CHARTS, TRENDS, AND PATTERNS - Section 2 - Chapter 13 Part II- Confirmation - Volume Indicator & Oscillator

1. Lecture - 21
Volume Confirmations
CMT LEVEL - I

2. CMT LEVEL - I
Learning Objectives
 Volume indicators and Index
- On-Balance-Volume (OBV)
- Price and Volume Trend
- Williams Variable Accumulation
Distribution (WVAD)
- Chaikin Accumulation Distribution (AD)
- Williams Accumulation Distribution (WAD)
 Volume-Related Oscillators
- Chaikin Money Flow
- Twiggs Money Flow
- Chaikin Oscillator
- Money Flow Index (Oscillator)
- Elder Force Index (EFI)
- Ease of Movement (EMV)
- Volume Rate of Change

3. On Balance Volume
• On-balance volume (OBV) is a technical indicator of momentum,
using volume changes to make price predictions.
• OBV shows crowd sentiment that can predict a bullish or bearish
outcome.
• Comparing relative action between price bars and OBV generates
more actionable signals than the green or red volume histograms
commonly found at the bottom of price charts.
• On-balance volume provides a running total of an asset's trading
volume and indicates whether this volume is flowing in or out of a
given security or currency pair. The OBV is a cumulative total of
volume (positive and negative).

4. On Balance Volume
• Below is a list of 10 days' worth of a hypothetical stock's
closing price and volume:
• Day one: closing price equals $10, volume equals 25,200
shares
• Day two: closing price equals $10.15, volume equals 30,000
shares
• Day three: closing price equals $10.17, volume equals 25,600
shares
• Day four: closing price equals $10.13, volume equals 32,000
shares
• Day five: closing price equals $10.11, volume equals 23,000
shares
• Day six: closing price equals $10.15, volume equals 40,000
shares
• Day seven: closing price equals $10.20, volume equals 36,000
shares
• Day eight: closing price equals $10.20, volume equals 20,500
shares
• Day nine: closing price equals $10.22, volume equals 23,000
shares
• Day 10: closing price equals $10.21, volume equals 27,500
shares
• Day one OBV = 0
• Day two OBV = 0 + 30,000 = 30,000
• Day three OBV = 30,000 + 25,600 =
55,600
• Day four OBV = 55,600 - 32,000 =
23,600
• Day five OBV = 23,600 - 23,000 = 600
• Day six OBV = 600 + 40,000 = 46,600
• Day seven OBV = 46,600 + 36,000 =
76,600
• Day eight OBV = 76,600
• Day nine OBV = 76,600 + 23,000 =
99,600
• Day 10 OBV = 99,600 - 27,500 =
72,100

5. On Balance Volume

6. Williams Variable Accumulation Distribution (WVAD)
• Williams Accumulation Distribution is traded on divergences.
• When price makes a new high and the indicator fails to exceed its
previous high, distribution is taking place.
• When price makes a new low and the WAD fails to make a new low,
accumulation is occurring.
• Trading Signals
• Go long when there is a bullish divergence between Williams
Accumulation Distribution and price.
• Go short on a bearish divergence.

7. Williams Variable Accumulation Distribution (WVAD)

8. Chaikin Accumulation Distribution
• Developed by Marc Chaikin, the Accumulation Distribution Line is a
volume-based indicator designed to measure the cumulative flow of
money into and out of a security.
• Chaikin originally referred to the indicator as the Cumulative Money
Flow Line.
• cumulative indicators, the Accumulation Distribution Line is a
running total of each period's Money Flow Volume.

9. Chaikin Accumulation Distribution

10. Williams Accumulation Distribution (WAD)
• Williams Accumulation Distribution is an indicator used in technical
analysis to gauge bullish and bearish price pressure by comparing
positive (accumulation) and negative (distribution) price
movements.
• Williams Accumulation /Distribution was created by Larry Williams
to measure positive and negative market pressure.
• Williams' Accumulation/Distribution is based solely on price data
and here accumulation/distribution represents sum of positive
(accumulation) and negative (distribution) price movements.

11. Williams Accumulation Distribution (WAD)
• As a rule, when price moves up, WAD moves up - positive price
movements are added to this indicator.
• During price decline, negative price movements are subtracted from
WAD and this indicator moves down.
• However, since Larry Williams uses True High (TRH) and True Low
(TRL) in Accumulation/Distribution calculations
• there could be situation when price makes a new high and WAD
does not or price drops to a new Low and WAD fails to do it.
• To understand better what exactly we have when we are looking for
the price/indictor divergence

12. Williams Accumulation Distribution (WAD)

13. Volume Related Oscillators
Chaikin
Money Flow
Twiggs Money
Flow
Chaikin
Oscillator
Money Flow
Index
(Oscillator)
Elder Force
Index (EFI)
Ease of
Movement
(EMV
Volume Rate
of Change

14. Chaikin Money Flow
• Chaikin Money Flow is an indicator measuring Money Flow (Volume
x Price) over selected period of time.
• The CMF indicator uses CLV to define whether volume is bullish or
bearish.
• The Accumulation Distribution indicator is used in technical analysis
to define the degree of buying or selling pressure.
• If a stock trades in the upper half of its period's range, the buying
pressure is dominant and the volume associated with this trading
range is considered to be Bullish Volume.
• Alternatively, if a stock trades in the lower half of its period's range,
the selling pressure is dominant and the volume associated with this
trading range is considered to be Bearish Volume.

