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Learn to quickly identify when price and volume are in or out of step Topic Rating:
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Craig_S
Posted : Thursday, December 16, 2004 3:39:07 PM


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Keywords: Price volume trend linear regression custom indicator visual sort sorting

- Craig
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To view this video you must have Macromedia Flash Player and Microsoft Internet Explorer 5+
Craig_S
Posted : Friday, December 17, 2004 7:02:50 AM


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Here is the example formula for the custom indicator used in the video:

((AVGC10 - AVGC10.10) * (AVGV10 - AVGV10.10)) + ((AVGC5 - AVGC5.5) * (AVGV5 - AVGV5.5))

- Craig
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lskamil
Posted : Sunday, December 19, 2004 5:22:41 AM
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How do I view the video. I have the most current version of flash player installed. Please help

Thank you
Bruce_L
Posted : Sunday, December 19, 2004 9:15:27 AM


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lskamil,
Are you using Microsoft Internet Explorer 5+?

-Bruce
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lskamil
Posted : Sunday, December 19, 2004 7:07:41 PM
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Yes, thank you.
Doug_H
Posted : Monday, December 20, 2004 8:12:16 AM


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Do you see the Press the Play Button to start Video Now sign as the very first post in this thread? Or is the first post just an empty window?

- Doug
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lskamil
Posted : Monday, December 20, 2004 9:46:54 AM
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I got it.

Thank you.
jfisamm
Posted : Sunday, December 26, 2004 4:03:07 AM
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Posts: 44
Hi Craig

Enjoyed your video on comparing Price and Volume.

Can I use the same approach to find divergence between Price and any plotted indicator ? eg price and MACD , price and ROC and Stoch,etc

Thanks for your help

Jack
Craig_S
Posted : Sunday, December 26, 2004 8:02:15 AM


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Part of what makes this method so easy is the ease that simple price and volume can be used in a PCF. As for using regression lines on other indicators the way I used it on volume... yes! I would consider using this method:


1. Put identical regression lines on price and on your indicator.
2. Visually sort by the price regression line slope in decending order and flag any that have a positive slope.
3. Sort the same list again by the visual slope of the regression line on the idicator in ascending order. Press your home key to go to the top of the list.
4. Hold SHIFT as you press your space bar. You will see all the flagged stocks at the top of the list with a negative slope in the indicator. The flagged stocks have a positive slope in price.

For negative price with a positive sloping indicator, just reverse this procedure.

- Craig
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639649
Posted : Friday, March 04, 2005 6:40:22 AM
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Hi Craig, Your video of Dec 16,2004 on price and volume being in or out of step with each other was terrific. I have a problem with one premise. You state that when the price is rising (on a 10 day regression line) and the volume is rising, then price and volume are in step. No problem with that. However, when price is falling, you say that if volume is falling, price and volume are in step. That is false. I say that if price is falling and volume is rising that price and volume are IN step because it indicates strength in the downtrend. You mention that in the video. Your formula, as now constructed, wrongly shows a downtrend out of step when price downtrends and volume increases. It rightly shows in step when price uptrends and volume increases. If I am right on this, please correct the formula and let me know because I am using it now. Thanks, Bill Benson 639649
Craig_S
Posted : Friday, March 04, 2005 8:53:02 AM


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I can see how you could look at it this way. I used "in" and "out" of step only as they are going in the same direction... ie. both are up, both are down. I did not intend for the terms to thought of as IN is strong trend, OUT is weak trend.

Based on what you say above (which I agree with), think of IN as being more bullish and OUT as being more bearish. If both are going up, indicates possible bullish strength, if both are going down, indicates less bearish strength (more bullish).

Does that help?

- Craig
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639649
Posted : Friday, March 04, 2005 11:15:34 AM
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No. If price is going down on increasing volume, that is a stronger downtrend than if it were going down on decreasing volume. Therefore, the formula should show a rising line on a downtrend where volume is rising. The terminology, in step, or, out of step, should be ignored here. I believe the formula should have a rising line on an uptrend with rising volume and the formula should have a rising line in a downtrend with rising volume. Contrarywise, the formula should show a declining line if the price is in an uptrend with volume decreasing or when price trends down on decreasing volume. Is that what the formula line does now? Thanks, Bill 639649
Craig_S
Posted : Friday, March 04, 2005 11:20:59 AM


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The formula now returns a positive number if they are both in the same direction, a negative number if they contradict.

If the line is posituve then the two are both in the same direction - price up and volume up (potentially bullish). Price down and volume down (potentially less bearish).

Don't think of the line as revealing the strength of the trend. Think of it only as measuring if volume and price are both increasing or decreasing.

- Craig
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639649
Posted : Friday, March 04, 2005 11:33:25 AM
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Thanks. I don't like it behaving that way. Would it be possible to redo the formula so it behaves the way I described? It would be much more useful to me if it behaved the way I want. Thanks much. Bill
Craig_S
Posted : Friday, March 04, 2005 12:01:43 PM


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I will play around with it. Remember the indicator is only intended to sort the WatchList to uncover the relationship between the LRs, not the strength of the trend.

Within the video concept of finding if the two lines are going in the same direction, you want it to work as it is presented.

If I understand you correctly, what you are looking for is just expanding or just contracting volume. You see expanding volume as a sign of the strength of the current trend in price. The direction of price does not matter.

