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2004issue C061-7

Constructing a volume-flow series from on-balance volume

Rebuild on-balance volume into a long-horizon money-flow series by changing the price input, adding a volatility cutoff, and using linear-regression slope as a noise filter. State a price-indicator divergence and zero-line sequence as a construction that can be checked, not as a story about one chart.

  • The volume-flow construction revises on-balance volume on indicator values, historical segment, short- and intermediate-term predictive use, huge-volume days, minimal price changes, and calculation method.
  • Typical price, the average of high, low, and close, decides whether money flowed in or out, and a minimal-change cutoff withholds a full volume increment when the interday move is too small.
  • Short-term direction is judged with a 15-day linear-regression line, intermediate trends with a five-week line or rate of change, and long-term trends with a 50-week line or rate of change.
  • On the way down, the specified sequence is divergence, then a sharp change in direction, then a zero-line cross, with the 15-day linear-regression angle at -30 degrees or less.
Entries in this reading3 entries
Current trackOn-balance volume88 readingsLinear regression135 readingsPrice-indicator divergence167 readings

What the revision is trying to change

The volume-flow construction is presented as a revision of on-balance volume. It targets indicator values, the historical segment, short- and intermediate-term predictive use, huge-volume days, minimal price changes, and the calculation method.

The on-balance volume increment

On-balance volume adds or subtracts the full day's volume from a running total according to whether the close is above or below the prior close. That rule credits even a one-cent close change with the entire session volume.

Typical price and a minimal-change cutoff

The revised series uses typical price, defined as high plus low plus close divided by three, as the day-to-day input for deciding whether money flowed in or out. A volatility threshold is added so minimal interday price changes do not move the series by the full day's volume. That threshold is the minimal-change cutoff.

Linear regression as a noise filter

A 15-day linear-regression line is used to judge short-term direction. A five-week line or rate of change is used for intermediate trends, and a 50-week line or rate of change for long-term trends.

A historical comparison on the Nasdaq

On a 2000 Nasdaq comparison chart, on-balance volume made higher highs and a positive divergence. The volume-flow series made a last high in January, then a lower high that crossed its 50-day average downward, and later stayed below that average after crossing zero.

A stated reversal sequence

On the way down, a reversal sequence is specified as divergence, then a sharp change in direction, then a zero-line cross, with the 15-day linear-regression angle at -30 degrees or less. The zero-line cross is the later confirmation step after divergence and the sharp change in direction.

A constructed sell sequence

A constructed sell sequence on Parmalat is described as divergence from A to B, a sharp drop from B to C, and a zero-line cross at D more than four months before a later collapse from 2.65 euros to 11 eurocents.

What a negative level is allowed to mean

Negative indicator level alone is treated as a reason to exit longs, not as sufficient justification to enter a short. That reading is to be cross-referenced with at least one other indicator.

What was left for a later article

Several tests of divergence, direction, and indicator-level signals, plus a new divergence-detection method, were reserved for a later article.

Parmalat 130-day volume flow versus the zero line

The sequence to check is a lower VFI high against a higher price high, a collapse of more than ninety percent, then a break of zero. The figure itself labels those VFI readings as 32.1 at A, 30.5 at B and 2.9 at C; the rest of the line was read from the Parmalat plot, not from a table.
The sequence to check is a lower VFI high against a higher price high, a collapse of more than ninety percent, then a break of zero. The figure itself labels those VFI readings as 32.1 at A, 30.5 at B and 2.9 at C; the rest of the line was read from the Parmalat plot, not from a table.Parmalat Finanziaria SpA (PRFI, Milan) · daily · 2002-04-28T00:00:00.000Z to 2002-12-22T00:00:00.000Z

