Constructing a price-volume percent-B disparity

The archive construction converts the close to percent-B and converts a volume series to percent-B over the same lookback, then combines the two readings. The volume series may be on-balance volume or the negative volume index.

A unitless percent-B map

Price percent-B is the close minus the lower band, divided by the distance between the upper and lower bands. A value of 0 is the lower band, a value of 1 is the upper band, and values outside 0 to 1 mean the close is outside the bands.

Bollinger Bands are an average of a chosen series plus and minus two standard deviations. The latest reading's place between those bands is percent-B. When each band is two standard deviations from the mean, the percent-B denominator equals four standard deviations of the series.

Percent-B is computed only when the upper band minus the lower band is not zero.

The same map on volume

On-balance volume is a cumulative volume series that adds volume on an up close and subtracts volume on a down close, then is band-normalized with the same lookback as price. The same percent-B construction used on price is applied to on-balance volume over the same lookback before the two readings are combined.

The negative volume index is a volume-conditioned series that updates only when volume is lower than the prior bar. The construction initializes the series and then adds the close-to-close percent change only on bars when volume is lower than the previous bar. It is used as an interchangeable input in the same disparity-ratio construction.

The disparity ratio

The disparity series is one plus price percent-B, divided by one plus the percent-B of the chosen volume series. That disparity-ratio keeps the same form whether the matching volume series is on-balance volume or the negative volume index.

Lookback and threshold levels

One documented construction uses a 33-bar lookback for the bands and compares a four-bar average of the disparity series with preset buy and sell levels.

In one on-balance-volume construction the buy-level parameter is 0.85 and the sell-level parameter is 0.95. Substituting the negative volume index keeps the same ratio form and changes those parameters to 0.95 and 1.1.