In this case, just sort by the slop of the LR on volume. Try it and see if I am right.

- Craig
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639649
Posted : Friday, March 04, 2005 12:05:54 PM
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What is an LR? Is it a line of regression?
Craig_S
Posted : Friday, March 04, 2005 12:08:06 PM


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Sorry... Linear Regression. In the video I have you plot linear regression lines on price and volume. Right click on the regression line on volume and sort by it. Take a look at the results and let me know.

QUOTE (Craig_S)
If I understand you correctly, what you are looking for is just expanding or just contracting volume. You see expanding volume as a sign of the strength of the current trend in price. The direction of price does not matter.


Was this assumption correct?

- Craig
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639649
Posted : Friday, March 04, 2005 12:11:37 PM
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Also, I was thinking that there could be value in seeing the formula line strength of ascent or descent to help determine the likelihood of a trends continuance or reversal. Bill
639649
Posted : Friday, March 04, 2005 12:19:36 PM
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What would be the purpose in right clicking on the regression line and sorting by it? My interest in this PCF is to determine the strength of a trend and it's likelihood of continuance or reversal on a single stock.
Craig_S
Posted : Friday, March 04, 2005 12:24:59 PM


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If I understand you correctly, a strong trend up or down is determined by expanding volume. Am I correct?

If I am, then by sorting based on the slope of the linear regression line, you will rank the stocks by the volume. The ones with volume increasing will be in stronger trends, in your eyes, than ones with contracting volume. This ranking will let you isolate and find either.

- Craig
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Doug_H
Posted : Friday, March 04, 2005 12:27:57 PM


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639649:

You may already be aware of this, but if you're looking for an indication of the strength of a trend, regardless of the direction of the trend, the ADX indicator may be just the ticket for you.

In case you are unfamiliar with ADX, here are two videos you may find helpful:

Average Directional Index (ADX)
Sorting by the ADX indicator

- Doug
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639649
Posted : Friday, March 04, 2005 12:41:24 PM
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Yes, a strong up or down trend is verified by increasing volume. But, I have no interest in sorting a watchlist by the strongest increasing volume. I have other indicators that interest me more such as stochastics, MS,TSV to try to pick turning points. I am usually in a stock several days before I get interested in the trend and its likelyhood of continuance. If I am not yet in a stock, then it would be valuable to learn the strength of the trend and it's likelyhood of continuance or reversal. I still beleive that your new PCF for price/ volume would be of more value to me if it performed as I requested and increased on a strengthening trend and decreased on a weakening trend. Why? This would let me see at a glance of the PCF line what the trend is likely to do. Moreover, I beleive that the PCF line would start to reveal turns in trends better than a look at the price LR line and the volume LR line by eye.
Craig_S
Posted : Friday, March 04, 2005 12:56:23 PM


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I see.

The indicator I used in the video was only intended to be sorted by and holds not technical value for charting.

The only value of the indicator is as shown in the video to help isolate stocks based on the relationship of the linear regression lines on their price and volume.

As for making an indicator to do what you like.... that is really outside what we Trainers are allowed to do. Perhaps other users can help you design an indicator that tries to reveal what you are looking for.

I would also consider looking at a Rate of Change on Volume and how it relates to the Price Rate of Change.

- Craig
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639649
Posted : Friday, March 04, 2005 1:01:11 PM
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Thanks Craig.
Craig_S
Posted : Friday, March 04, 2005 1:03:31 PM


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Wish I could do more...

- Craig
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Doug_H
Posted : Friday, March 04, 2005 1:09:20 PM


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Just in case my post got lost in the mix...don't forget to look at ADX. It is designed to indicate strength or weakness of a trend, and when a trend may change.

- Doug
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639649
Posted : Friday, March 04, 2005 1:44:57 PM
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Thanks Doug, yes I have ADX on my charts, and it does indicate strength or weakness of a trend. I needed a reminder. All the torture I just put Craig through was unnessary. I have been using 14 days but it seems like that is late to the party for me. I'll play around with it. Bill Benson 639649
Doug_H
Posted : Friday, March 04, 2005 1:48:52 PM


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Good deal! I'm sure Craig wasn't tortured at all. You actually brought up a very valid alternative way to view his concept of price and volume being in and out of step with each other. In the discussion, though, you kept mentioning how you were mainly interested in judging the quality or strength of a trend...and that's what ADX was designed to do.

- Doug
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DavidBSchoon
Posted : Friday, January 27, 2006 7:33:38 AM
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Craig, nice job on this video; very useful, thank you!

DavidBSchoon
mjwilt
Posted : Sunday, April 01, 2007 9:51:50 AM
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I enjoyed this video. Now that I am trying to adjust the time period of the regression lines and the indicator, I noticed that 10 and 5.5 were used in the formulas for the 20 and 10 day regression lines. Why is that? What would the formula be for using a 50 and 30 day regression in the formula?

Craig_S
Posted : Sunday, April 01, 2007 10:38:20 AM


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10 is half of 20 and 5 is half of 10.

Try this:
50-day and 30 regressions
((AVGC25 - AVGC25.25) * (AVGV25 - AVGV25.25)) + ((AVGC15 - AVGC15.15) * (AVGV15 - AVGV15.15))

- Craig
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