volume ,open interest & breadth

1. Volume ,Open Interest &
Breadth

2. Volume
,Open
Interest &
Breadth
Section I – 39%
 A Special Case for Futures Volume
Variations from the Normal Patterns
 Standard Interpretation
Volume Indicators
Breadth Indicators
Interpreting Volume and Breadth
Systematically
An Integrated Probability Model
Intraday Volume Patterns
Filtering Low Volume
Market Facilitation Index

3. Basics of Volume ,Open Interest & Breadth
• Patterns in volume have always been tied closely to chart analysis of both the stock
and futures markets
• Volume is a valuable piece of information that is not often used, and one of the few
items, other than price, that is traditionally considered valid data for the technician.
• Stock index has become a popular measure of overall market trend, the breadth of
the market is the total number of stocks that have risen or fallen during a specific
period.
• When you have the ability to view the bigger picture of market movement, breadth
seems to be a natural adjunct to the index. In addition, tallies of new highs and new
lows may add value to a trading decision.
• In futures, open interest is the measurement of those participants with outstanding
positions; it is the netting out of all open positions (longs and short sales) in any one
market or delivery month, and gives an understanding of the depth of participation
and anticipated volume

4. Future Volume
• Individual contract volume is important to determine which delivery month is
most active.
• Traders find that the best executions are where there is greatest liquidity.
• Each futures market has its unique pattern of volume for individual contracts.
• Some, such as the interest rates, shift abruptly on the last day of the month
prior to delivery, because the exchange raises margins dramatically for all
traders holding positions in the delivery month.
• When traders roll from the nearby to the next deferred contract, the
transactions are usually executed as a spread, and those trades are not included
in the volume fi gures. Because positions are closed out in one contract and
opened in another there is no change in the open interest.
• Volume is concentrated in a few stocks following a news or earnings release,
only to switch the next week when other stocks in the same sector are noticed.

5. Future Volume
• Individual contract volume is important to determine which delivery month is
most active.
• Traders find that the best executions are where there is greatest liquidity.
• Each futures market has its unique pattern of volume for individual contracts.
• Some, such as the interest rates, shift abruptly on the last day of the month
prior to delivery, because the exchange raises margins dramatically for all
traders holding positions in the delivery month.
• When traders roll from the nearby to the next deferred contract, the
transactions are usually executed as a spread, and those trades are not included
in the volume fi gures. Because positions are closed out in one contract and
opened in another there is no change in the open interest.
• Volume is concentrated in a few stocks following a news or earnings release,
only to switch the next week when other stocks in the same sector are noticed.

6. Tick Volume
• Fast trading requires a measurement of volume that can be used immediately
to make decisions.
• Tick volume is the number of recorded price changes, regardless of volume or
the size of the price change that occurs during any time interval.
• Tick volume relates directly to actual volume because, as the market becomes
more active, prices move back and forth from bid to asked more often.
• If only two trades occur in a 5-minute period, then the market is not liquid.
• Tick volume gives a reasonable approximation of true volume and can be used
as a substitute.
• Higher-than-normal tick volume at the beginning of the day implies higher
volume throughout the day.

7. Volume Spikes
• A volume spike is a single day on which the volume was much higher than the
previous day—at least twice as high, perhaps three or four times
• A volume spike is a warning that something happened, most likely the result of
a surprising news release or new economic data.
• A volume spike is a clear, positive action by investors.
• It implies that a very large number of investors, perhaps even the general
public, all hold the same opinion on the direction of the market and feel
compelled to act on that opinion at the same time
• A volume spike means that everyone has jumped into the boat at the same
time.
• Traditional interpretation of a volume spike is that it indicates the end of a price
move, that is, the boat sinks.

8. Volume Spikes
• Volume spikes are a good example of extremes and the clearest cases for
trading.
• Prices reverse direction immediately after the spike, and usually that reversal is
substantial.
• A volume spike does not indicate the strength of the price reversal, it simply
tells you that the current move is exhausted.
• It may turn out to be a major top or bottom, or simply a local turning point.
• When everyone has entered the market, there is no one left to buy (or sell) and
prices must reverse.
• The crowd is always wrong—at least their timing is always wrong.

