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2007issue C071-10

Constructing a three-factor volume-price confirmation filter

A volume-price confirmation series can be built as the product of a long-window average gap, a short-window price-average ratio, and a participation ratio, then used only as a gate on a separate trend signal.

  • Volume-price analysis can assemble a confirmation series that classifies whether volume agrees with or opposes the prevailing price trend.
  • A simple price average records level changes but omits participation, so the core term is the gap between a long-window volume-weighted price average and a simple price average of the same length.
  • The finished series multiplies that long-window gap by a short-window volume-weighted-to-simple price ratio and a short-to-long volume-average ratio, then a moving average of the product lets the pair be read as a line-and-signal oscillator.
  • Volume confirmation can gate a separate MACD crossover with that product, or with on-balance volume in the same role, and tick count can replace share volume when share volume is unavailable.
Entries in this reading3 entries
On-balance volume25 readingsCurrent trackVolume confirmation54 readingsVolume-price analysis129 readings

What the series is built to classify

The volume-price confirmation series is built to classify whether volume agrees with or opposes the prevailing price trend. Volume-price analysis starts from that classification rather than from a standalone entry rule.

A simple moving average of price records level changes but omits participation, while a volume-weighted average rescales each close by that bar's share of lookback volume.

Assemble the product from three terms

The core confirmation term is the difference between a long-window volume-weighted price average and the same-length simple price average.

The finished series is the product of that long-window average gap, a short-window volume-weighted-to-simple price ratio, and a short-to-long volume-average ratio.

Use the product as a gate

Reconstructions typically plot both the raw product and a moving average of the product so the pair can be read as a line-and-signal oscillator.

One construction uses the series as a confirmation gate on a separate MACD crossover, allowing a long only when the product is above its own average and a short only when it is below.

Weekly VPCI on Toyota Motor, 2004–2007

The red trace is the three-factor volume-price confirmation product on weekly Toyota Motor; the blue trace is its 20-week average. Raw buy and sell arrows on the price pane fire when this product crosses that average, which is how the source uses the series as a gate on a separate MACD/ADX trend rule. Points were read from the AmiBroker VPCI pane, not from a printed table.
The red trace is the three-factor volume-price confirmation product on weekly Toyota Motor; the blue trace is its 20-week average. Raw buy and sell arrows on the price pane fire when this product crosses that average, which is how the source uses the series as a gate on a separate MACD/ADX trend rule. Points were read from the AmiBroker VPCI pane, not from a printed table.TM · weekly · 2004-07-01T00:00:00.000Z to 2007-05-31T00:00:00.000Z

VPCI windows are 5 and 20 weeks; the average uses 20 weeks. Last on-screen readings are −0.97 and 0.33 on the 10 May 2007 bar. Monthly samples from a weekly raster, so peaks and troughs are approximate.

On-balance volume as a substitute gate

The same gate design can substitute on-balance volume, allowing a long only when on-balance volume is above its own average and a short only when it is below.

Independent reconstructions chart the product beside on-balance volume so the two volume-based confirmation series can be compared on the same bars.

Tick count when share volume is missing

When share volume is unavailable, the same formulas accept tick count, the number of price changes in the bar, as the volume input.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
19 of 40 in the Volume confirmation track
20071-9 pp.Next on Volume confirmationConstructing a three-condition moving-average entry with a volume filterA long entry requires three conditions at once: the open above the moving average, prior-bar volume above a volume filter, and a negative open-to-prior-close change.
All readings on this track · 40 readings
  1. 1988Constructing volume-confirmation overlays on OHLC spreadsheet charts
  2. 1989Commodity advance-decline from delivery months
  3. 1989The most-active list as a three-layer breadth lab
  4. 1989Constructing a yield-curve volume-breadth composite
  5. 1989A bond-futures case study in support, volume, and confirmation
  6. 1989Volume-scaled price boxes and volume cycles
  7. 1990Futures-signed on-balance volume construction
  8. 1990Self-relative volume boxes for news-free breakouts
  9. 1990Broadening swings, demand tests, and volume filters
  10. 1991A same-session pressure test of breadth and volume share
  11. 1991Tick extremes that confirm double tops and bottoms
  12. 1991Constructing auction fuel from volume and open interest
  13. 1994Constructing On-balance volume with smoothing and timeframe confirmation
  14. 1996A volume-gated moving-average trend combination
  15. 1996Constructing four-state range-volume bars
  16. 1997Failed trade review of a descending-triangle breakdown
  17. 1997Construct a head-and-shoulders before the neckline break
  18. 2004Volume confirmation is not optional for a head-and-shoulders reversal
  19. 2007Constructing a three-factor volume-price confirmation filter
  20. 2007Constructing a three-condition moving-average entry with a volume filter
  21. 2008Breakout rules that wait for volume and liquidity
  22. 2011Screen futures liquidity with open interest and volume
  23. 2011Filter executable futures with liquidity and open interest
  24. 2012Rank listed futures by liquidity before a forecast chooses the name
  25. 2012Filter futures liquidity using open interest and volume
  26. 2013Pre-trade futures liquidity as an execution filter
  27. 2014A futures liquidity screen from range, open interest and volume
  28. 2014Evaluating futures contract liquidity before execution
  29. 2014Constructing defended price lines from volume clusters
  30. 2014Filter futures by equal-dollar size, open interest, and volume
  31. 2015Filter futures ideas by ranked contract liquidity
  32. 2017Screen listed futures for execution liquidity first
  33. 2017Filter futures orders by liquidity, open interest, and volume
  34. 2018Using open interest and volume to rank futures liquidity
  35. 2018Score listed futures as an execution menu before the setup
  36. 2019Filtering futures orders with liquidity, open interest and volume
  37. 2019Futures liquidity as an execution filter
  38. 2020A futures liquidity board as a pre-trade execution filter
  39. 2020Sequenced volume and golden-cross breakout rules
  40. 2020Use a listed-futures liquidity filter before execution
By fieldIndicators and filters682 readingsBy year200773 readings
All 54 readings tagged Volume confirmation
Also on Volume confirmation5 readings
1988Constructing volume-confirmation overlays on OHLC spreadsheet chartsOn-balance volume1989Constructing a yield-curve volume-breadth compositeOn-balance volume1990Futures-signed on-balance volume constructionOn-balance volume1994Constructing On-balance volume with smoothing and timeframe confirmationOn-balance volume1990Constructing a signed-range negative volume lineOn-balance volume