus many more and still revert back to the old friend. They always say "Keep it Simple"

I would be interested to hear other views on volume based indicators.

 

[wobbles]

I wondered which Volume based indicator people on this board favour (if any).
I always try to use one confirming volume based indicator when I make a trade, with varying degrees of success.
In my opinion the one that still gives me the best results is OBV, despite this being such a crude indicator it still seems to work best for me.
I have tried Chaikin Oscillator, Acc/Dist, MFI plus many more and still revert back to the old friend. They always say "Keep it Simple"

I would be interested to hear other views on volume based indicators.

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On Balance Volume

I have previously quoted the following on another thread. It is from The Midas Method, by Paul Levine, and has been the guiding principle to the approach that I have adopted to the market. I believe that it is equally relevant on this thread.



The ultimate determinant of price behaviour is the dynamic interplay between

a) support and resistance, and

b) accumulation and distribution



On Balance Volume (OBV) is the tool that is used in the book to track accumulation / distribution.



The advantage of using OBV is that it displays volume as a line chart, instead of the traditional histogram used for Volume. I think of it in terms of substituting “volume range” for “price range” on a chart.
To the untrained eye, like most of us, OBV gives a much clearer visual presentation of accumulation and distribution, because it shows the whole picture, especially the groundswell build-up of buying or selling pressure.

In addition, you can use traditional charting techniques on OBV, such as higher highs and higher lows, trend lines, divergences and moving averages, which can’t be used on a histogram.



OBV is criticised for the method used to determine up or down volume i.e. comparing the closing price to that of the previous day.

Accordingly, I too have been experimenting with alternate volume based methods in order to find a better method to show Accumulation/Distribution. Ironically, I am slowly reaching the same conclusion as Denny - that none of the other volume indicators give any better results. The one exception is “Twigg’s Money Flow” – (see Incrediblecharts.com) - which seems to overcome some of Chaikin’s Money Flow’s shortcomings, although I’m still reserving judgement on it. You might want to have a look at it.



The main point to remember about OBV is that Price takes precedence, and therefore OBV should mainly be used as a filter to confirm price action, such as the penetration of support and resistance levels, (or moving averages, trend lines, etc.). Although some text books state that volume is a leading indicator, I am wary about using it to predict price movements. At best use it as a “get ready” signal.



Finally, one other indicator which has given some very good signals is Richard Arms’ Volume Adjusted Moving Average. I use two VAMA’s with different time periods, and act on the crossover and the slope, in the normal way. The indicator uses a combination of price and volume, with the emphasis on price.

 

[Rhody Trader]

My personal philosophy on volume is that I want to see significant activity. That means a change from the recent pattern. For example, if I'm buying, I like to see volume increase substantially over that of the recent sessions as the market rises.

This isn't an indicator, per se, but definitely falls in to the "keep it simple" category.

 

[ducati998]

Volume based technical indicators...............$TICK, TRIN, very useful for indices trading/scalping

 

[GruntnoWay]

OBV is good but personally I like volume action because you can vary the lookback period. Its an Indexia indicator.

TRIN is a market indicator and can't be used on individual stocks. Its uses the number of advancing and declining issues in a index and takes the volume of these.

 

[roguetrader]

Volume based technical indicators...............$TICK, TRIN, very useful for indices trading/scalping

True d998 but I prefer to use the components of the trin seperately also, add/dec and volume breadth much more responsive than the trin

 

[GruntnoWay]

That would be the exactly the same as using OBV then. Adv or dec and the volume

 

[roguetrader]

That would be the exactly the same as using OBV then. Adv or dec and the volume

If it were exactly the same as OBV then it would be called OBV. OBV is a chart based indicator which is calculated by adding or subtracting volume from a running total based on whether a bar on a chart closes up or down
Using OBV would not provide me with the same insight as add/dec and volume breadth seprately

 

[GruntnoWay]

excuse my ignorance. thanks.

