Construct a volatility-adjusted on-balance volume filter before confirming a breakout

Start with enough movement

Editorial: read this as a construction checklist, not as a finished indicator. First decide how much of a bar's range is enough movement to count as buying or selling. Only then ask whether the signed volume is confirming a breakout.

On-balance volume adds or subtracts a bar's volume according to whether that bar is classified as buying or selling pressure. Volume-price analysis is the classification step. A bar's location in its range, and the size of that range relative to recent volatility, decide whether volume is assigned, ignored, or treated as noise.

Typical price and two volatilities

A bar's typical price is the average of high, low, and close. That value is the reference both for locating the close in the bar and for measuring change from the prior bar.

Intra-bar volatility is the sample standard deviation of the log high-minus-log low range. Inter-bar volatility is the sample standard deviation of the log change in typical price.

Sign volume only after the cutoff

The volatility cutoff that decides whether a bar's volume is signed is a weighted sum of those two volatility measures, using separate intra-bar and inter-bar coefficients. That cutoff is then compared with the money-flow component scaled by close.

The money-flow component adds the close's distance from the bar midpoint to the change in typical price. Only when that score exceeds the cutoff times close is volume tagged +1. Only when it falls below the negative of that product is volume tagged -1. Otherwise the bar contributes zero signed volume.

A bounded oscillator, not a running total

The finite volume element reading is one hundred times the sample-window sum of signed volume, divided by average volume times the same sample length. The result is a bounded, percentage-like oscillator rather than an unbounded cumulative total.

On bars classified as less than daily, the construction substitutes tick count for reported volume so the same signed-volume formula can be applied to intraday and tick charts. On daily and higher bars, reported volume remains the input so the formula stays consistent across timeframes.

One signing decision for every plot

A shared volatility-adjusted signing function is intended to feed the oscillator, the color-coded volume bars, and the example strategy so every plot uses the same plus-minus-or-flat volume decision.

Volume bars can be colored from the same +1, -1, or 0 signing factor. A separate alert can fire when volume crosses a stated percentage above its moving average, separating participation color from a volume-expansion warning.

Treat the breakout as a test that can fail

A breakout is a price move through a recent range that is treated as a hypothesis only when a volume-price filter agrees that participation, not just price, has changed.

One stated alert condition looks for the oscillator between -20 and 10, above its exponential average, and with a sufficiently steep linear-regression angle. That combination is treated as a candidate breakout confirmation rather than a standalone entry rule.

Example strategy inputs pair an oscillator entry band and a minimum oscillator regression angle with a price-slope band and optional time-based exit. A breakout hypothesis can be rejected if either the volume-price filter or the price path fails its constructed test.

Editorial: the useful product is the falsifiable checklist. If the signed-volume filter or the price-path band fails, the breakout hypothesis is rejected.