Volume-flow indicator construction from on-balance volume

A signed rewrite of on-balance volume

The volume-flow indicator is a long-horizon money-flow construction that signed volume by typical-price change, ignored moves below a volatility cutoff, and capped extreme volume before summing and scaling by average volume.

On-balance volume is the parent construction being rewritten: a cumulative volume series that added or subtracted the full day's volume according to the close-to-close change.

The rewrite signed volume from typical-price change rather than the close, ignored moves below a volatility cutoff, and capped extreme volume before the period sum. Typical-price is the median of the high, low, and close used in place of the close when deciding the sign of volume.

How volume was admitted, ignored, or capped

Volume-price analysis used volume and price structure together so that volume was admitted, ignored, or capped according to how large the price change was relative to recent volatility.

The volume-cutoff was a volatility-scaled threshold that treated very small typical-price changes as zero volume contribution. In this construction the cutoff was 0.2 times the 30-bar typical-price log-change standard deviation.

The volume-cap was an upper bound, expressed as a multiple of a trailing average volume, that truncated unusually large volume bars before they entered the sum. In this construction the cap was a 2.5 multiple of prior average volume.

The volume-flow formula then used a 130-bar sum of capped signed volume and a final 3-bar exponential smooth.

The signed level as a long or exit filter

Positive volume-flow readings were defined as a bullish state and negative readings as a bearish state, so the signed level itself could be tested as a long or exit filter.

An indicator-level signal is a long or exit condition based on the signed indicator, or a short average of it, crossing a fixed level such as zero.

Four isolated constructions

Four isolated constructions were tested on four stocks: indicator level, divergence, base-break detection, and moving-average crossover. Each construction was repeated with on-balance volume or a price-only comparator.

Divergence compared indicator and price extremes over a divergence-days lookback to define a divergence hypothesis. Base-break detection required indicator direction, a quiet price base, and a subsequent expansion to treat a breakout as volume-confirmed.

Level test around zero

The level test used a 7-bar exponential average of a 26-week volume-flow series and crossed that average through zero so that raw oscillation around the zero line would not generate entries.

Moving-average crossover of volume flow

A moving-average crossover is a signal formed when a shorter average of the indicator crosses a longer average. It was used here as one of the four isolated test conditions.

The moving-average-crossover construction entered when a short exponential average of volume flow crossed above a long exponential average and exited on the opposite cross. Optimized lengths on that test were 11 and 25.

Warmup before signals were valid

A replication warmup of twice the volume-flow period plus the moving-average length was required before signals were valid. A 130-bar series with a 40-bar average therefore needed 300 extra bars.