15. Chaikin Money Flow

16. Twiggs Money Flow
• Twiggs Money Flow is used to evaluate bullish and bearish money flow
by calculating the ratio between weighted and simple volume moving
averages.
• Where Weight volume MA depends on a closing price location.
• Twiggs Money Flow indicator was developed by Colin Twiggs for
incredible charts to improve Chaikin Money Flow (CMF).
• The main idea behind the TMF indicator is to evaluate volume (money
flow) as bullish or as bearish based on a close price location.
• Chaikin Money Flow uses CLV (Close Location Value) to do it. Twigs
Money Flow, on the other hand, uses TR (True Range).
• Another main difference is that CMF uses cumulative volume (sum of
volumes over specified period) and the TMF applies Moving average to
the volume.

17. Twiggs Money Flow
• TMF is quite choppy indicator, that is why in some cases it could be
recommended using moving average applied to it.
• On our charts you may see this MA as a signal line applied to TMF.
• Twiggs Money Flow indicator would be to buy when it turns positive
and to sell when it turns negative.
• Also, bullish signals could be generated when bullish divergence is
noted and sell signals could be generated on bearish divergence.
• In this case, signals could be generated on the crossovers of the
signal line and zero line, on the crossovers of the TMF and the signal
line and on the divergence of the signal line.

18. Twiggs Money Flow

19. Chaikin Oscillator
• Chaikin Oscillator is used in volume based technical analysis to
measure Accumulation and Distribution and to generate Bullish and
Bearish signals.
• The principles of Chaikin Oscillator calculation are similar to those of
MACD.
• As the MACD-Histogram is used in technical analysis to show moving
average crossovers in MACD, so the Chaikin Oscillator is used to see
changes in the Accumulation/Distribution Line.
• Furthermore, most of the principles used in MACD to generate
trading signals can be used in trading system based on the Chaikin
Oscillator.

20. Chaikin Oscillator
• As a rule, a Bullish (Buy) signal can be generated on positive
divergences, while a negative divergence will generate a Bearish
(Sell) signal.
• At the same time, center line crossovers can be used to generate
signals: a Bullish signal when the Chaikin Oscillator moves above the
zero line after having been below it and a Bearish signal when the
Chaikin Oscillator drops below zero after having been above.
• The Chaikin Oscillator adds momentum to the Accumulation
/Distribution Line. However, it can be too volatile and very sensitive
to the changes in the accumulation distribution line.

21. Chaikin Oscillator

22. Money Flow Index (Oscillator)
• Money Flow Index is normalized ratio between positive and Negative Money
Flow.
• The MFI indicator is used to track changes in Money Flow as an indication of
changes in a price trend.
• The principle of MFI calculation is a comparison of "positive money flow" to
"negative money flow".
• The same as RSI, the MFI scale is between 0 and 100.
• 14-bar period is the most commonly used period setting for MFI daily chart.
• The Money Flow Index can be interpreted much like the RSI and other volume
based technical indicators by looking at divergences which may signal possible
trend reversal.
• The same as with RSI, MFI can be used to define overbought/oversold conditions
where a stock (index) is considered "overbought" if the MFI runs above 80 and
"oversold" if MFI drops below 20.

23. Money Flow Index (Oscillator)

24. Elder Force Index (EFI)
• Force index is volume based technical indicator measuring efficient
bullish and bearish Money Flow forcing a price change.
• Force Index, developed by Alexander Elder, is used in technical
analysis to recognize bullish and bearish trends as well as define
their strength.
• Force Index oscillates around zero line (center line).
• The negative Force Index's readings are associated with bearish
trend
• The positive Force Index's reading are associated with Bullish trend.

25. Elder Force Index (EFI)

26. Ease of Movement (EMV)
• Ease of Movement is an indicator measuring Money Flow. The EMV
indicator is similar to Force Index with the difference that Middle
Price is used in calculations instead of closing price.
• Easy of Movement (EMV) was developed by Richard Arms to
measure the "easy" of price movement - relationship between the
rate of a price change and volume.
• The Easy of Movement indicator fluctuate around zero line.
• Positive EMV readings indicate positive (bullish) money flow and
buying pressure.
• Negative EMV readings indicate selling pressure and negative
(bearish) money flow.

27. Ease of Movement (EMV)
• Positive EMV readings indicate positive money flow - dominance of
the Bulls.
- Negative EMV readings indicate negative money flow - dominance
of the Bears.
- Advancing EMV readings reveal increasing buying pressure - the
Bulls are coming into the "game".
- Declining EMV readings reveal increasing selling pressure - the
Bears are growing.
- The longer EMV stays in the positive area the bigger bullish volume
is accumulated - the stronger overbought level.
- The longer EMV stays in the negative area the bigger bearish
volume is accumulated - the stronger oversold level.

28. Ease of Movement (EMV)

29. Volume Rate of Change
• Volume ROC is an indicator used in technical analysis to evaluate rate of
change in trading volume over specified period of time.
• The Volume Rate of Change (Volume ROC) is identical to the ROC (Rate of
Change) technical indicator that displays the percentage difference
between the current Volume and the volume n-time periods ago.
• A high volume ROC indicates volume surges and can be used to define
the overbought/oversold moments that can lead to a trend reversal.
It is good practice to scroll backwards on the chart to the recent past
(several frames back) to look for connections between Volume ROC,
volume surges and the price reversal and try to apply them to the current
market.
It is a good idea to use this indicator in conjunction with other price-
based technical indicators.

30. Volume Rate of Change