9. Drop In Volume
• Drop in volume is less impressive than a volume spike, it can be equally
important.
• Little interest in a stock or futures market, which often happens when prices
are very low.
• Volume can also drop when a price reaches equilibrium, the price at which
buyers and sellers agree is fair value.
• Decline in volume, they all represent a lack of conviction, or a perceived lack of
potential price movement, on the part of the traders.

10. Standard Interpretation of Volume
Volume Price Interpretation
Rising Rising Volume Confirms Price Rise
Rising Falling Volume Confirms Price Drop
Falling Rising Volume Indicate Weak Rally
Falling Falling Volume Indicate Weak
Pullback
• Volume confirms direction. When volume declines, it indicates that a change of direction
should follow because there is no general support for the price move.
• Price changes that occur on very light volume are less dependable for indicating future
direction than those changes associated with relatively heavy volume.
• In futures and stock markets, volume has the same interpretation: When volume
increases, it is said to confirm the direction of prices.

11. Open Interest Interpretation
Buyers Meets Seller Change in Open Interest
New New Increase in Open Interest
New Old No Change in Open Interest
Old New No Change in Open Interest
Old Old Increase in Open Interest
• Open interest is a concept unique to futures markets, but helps to explain the depth of the
market as well as trader expectations.
• New interest in a market is the result of new buyers and sellers meeting, which increases
the open interest, the net of all outstanding contracts being traded.
• “New” buyer (seller) is a trader with no market position seeking to be long (short).
• “Old” buyer (seller) is a trader who had previously entered a short (long) position and seeks
to exit.

12. Price , Volume & Open Interest Interpretation
Price Volume Open
Interest
Interpretation
Rising Rising Rising New buyers are entering the market
Falling Falling Falling Longs are being forced out; the downtrend will end
when all sellers have liquidated their positions
Rising Falling Falling Short sellers are covering their positions causing a rally.
Money is leaving the market.
Falling Rising Rising New short selling. Bearish money is entering the market.
Exceptions
• On the first day of the week.
• On the day before a holiday.
• During the summer.
• The most important exception to rising prices and rising volume is the volume spike, which signals a change
of direction rather than a confirmation.
• Volume is also higher on triple witching day (or quadruple witching day, if you include futures on stocks),
when S&P futures, options on futures, and options on the individual stocks all expire at the same time.

13. Volume Is a Predictor of Volatility
• Most often high volume and high volatility occur at the same time. It is easy to see on
a chart that one confirms the other.
• Not all days that have high volume also have high volatility. Even on days with high
volume, the price can close nearly unchanged from the previous day.
• Days as a sign of potential volatility—a large number of traders all with their own
objectives somehow managed to offset each other.
• If there is an imbalance in the buyers and sellers, and volume is still high, prices could
break out in either direction.
• Therefore, high volume means high risk, even on those days when the risk does not
materialize.

14. Richard Arms’ Equivolume
• Equivolume, a charting method introduced by Richard Arms, takes the unique
approach of substituting volume for time along the bottom scale of a chart.
• When volume increases, the price bar is elongated to the right; therefore, an
upwards move on high volume will appear as a higher box that is also wider.
• EquiVolume charts look similar to candlestick charts, but the candlesticks are
replaced with EquiVolume boxes that can be square or rectangle.
• Its easier to verify volume for reversals, big moves, support/resistance breaks,
and climaxes.

15. Equivolume Calculations
• An EquiVolume box consists of three
components: price high, price low and
volume.
• The price high forms the upper
boundary, the price low forms the lower
boundary and volume dictates the
width.
• EquiVolume boxes are black when the
close is above the prior close and red
when the close is below the prior close.
• volume is normalized to show it as a
percentage of the look-back period.

16. EquiVolume
Kindly Refer :http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:equivolume

17. Herrick Payoff Index
• The Herrick Payoff Index (HPI) uses volume, open interest, and price to signal bullish and
bearish divergences in the price of a future or options contract.
• The use of open interest in the calculation of the HPI means the indicator can only be used
with futures and options.
• HPI is based off of two premises regarding open interest:
• Rising Open Interest: When prices rise and open interest rises, this is a bullish and
confirming sign of recent price rises. Likewise, when prices fall and open interest rises, this is
a bearish and confirming sign of recent falling prices.
• Falling Open Interest: When prices rise and open interest falls, this is considered to be a
bearish sign and signal of impending reversal. Similarly, when prices fall and open interest
falls, this is considered to be a bullish sign and is a potential reversal signal.

