powerpoint 6: momentum and volume indicators Flashcards
Volume
the amount of shares or contracts traded over a specified period
is portrayed as a vertical bar below the price bar
what is volume used for
used to confirm price
therefore volume is secondary to price analysis.
Volume displays the intensity of a move in price
what has volume stats somewhat misleading
the increase in arbitrage, HFT and program trading
High volume should go in the direction of what
of the trend
Volume not going with the trend is a warning of what
a warning of impending trend reversal.
Exceptionally high volume is a signal of what?
Exceptionally high volume is a signal of an important change
analysis of volume when prices are rising
Volume increasing is confirming
Volume decreasing is questionable (puts upward trend in question)
analysis of volume when prices are declining
Volume increasing is confirming
Volume decreasing is questionable (puts downward trend in question)
When a price advance halts with high volume, what does it mean
a potential top
When a price advance halts with high volume, what does it mean
a potential top
When a price decline halts with high volume, what does it mean
it is a potential bottom
Volume Indexes
comprised of cumulative sums of data measuring supply and demand over time, rather than a specific period.
They do not have an upper and lower bound.
how to analyze volume using volume indexes
The Level of the index is irrelevant, it shows absolute changes
Compare price with the index looking for divergences between highs and lows in each.
Can utilize trend lines, sometimes pattern analysis.
when are volu.me indexes most useful
in trending markets
On Balance Volume (OBV)
Cumulative index of plus or minus volume days based on change of closing prices.
how is the On Balance Volume calculated
It is calculated as a cumulative total:
–> If price close is higher than the previous day, add the day’s volume.
–> If price close is lower than the previous day, deduct the day’s volume.
effect of price reaching new highs on OBV
If price reaches a new high, confirmation of price strength comes from OBV hitting a new high
High volume should confirm price trend, therefore compare price to OBV
Negative divergence between price and OBV warns what?
warn of a potential price reversal.
if OBV breaks its own support or resistance, what could this mean?
this break may indicate the direction in which the price breakout will occur.
AD index
Accumulation/Distribution index
Similar to OBV, but uses a more specific calculation to calculate the midpoint for the day’s volume:
= Volume X {(Close - Low) – (High - Close)} / (High - Low)
If the close occurs above the midpoint for the day the result is positive accumulation (vice versa)
Volume Related Oscillators
Oscillate between an upper and lower bound
Show relative changes.
Used for divergence analysis, trend lines,
sometimes pattern analysis.
Are more useful for trading range markets
Volume Related Oscillators
A move to high upper bound level creates what?
what about a move to a lower bound level?
A move to high upper bound level creates an “overbought” condition
a move to a lower bound level produces an “oversold” condition.
Volume Oscillator
what is it and its purpose
Is a ratio between two moving averages of volume
is used to determine when volume is expanding or contracting.
Volume Oscillator
what odes expaning volume imply
Expanding volume implies strength in the trend, contracting volume implies weakness in the trend.
useful for confirming trend and for giving advanced warning in a trading range of direction for the next breakout
Chaikin Money Flow
Uses the accumulation/distribution calculation for each day.
calculated by summing the ADs (accumulation/distribution) over the past 21 days and dividing that sum by the total volume over the past 21 days.
This produces an oscillator that rises above zero when an upward trend begins and declines below zero when the trend turns downward
Volume spikes
Usually a test of a significant support or resistance level.
A sign of a sudden change in information (gap) or other pattern breakout
when are volume spikes most common
Most common at the beginning and end of a trend.
momentum
leads price action
the measure of the velocity of price movements, rather than price movements themselves
It is the rate of change of price
how can technical analysts use momentum?
gives the technical analyst advanced warning of a potential trend change
the rate of change of price
measures how quickly prices are rising or how steeply the trend line is sloping (second derivative of price action over some period).
the different types of momentum indicators relevant to exam
Rate of Change (ROC)
Moving Average Convergence Divergence (MACD)
Stochastic
Relative strength Index (RSI).
Momentum indicators/oscillators
provide leading signal generators and confirms price
