Volume-weighted change smoothing and trend ranking

The raw product

Volume-price-analysis treats signed price change multiplied by associated volume as the market message, rather than change measured against calendar time. The raw series is formed by multiplying a session net price change by the volume recorded with that change. That product is the market-volume-impact.

One documented pairing multiplies the daily net change of a large-cap industrial average by total New York Stock Exchange volume.

Calendar time is used only to isolate study windows. The construction treats the price-volume product, not elapsed time, as the quantity that defines impact.

A participation cutoff

A participation-threshold is a volume floor below which a session is omitted so low-activity prints do not enter the series. Sessions with volume below 170 million shares are omitted from the product so low-participation days do not enter the series.

Nested moving averages

A moving-average is a fixed-lookback smoother applied first to the raw product and then again to produce nested short-horizon and long-horizon lines. The raw product is first smoothed with a 10-period simple moving average. That result is then smoothed with a five-period average, and that short-horizon-line is smoothed again with a 10-period average.

The short-horizon-line is a five-period average of the first ten-period smooth of the raw product. The long-horizon-line is a ten-period average of the short-horizon-line. Both smoothed lines are plotted.

A 1-to-9 directional rank

A trend-filter uses the paired short-horizon and long-horizon slopes, plus a numeric rank of those slopes, to accept or reject a directional reading. The plotted lines are converted into a directional-rank, an integer from 1 to 9 that encodes whether the two smoothed lines are rising, flat, or falling, with more weight on the longer line. Rank 1 is the most constructive reading and rank 9 is the most adverse.

The rank is 1 when both lines are rising, 2 when the long-horizon-line is rising and the short-horizon-line is flat, and 3 when the long-horizon-line is rising and the short-horizon-line is falling. The rank is 9 when both lines are falling. The long-horizon slope is given more influence than the short-horizon slope.

When similar prices are not interchangeable

Two sessions with nearly identical downward price changes can receive unequal products when one prints more than 200 million shares and the other prints less than 180 million shares. Two sessions with nearly equal price changes in opposite directions still receive unequal products when one prints 220 million shares and the other prints 194 million shares.