18. Herrick Payoff Index

19. Herrick Payoff Index
High #1 to High #2
Crude oil made higher highs, yet the Herrick Payoff Index (HPI) made a lower low, which is a bearish
divergence. The logic behind the HPI indicator is that there was much trader excitement in crude oil at
High #1, characterized by increasing volume and open interest.
Even though crude oil prices made a higher high at High #2, volume and open interest changes did not
match those price increases on the second high. The HPI indicator then retreated below the zero line,
the bearish price action in crude oil was confirmed. Traders might look for short sell opportunities.
The HPI indicator then bottomed out and reversed course, soon advancing above the zero line. The zero
line crossover confirmed the bullish price action. Traders might be advised to look for buying
opportunities.
High #3 to High #4
In yet another bearish divergence, crude oil prices made new highs, yet the HPI indicator failed to
confirm the price action, making a lower high. This divergence acted as a warning of a potential price
reversal.
The Herrick Payoff Index is an excellent technical analysis tool using volume and open interest to
confirm price movement and warn of potential reversals.

20. VOLUME INDICATORS
Average Volume
Normalizing The
Volume
Volume
Momentum &
Percentage Change
Force Index
Volume Oscillator On Balance Volume Money Flow Index
Volume Count
Indicator
Volume
Accumulator
Accumulation &
Distribution
Positive & Negative
Volume Index
A spray's Demand
Oscillator
Tick Volume
Indicator
Volume-Weighted
MACD
Variably Weighted
Moving Average
Using Volume
VWAP

21. Average Volume
 Basic of all volume indicators is the average, and the calculation most commonly used for the equity
markets is 50 days, although it may be reasonable to use the same period as the price average that is
being used.
 Normalizing the Volume
 Letting the calculation period, N, be either 50 or 200 days, we can normalize the volume and
represent the result as a percent
 The normalized volume lets us say that “today's volume is 20% higher than the volume over the past
200 days.”
 Volume Momentum and Percentage Change
 For momentum, this means finding the change in volume over a specific time interval; percentage
change measures the size of the volume change relative to the starting value. If t is today and n is the
number of days back
 High variance in volume from day to day, volume momentum tends to increase the erratic pattern. It
will be necessary to smooth the volume momentum in order to have a useful indicator.

22. Force Index
 The Force Index is an indicator that uses price and volume to assess the power behind a
move or identify possible turning points.
 According to Alexander Elder, there are three essential elements to a stock's price
movement: direction, extent and volume.
 The Force Index combines all three as an oscillator that fluctuates in positive and negative
territory as the balance of power shifts.
 The Force Index can be used to reinforce the overall trend, identify playable corrections or
foreshadow reversals with divergences.

23. Force Index
 Three factors affect Force Index values.
 First, the Force Index is positive when the current
close is above the prior close. The Force Index is
negative when the current close is below the
prior close.
 Second, the extent of the move determines the
volume multiplier. Bigger moves warrant larger
multipliers that influence the Force Index
accordingly. Small moves produce small
multipliers that reduce the influence.
 Third, volume plays a key role. A big move on big
volume produces a high Force Index values.
http://stockcharts.com/school/doku.php?id=chart_school:tech
nical_indicators:force_index

24. Force Index Interpretation
 First, there is either a positive or negative price
change.
 A positive price change signals that buyers were
stronger than sellers, while a negative price change
signals that sellers were stronger than buyers.
 Second, there is the extent of the price change, which
is simply the current close less the prior close. The
“extent” shows us just how far prices moved. A big
advance shows strong buying pressure, while a big
decline shows strong selling pressure.
 The third and final element is volume, which,
according to Elder, measures commitment.
 Just how committed are the buyers and sellers? A big
advance on heavy volume shows a strong commitment
from buyers. Likewise, a big decline on heavy volume
shows a strong commitment from sellers. The Force
Index quantifies these three elements into one
indicator that measures buying and selling pressure.

25. Volume Oscillator
 A volume oscillator, which addresses the issue of erratic data by using two smoothed values
 A volume oscillator is a two-step process and may use trends of any calculation period. Here, 14- and
34-day periods are used
 Method 1 : Calculate the difference between a short-term and long-term average of volume. Using
14 and 34 days gives
 Method 2: Calculate the ratio of a short-term and long-term sum of volume. Again, using 14 and 34
days,
 Once calculated, the oscillator values can be displayed as a histogram or a line chart
 The volume oscillator does not confirm the upwards or downwards trends.