Default construction is 130-day VFI, 3-day EMA, a 0.2 interday-volatility cutoff on typical price, and volume capped at 2.5 times its lagged average. Y-scale is anchored to the three labeled highs and to the pane zero line; unmarked points are approximate. The source dates A and B as 1 August and 2 September 2002 on a May–December axis.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
42 of 61 in the On-balance volume track
20041-7 pp.Next on On-balance volumeVolume-flow indicator construction from on-balance volumeVolume-flow rewrites on-balance volume by signing volume from typical-price change, ignoring moves below a volume-cutoff, and applying a volume-cap before the period sum.
All readings on this track · 61 readings
  1. 1988Cumulative volume trend and 200-session polarity
  2. 1988Three clocks when cumulative volume led price
  3. 1988Payoff index checkpoints for open interest and divergence
  4. 1988Relative strength, stochastics, and on-balance volume as a turning-point stack
  5. 1988Signing volume by open interest change
  6. 1988Case study: weekly on-balance volume with trendlines and a 21-period average
  7. 1988Combining weekly and daily MACD divergences with on-balance volume
  8. 1988Restoring the original tests for market breadth, on-balance volume, and trendlines
  9. 1989Evaluating volume-weighted breadth extremes
  10. 1989Demand oscillator construction with a momentum overlay
  11. 1989Constructing a volume percentage ratio from advance-decline flow
  12. 1990Constructing net positive volume as On-balance volume
  13. 1990Buying-share scale with on-balance volume
  14. 1990Friday-filtered on-balance confirmation lines
  15. 1991Constructing rate-market volume breadth from on-balance volume
  16. 1991Building a breadth composite from on-balance volume breakouts
  17. 1992Constructing a rate-complex volume-breadth index
  18. 1992Constructing a breadth index from on-balance volume
  19. 1992Constructing signed market thrust from issue volume
  20. 1992Constructing indicator phase across averages, volume and bands
  21. 1993Force on-balance volume to agree with itself at slower horizons
  22. 1993Three transforms of market thrust from breadth and volume
  23. 1994Constructing a tick-line momentum oscillator
  24. 1994Constructing a smoothed on-balance tick momentum oscillator
  25. 1994Histogram confirmation and a second-series veto for MACD-family alerts
  26. 1994Constructing a 40-period envelope on on-balance volume
  27. 1996Constructing a matched percent-B volume disparity
  28. 1997Constructing calendar regime overlays and volume-weighted rules
  29. 1997Constructing market thrust from breadth and volume
  30. 1997Constructing on-balance volume as a signed running total
  31. 1997A three-layer construction for a signed volume-force oscillator
  32. 1997Constructing a range-sum volume-force oscillator
  33. 1999On-balance volume confirmation, price-indicator divergence, and bounded exits
  34. 2000A daily long-only confirmation stack on the tether line
  35. 2000A three-filter tether and volume trend system
  36. 2003Constructing finite volume elements as a finite-period money-flow filter
  37. 2003Constructing on-balance volume from signed session volume
  38. 2003On-balance volume as a market-breadth participation ledger
  39. 2003Construct a volatility-adjusted on-balance volume filter before confirming a breakout
  40. 2004Opening and midday ranges as an on-balance-volume breakout case
  41. 2004Constructing a volatility-gated volume-flow measure
  42. 2004Constructing a volume-flow series from on-balance volume
  43. 2004Volume-flow indicator construction from on-balance volume
  44. 2004Volume-flow slope divergence, then separate on-balance-volume and crossover rules
  45. 2004Volume flow and band construction as one inspectable problem
  46. 2004Auditing advance-decline confirmation for scale, horizon, and composition
  47. 2005Bounded market breadth from the Arms index to BRIN
  48. 2006Overnight-hold entry and exit construction
  49. 2007Evaluating Volume-price confirmation versus On-balance volume and MACD
  50. 2009Volume confirmation versus a price advance
  51. 2010Typeahead retrieval of a moving average, on-balance volume, and a stochastic oscillator
  52. 2010Modified volume-price trend and log-price scale alignment
  53. 2010Constructing liquidity accelerometers from advance-decline averages
  54. 2012Failed short cycles as breadth and volume tests
  55. 2016Earnings straddles, implied volatility, and money-flow filters
  56. 2017A volume residual filter and a price projection matrix
  57. 2019Volume-volatility parabola and signed-volume momentum
  58. 2019Separating on-balance volume into breadth and volume
  59. 2020Constructing the obvm signal line
  60. 2020Constructing smoothed on-balance volume with a signal line
  61. 2020Keep neutrality as a first-class input in three-state market data
By fieldIndicators and filters874 readingsBy year2004180 readings
All 88 readings tagged On-balance volume
Also on On-balance volume5 readings
1990Buying-share scale with on-balance volume1993Force on-balance volume to agree with itself at slower horizons2011Linear regression overlays on volume-flow primaries1988Combining weekly and daily MACD divergences with on-balance volume1988Payoff index checkpoints for open interest and divergence