 

[ducati998]

FLOAT, VOLUME, AND BETA CORRELATION

I'm trying to understand the correlation, if any, between volume, outstanding shares, float, and volatility beta. I thought there might be a relation between large volume/small float or small volume/large float to beta. Am I looking for something that's not there? --Joe Osborn

The best way to look at various aspects of individual stock data is to think about supply and demand. The more stock that is available via the float, the less locked stock that is unlikely (but not impossible) to be traded. A good example is Wal-Mart. A large portion of the stock is still held by the Walton family and is not likely to be traded in a short period. This stabilizes the stock and causes a lower beta (stock movement vs. the entire market movement).

Now to the daily volume, where the supply and demand issue takes over. If I can buy $50 million worth of stock within a $1.00 range, then the overall supply is pretty high and able to fulfill occasional demand fluctuations. If, on the other hand, $50 million worth of buying would cause a stock to move 20% or so, then that stock has a much higher beta, for the obvious lack of supply.

 

[ducati998]

Weight + Volume + Move-Adjusted Moving Average: It's WEVOMO!
by Stephan Bisse


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Moving averages: I use 'em, you use 'em, we all use 'em, but can they really tell you anything about the future direction of a time series? In this article, the third of a series, we look at minimizing the lag even more using the weighted move- and volume-adjusted moving average.
Moving averages merely give you a view of where a time series has been in the past. So how can it be used as a predictor? The only way is by adding more information into the calculation. But if you do this you have to make sure it is a leading indicator for the time series in question. In other words, changes in the additional information must be correlated to future changes in the time series.

In my February 2005 article, "Visiting MOMA," I adjusted a simple moving average (SMA) by taking each datapoint in the lookback period and weighting it according to the absolute magnitude of the move that preceded it relative to the sum of all of the absolutes in the lookback period. I christened this new moving average MOMA.

In my March 2005 article, "Adding Volume To The Move-Adjusted Moving Average," I further adjusted MOMA by the relative magnitude of the volume of each datapoint in the lookback period to create a double-adjusted moving average, which I christened VOMOMA. The idea behind MOMA is that a strong move in a given direction is a harbinger of the future direction of the market, and therefore weighting an average by the magnitude of the moves between datapoints can produce timelier signals than a standard SMA. The additional step to VOMOMA is based on the logic that large moves accompanied by heavy volume are more significant than those accompanied by light volume. Therefore, a moving average adjusted by both volume and size of move can capture these additional nuances.



FIGURE 1: LAG IN MOVING AVERAGES. Here you see a sine wave with a frequency of 20- vs. a 10-day simple moving average (SMA). Note that there is a five-day lag in the SMA.

 

[mr_cassandra]

I have found mfi-5 day to be useful in addon trades in my program.

 

[Berkut]

I have one of my automated trading systems using cumulative delta volume indications as one of the primary inputs.

 

[grantx]

Denny,

Look for posts by DBPhoenix, VSA and others - equalIy worthy - I can't remeber. Do a search on here for "volume".

Grant.

 

[nine]

Those who speed up, enhance, and otherwise "grail" moving averages because they lag price seem to me to have missed the most useful point of mas. The reason mas lag price is because they filter (smooth) it and any electrical engineer can tell you that smoothing or low pass filtering will add time delay to the smoothed waveform. Its a lot of fun messing with different mas when one is going through the indicator exploration stage of their trading evolution or simply bored with grinding out profits - but its mainly just messing.


An effective way to use mas is as potential support or resistance. In that mode, like any potential support or resistance, they are extremely predictive. They can, with a little study of your chosen markets, provide entries with tight stops and good potential. In this mode you want the type of mas that most of the other ma using participants in your market and timeframe choose to use ---- the question one needs to learn to ask is "what do other traders see and think?"

 

[mr_cassandra]

I like the mfi 5 day setting for what I do. Like all indicators its not perfect, but in conjunction with others, can be useful