26. On Balance Volume
 On Balance Volume (OBV) measures buying and selling pressure as a cumulative indicator that adds
volume on up days and subtracts volume on down days.
 OBV was developed by Joe Granville and introduced in his 1963 book, Granville's New Key to Stock
Market Profits.
 Chartists can look for divergences between OBV and price to predict price movements or use OBV to
confirm price trends.
 Calculations: The On Balance Volume (OBV) line is simply a running total of positive and negative
volume. A period's volume is positive when the close is above the prior close. A period's volume is
negative when the close is below the prior close.

27. On Balance Volume

28. On Balance Volume
On Balance Volume
Interpretation
http://stockcharts.com/school/doku.php?id=chart_school:tech
nical_indicators:on_balance_volume_obv

29. Money Flow Index
• The Money Flow Index (MFI) is an oscillator that uses both price and volume to
measure buying and selling pressure.
•
• Created by Gene Quong and Avrum Soudack, MFI is also known as volume-weighted
RSI. MFI starts with the typical price for each period.
• Money flow is positive when the typical price rises (buying pressure) and negative
when the typical price declines (selling pressure).
• A ratio of positive and negative money flow is then plugged into an RSI formula to
create an oscillator that moves between zero and one hundred.
• As a momentum oscillator tied to volume, the Money Flow Index (MFI) is best suited to
identify reversals and price extremes with a variety of signals.

30. Money Flow Index (Calculation)
Step 1 : Calculate Typical Price:
Tp = (High + Low + Close)/3
Step 2 : Raw Money Flow
RMF = Typical Price X Volume
Money Flow Ratio = (14 period Positive
Money Flow)/14 period Negative Money
Flow)
Step 3 : Money Flow Index:
MFI = 100 – 100/(1+ Money Flow Ratio)

31. Money Flow Index (Interpretation)
• Money Flow Index (MFI) can be
interpreted similarly to RSI. The big
difference is, of course, volume.
• First, chartists can look for overbought
or oversold levels to warn of
unsustainable price extremes.
• Second, bullish and bearish divergence
can be used to anticipate trend
reversals.
• Third, failure swings at 80 or 20 can
also be used to identify potential price
reversals. For this article, the
divergences and failure swings are be
combined to create one signal group
and increase robustness. http://stockcharts.com/school/doku.php?id=chart_school:technical_indi
cators:money_flow_index_mfi

32. Money Flow Index (Interpretation)

33. Money Flow Index (Divergence)
• The Money Flow Index is a rather unique
indicator that combines momentum and
volume with an RSI formula.
• RSI momentum generally favors the bulls
when the indicator is above 50 and the bears
when below 50.
• Even though MFI is considered a volume-
weighted RSI, using the centerline to
determine a bullish or bearish bias does not
work as well.
• Instead, MFI is better suited to identify
potential reversals with overbought/oversold
levels, bullish/bearish divergences, and
bullish/bearish failure swings.
• As with all indicators, MFI should not be used
by itself. A pure momentum oscillator, such as
RSI, or pattern analysis can be combined with
MFI to increase signal robustness.

34. Volume Count Indicator
 An indicator that closely resembles On-Balance Volume is a running total of the days when
volume increases minus the days when volume declines
 That is, add 1 to the cumulative value on a day when today's volume is greater than the
previous day; otherwise, subtract 1.
 Volume Accumulator
 A variation on Granville's OBV system is Mark Chai ken's Volume Accumulator (VA).
 The Volume Accumulator uses a proportional amount of volume corresponding to the
relationship of the closing price to the intraday mean price.
 If prices close at the high or low of the day, all volume is given to the buyers or sellers as in the
OBV calculation.3 If the close is at the midrange, no volume is added.
 Accumulation Distribution
 The Accumulation Distribution indicator as well as the Intraday Intensity, the Price and Volume
Trend, and the Positive and Negative Volume Indexes use a concept that relates to buying and
selling pressure.
 This compares the strength of the close compared to the open divided by the trading range. It
is also called money flow in some references

35. Positive Volume Index (PVI)
 The Positive Volume Index
(PVI) is often used in
conjunction with the Negative
Volume Index (NVI) to
identify bull and bear
markets.
 The PVI focuses on days
when the volume has
increased from the previous
day.
 PVI’s premise is that the
“uninformed crowd” takes
positions on days when
volume increases.

