1989issue C121
Volume confirmation windows and exponential average construction
A volume overlay is built from three construction knobs: a chart period that can make the series unreadable, a joint-extremum test that turns confirmation and non-confirmation into yes-or-no events, and an exponential-moving-average that keeps older observations in the running value.
- A plotted indicator is read by its location relative to earlier points on the same chart, not by the raw numeric level of the line.
- The period is a design parameter because some volume constructions become unreadable if that window is lengthened or shortened.
- Confirmation is a joint new high or new low inside the window. Non-confirmation is a price extreme the indicator does not match, and that split is a divergence-style reversal hypothesis.
- An exponential-moving-average keeps older observations in the running value, and the smoothing-constant is a fraction strictly between 0 and 1.
Read location, not the raw level
A plotted indicator is read by its location relative to earlier points on the same chart, not by the raw numeric level of the line.
Volume-price-analysis compares the last observation in a chosen window for both a price index and a volume-linked indicator with their positions earlier in that same window.
The period can make the series unreadable
The chart window, counted in trading days or weeks, is the period. It is treated as a design parameter because some volume constructions become unreadable if that window is lengthened or shortened.
A volume-percentage-ratio construction is specified as most usable on windows of 50 to 75 trading days.
Smoothing constants and observation lengths for a basic volume indicator were chosen around a cycle that, from January 1978, averaged 128 trading days over 21 appearances and ranged from 43 to 387 trading days.
A joint extreme is a yes-or-no event
Confirmation is a construction rule in which both a price index and an indicator post a new high or new low inside the window. That joint extreme is classified as not a reversal setup.
Non-confirmation is a construction rule in which the price index posts a new high or new low inside the window while the indicator does not. That split is classified as a divergence-style reversal hypothesis.
Editorial: the joint-extremum test turns divergence into a yes-or-no event inside one declared period.
An update that keeps older observations
The moving-average used here is a recursive quantitative smoother and the baseline update for a volume-linked series over a declared lookback.
An exponential-moving-average is constructed so that older observations remain in the running value rather than being dropped when a new period arrives.
The programmed update adds a fraction of the gap between the new observation and the prior exponential value. The series is seeded with a five-point arithmetic mean, and the fraction is a smoothing-constant strictly between 0 and 1.
After a large market discontinuity such as October 1987, that exponential update is described as slower to restabilize than an arithmetic average.
All readings on this track · 32 readings
- 1989Volume confirmation windows and exponential average construction
- 1990Constructing stochastic %K and %D from range position
- 1990Build a weekly leading sector composite from scaled transports and financials
- 1990Constructing stochastic K and D lines and divergence cues
- 1993Relative strength index events depend on the chosen input combination
- 1995Constructing a dual-horizon force index
- 1996Building a range-normalized divergence index from relative strength index
- 1998Treat RSI as a testable filter rather than a trigger
- 1999Primary-cycle windows, then stochastic confirmation
- 1999Stochastic rules versus buy and hold
- 2001Constructing confirmation filters for RSI overbought and oversold extremes
- 2003Constructing divergence-equivalent relative strength index and stochastic oscillators
- 2003Reverse-engineered RSI as a next-close projection
- 2003Scoring open versus resolved relative strength divergences
- 2003Bull-and-bear-balance from OHLC bar patterns
- 2003Constructing bull and bear balance from session paths
- 2004Four-month rule: auto stocks as a market-regime warning
- 2004Constructing stochastic oscillator bands, crosses and divergence
- 2004Volume as an independent check on price oscillators
- 2004Simple dual confirmation for a short-horizon index-futures system
- 2005Confirm a stochastic divergence by reclaiming the first-swing bar
- 2005Weekly stochastic divergence and a long average on 2005 high-yield entrants
- 2005Predicted averages from related market baskets
- 2006Rank price-oscillator divergences, then filter by trend
- 2006Relative-spread-strength for cycle confirmation
- 2007Weekly breakout stretch and histogram divergence
- 2011A luxury-auction stock as a cross-market bubble warning
- 2014Running-percentile close divergences and trend filters
- 2015Rebuilding the relative strength index from close-to-average gaps
- 2016Constructing higher-high and lower-low stochastic pairs
- 2018Constructing composite relative-strength-index stochastics for reversal confirmation
- 2019Building a smoothed Stochastic oscillator of the Relative Strength Index for Price-indicator divergence checks