Constructing finite volume elements as a finite-period money-flow filter

Two families of money-flow readings

Volume-based money-flow tools can be split into intra-day constructions that compare the close with the day's midpoint or open, and inter-day constructions that compare today's price with yesterday's.

A gap at the open can make an intra-day money-flow reading bullish while an inter-day reading stays bearish. The two families of signals can therefore disagree on the same bar. Finite volume elements is a Volume-price analysis construction meant to hold both kinds of price action in one running volume total.

How the finite-volume total is built

The series is constructed as a running volume total that uses both intra-day and inter-day price action and looks back only over a finite window, commonly the most recent 18 to 24 days, with 22 trading days as the default.

Unlike On-balance volume, which uses the close, the finite-volume construction measures day-to-day change from typical price, defined as (high + low + close) / 3, because a single closing print can be distorted by a last-minute trade.

Intra-day money flow in the same construction is taken from the close relative to the day's midpoint, (high + low) / 2. The open is not used, because it can be influenced by the floor specialist.

In the worked construction, a volume bar is signed plus, minus, or zero according to whether a combined money-flow term exceeds a band of 0.3 percent of the close. The signed volume is then summed over the chosen period, divided by the period moving average of volume and by the period length, and scaled by 100.

Historical bars that split the readings

On 15 August 2001, Enron gapped down 2.7 points, or 6 percent. A 21-day Chaikin money-flow reading rose to 0.25, while 21-day finite volume elements printed -52.4. Both that series and On-balance volume made lower lows.

From 7 August to 5 September 2001, Jack In The Box made new price highs that On-balance volume confirmed. Finite volume elements and Chaikin money flow made lower highs and lower lows, as the stock closed below the day's midpoint more than half the time.

Handles, triangles, and Breakout confirmation

The same finite-volume construction is presented as a way to time a handle and to judge the direction of a breakout from a triangle. Market outcomes are still treated as probabilities rather than certainties.

Editorial reading: use the finite-period total as a Volume-price analysis check on whether intra-day and inter-day money flow still conflict before Breakout confirmation is treated as a testable hypothesis. That sequencing is a TradersWeek interpretation of the archive workflow.