36. Positive Volume Index (PVI)
 An indicator that closely resembles On-Balance Volume is a running total of the days when
volume increases minus the days when volume declines
 That is, add 1 to the cumulative value on a day when today's volume is greater than the
previous day; otherwise, subtract 1.
 Calculation
If today’s volume is greater than yesterday’s volume then:
If today’s volume is less than or equal to yesterday’s volume then:
Because rising prices are usually associated with rising volume, the PVI usually trends
upward.

37. Positive Volume Index (Interpretation)
 PVI assumes that on days when
volume increases, crowd-following
"uninformed" investors are entering
the market.
 Conversely, on days with decreased
volume, the "smart money" is quietly
taking positions.
 Thus, the PVI displays what the not-
so-smart-money is doing. (The
Negative Volume Index (NVI), on the
other hand, displays what the smart
money is doing.)
 Note, however, that the PVI is not a
contrarian indicator.
NVI is excellent at identifying bull markets (i.e., when the NVI is
above its one- year moving average) and the PVI is reliable in
identifying bull markets (when the PVI is above its moving
average) and bear markets (when the PVI is below its moving
average).

38. Negative Value Index
How this indicator works
 Norman Fosback, of Stock Market Logic,
compared NVI with its one-year (255bar)
moving average.
 When NVI is above the moving average,
he calculated that there is a 96% chance
that a bull market is in progress;
 when NVI is below the average, there is a
53% chance of a bear market. As with all
indicators, NVI should not be used on its
own.
 Instead, chartists should use it in
conjunction with other analysis
techniques.
Calculation
If today's volume is less than yesterday's
volume then:
If today's volume is greater than or equal to
yesterday's volume then:
Because falling prices are usually associated
with falling volume, the NVI usually trends
downward.

39. Negative Value Index
The Negative Volume Index (NVI) is a
cumulative indicator, developed by Paul
Dysart in the 1930s, that uses the change in
volume to decide when the smart money is
active.
The NVI assumes that smart money will
produce moves in price that require less
volume than the rest of the investment
crowd.
NVI rises on days of positive price change on
lower volume, NVI falls on days of negative
price change on lower volume, and NVI is
unchanged on days of higher volume no
matter what the price action.

40. Volume – Weighted MACD
 To add volume, the closing prices for each day are multiplied by the corresponding volume, and
each moving average is normalized by the average volume over the same period.
 The recommended calculation periods are 12 and 26 days, the standard MACD values.
 A signal line, also the same as MACD, is the exponentially smoothed VWMACD line using a 0.20
smoothing constant, the equivalent of about 9 days.
 The MACD, the rules are to enter a new long position when the VWMACD crosses above the
signal line, and the opposite for shorts.
 When compared to the MACD, this variation appears to make only small changes, yet a slight
improvement in timing can be a great advantage in trading.
 Elastic Volume-Weighted Moving Average (eVWMA)
 Using the difference between the number of outstanding shares and the number of shares
being traded he creates a weighting factor.
 That weighting factor causes the previous trend value to have more importance when fewer
shares are traded and less weight when relatively more shares are traded.
 The net effect is that the weighted average is more responsive to change when relatively more
shares are traded.

41. Aspray’s Demand Oscillator
 Using direction to separate volume into two series of Buying Pressure and Selling Pressure,
Aspray then nets them into his own Demand Oscillator.
 During a rising market the Selling Pressure has been divided by a percentage of the volume,
which has been scaled to be greater than 1.
 These can be used to create an oscillator to identify accumulation or distribution in both stocks
and commodities.
 Tick Volume Indicator
 Similar to Wilder's RSI, Blau double-smoothes the tick volume as a way of confirming price
direction.
 The Tick Volume Indicator is calculated as TVI ranges from −100 to +100 and DEMA (Double
Exponential Moving Average) is the double smoothing of the downticks or upticks.
 The exponential smoothing is first calculated over r bars, and the result of that smoothing is
again smoothed over the past s bars.
 This technique differs from Blau's price smoothing because it does not first create a momentum
series; therefore, the TVI will be lagged slightly less than half the sum of the two calculation
periods.

