In the August edition of Stocks and Commodities magazine, Buff Pelz Dormeier discusses Volume flows that help to validate trending and even non trending price movements. This study presents an updated trend-following trading system based on combining the ADX with the trend thrust indicator and volume price confirmation indicator.
The AIQ code for VPCI and related indicators is given below. This code can be used to develop trading systems, or the indicator can be used as a filter for existing systems. I tried different plotted indicator displays and decided that two smoothed VPCI indicators plotted as a histogram, which shows the difference between the two smoothed indicators, would give the most useful display.
The indicator plot shown below uses parameters of 50 and 10 days to compute the VPCI, then takes two simple averages of this VPCI using 5 days and 10 days. The difference between these two smoothed indictors is then plotted as a histogram.
!! CONNECITON & AFFINITY BETWEEN PRICE & VOLUME
! Author: Buff Dormeier, TASC July 2007
! Coded by: Richard Denning 5/11/07
! PARAMETERS
Price is [close].
LT is 50.
ST is 10.
S is 5.
SS is 10.
! SIMPLE MOVING AVERAGE OF PRICE (SMA)
SMA_L is sum(Price,LT) / LT.
SMA_S is sum(Price,ST) / ST.
V is [volume].
! VOLUME-WEIGHTED MOVING AVERAGE (VWMA)
VTOT_L is sum(V,LT).
VWMA_L is sum(Price * (V / ^VTOT_L),LT).
VTOT_S is sum(V,ST).
VWMA_S is sum(Price * (V / ^VTOT_S),ST).
! VOLUME-PRICE CONTRADICITION/CONFIRMATION (VPC + / - )
VPC is VWMA_L - SMA_L.
! VOLUME PRICE RATIO (VPR)
VPR is VWMA_S / SMA_S.
! VOLUME MULTIPLIER (VM)
VMA_S is sum(V,ST) / ST.
VMA_L is sum(V,LT) / LT.
VM is VMA_S / VMA_L.
! VOLUME-PRICE CONFIRMATION INDICATOR (VPCI)
VPCI is VPC * VPR * VM.
! SMOOTHED VOLUME-PRICE CONFIRMATION INDICATOR(sVPCI)
sVPCI is sum(VPCI,S) / S.
ssVPCI is sum(VPCI,SS) / SS.
! INDICATOR FOR HISTORIGRAM PLOTTING.
dsVPCIss is sVPCI - ssVPCI.
FIGURE 9: AIQ. SPY shown with 50-day VWMA (red), 10-day VWMA (yellow) and sVPCI, ssVPCI (50,10,5,10) historigram (lower indictor plot in white).
—Richard Denning
rdencpa@gmail.com
for AIQ Systems