42. VWAP
 Using the difference between the number of outstanding shares and the number of shares
being traded he creates a weighting factor. That weighting factor causes the previous trend
value to have more importance when fewer shares are traded and less weight when relatively
more shares are traded. The net effect is that the weighted average is more responsive to
change when relatively more shares are traded.
 Volume-weighted average price (VWAP) is a ratio generally used by institutional investors and
mutual funds to make buys and sells so as not to disturb the market prices with large orders. It
is the average share price of a stock weighted against its trading volume within a particular time
frame, generally one day.

43. VWAP
• Large institutional investors or investment houses that use VWAP base their calculations off every
tick of data during a trading day.
• In essence every closed transaction is recorded. However, most charting websites and individual
investors may prefer to use one-minute or five-minute trading prices in order to cut down on the
sheer volume of data required to keep track of VWAP in a day.
• For a five-minute VWAP calculation you would take the low, plus the high, plus the closing price
within the five-minute period and divide the total by three.
• This gives you a time-weighted average price (TWAP) that is fairly accurate, and you can multiply
this number by the volume traded in the same period to achieve a weighted price.
• Typical price = (H+L+C)/3
http://stockcharts.com/school/doku.
php?id=chart_school:technical_indica
tors:vwap_intraday

44. Breadth Indicators
Advance-Decline
Oscillator &
Advance-Decline
Index
Sibbett’s Demand
Index
Bolton-Tremblay
Schultz
McClellan
Oscillator
Upside/Downside
Ratio
Arms Index (TRIN) Thrust Oscillator
New Highs and
Lows

45. Advance Decline
• The Advance-Decline Line (AD Line) is a breadth indicator based on Net
Advances, which is the number of advancing stocks less the number of
declining stocks.
• Net Advances is positive when advances exceed declines and negative when
declines exceed advances. The AD Line is a cumulative measure of Net
Advances.
• It rises when Net Advances is positive and falls when Net Advances is negative.
• Chartists can use Net Advances to plot the AD Line for the index and compare
it to the performance of the actual index.
• Bullish or bearish divergences in the AD Line signal a change in participation
that could foreshadow a reversal.

46. Advance Decline (Calculations)

47. Advance Decline (Interpretation)
• The AD Line measures the degree of participation in an advance or a decline.
• An AD Line that rises and records new highs along with the underlying index
shows strong participation that is bullish.
• An AD Line that fails to keep pace with the underlying index and confirm new
highs shows narrowing participation.
• Market strength is undermined when fewer stocks participate in an advance.
Narrowing participation is often identified with a bearish divergence between
the AD Line and the underlying index.
• On the downside, the market is considered weak when the AD Line moves to
new lows along with the underlying index.
• This reflects broad participation in the decline.
• A bullish divergence forms when the AD Line fails to record a lower low along
with the index. This means fewer stocks are declining and the decline in the
index may be nearing an end.

48. Advance Decline (Interpretation)

49. Sibbett’s Demand Index
• The Demand Index is a complex technical indicator that uses price and volume to assess the
buying and selling pressure affecting a security.
• Traders can use this information as a leading indicator of where a security’s price may be
headed over the near-term and the long-term.
• Sibbett’s six rules are:
• A divergence between the Demand Index and price is a bearish indication.
• Prices often rally to new highs following an extreme peak in the Demand Index.
• Higher prices with a low Demand Index often indicates a top in the market.
• The Demand Index moving through the zero line suggests a change in trend.
• The Demand Index remaining near zero indicates a weak price movement that won’t last
very long.
• A large long-term divergence between the Demand Index and price indicators a major top or
bottom.

50. Sibbett’s Demand Index
• Bolton-Tremblay Introducing the net advancing stocks compared to the
number of stocks that were unchanged, the Bolton-Tremblay approach also
includes a form of geometric weighting of the results.
• The Bolton-Tremblay calculation will have large spikes on days when the
advancing or declining breadth is very strong, which make the unchanged
number of stocks in the denominator very small.
Schultz
• Schultz choose to look at the advancing stocks only as a percentage of the
total stocks, which puts the results in the convenient range of 0 to 100:

51. McClellan Oscillator
• McClellan Oscillator is a breadth indicator derived from Net Advances, which is
the number of advancing issues less the number of declining issues.
Subtracting the 39-day exponential moving average of Net Advances from the
19-day exponential moving average of Net Advances forms the oscillator.
• As the formula reveals, the McClellan Oscillator is a momentum indicator that
works similar to MACD. McClellan Oscillator signals can be generated with
breadth thrusts, centerline crossovers, and divergences

52. McClellan Oscillator
•
http://stockcharts.com/school/doku.php?id=chart_school:market_indicators:mcclellan_oscillator

53. McClellan Oscillator
• The McClellan Oscillator is positive when the 19-day EMA (shorter moving
average) is above the 39-day (longer moving average) EMA.
• This signals that advances are gaining the upper hand. Conversely, the indicator
is negative when the 19-day EMA is below the 39-day EMA.
• This signals that declining issues are dominating. Signals typical for MACD
apply to the McClellan Oscillator.
• First, the McClellan Oscillator generally favors the bulls when positive and the
bears when negative.
• Second, chartists can look for bullish and bearish divergences to anticipate
reversals.
• Third, chartists can look for breadth thrusts to signal the start of an extended
move.

54. Upside/Downside Ratio
• A simple Upside/Downside Ratio (UDR) is similar to Sibbett's Demand Index
but is not smoothed.
• When the declining volume is very low, for example only 20% of the total
volume, the UDR will have a value of 4.0.
• In contrast, if the advancing volume is low (20% of the declining volume), the
ratio is 0.20.
• There is no upside limit when stocks are advancing but the downside ratio is
limited to the range between 0 and 1.
• This is a familiar pattern for advancing and declining prices expressed as a
percentage.
• High values of the UDR are expected to precede a bull market period.

55. Arms Index (TRIN)
• Richard Arms explains the relationship between the number of advancing and declining
stocks, and the up and down volume, in the Arms Index, more popularly known as TRIN, the
Trader's Index.
• It divides the ratio of the number of advancing and declining stocks by the ratio of the
volume of the advancing and declining stocks.
Thrust Oscillator
• Tushar Chande's Thrust Oscillator (TO) uses the same values as TRIN but creates a bullish
oscillator by multiplying the number of advancing stocks by the volume of the advancing
stocks and subtracting the comparable declining values, then dividing by the sum of the two.
Values of ±30 may be used to identify overbought and oversold levels, respectively

56. New Highs and Lows
• The High-Low Index is a breadth
indicator based on Record High Percent,
which is based on new 52-week highs
and new 52-week lows.
• The Record High Index equals new highs
divided by new highs plus new lows. The
High-Low Index is simply a 10-day SMA
of the Record High Percent, which makes
it a smoothed version of the Record High
Percent.
• New 52-week highs and new 52-week
lows are considered lagging indicators.

57. Interpreting Volume and Breadth Systematically
• Identify trend changes to confirm price direction
• Identifying a Volume Spike
• If volume and price peaks do not occur at the same time, a volume peak
should precede a trend change.
• Combining peak values of the net of smoothed advancing and declining shares
with a directional move in price
• Breadth as a Countertrend Indicator

58. Market Facilitation Index
• tick volume compared to the price range for the same period, called the
Market Facilitation Index, can measure the willingness of the market to move
the price.
• If the Market Facilitation Index increases, then the market is willing to move
the price; therefore trading that benefits from higher volatility should improve.
Tick Volume Market Facilitation Index Interpretation
UP UP Confirmation of direction
DOWN DOWN False direction, do not take trade
DOWN UP Poor entry timing, approach with caution
UP DOWN Potential new trend, end of old trend

59. An Integrated Probability Model
• If there is a noticeable relationship between price, volume, and open interest
(or market breadth), then a probability model can be constructed to test its
importance

60. Intraday Volume Patterns
• tick volume compared to the price range for the same period, called the
Market Facilitation Index, can measure the willingness of the market to move
the price.
• If the Market Facilitation Index increases, then the market is willing to move
the price; therefore trading that benefits from higher volatility should improve.
•

61. Filtering Low Volume
• tick volume compared to the price range for the same period, called the
Market Facilitation Index, can measure the willingness of the market to move
the price.
• If the Market Facilitation Index increases, then the market is willing to move
the price; therefore trading that benefits from higher volatility should improve.
•