As market always says the price and turnover shall confirm each other, there are many indicators taking consideration of the turnover rather than just look at the price alone.

 

Richard Arms had proposed a moving average calculation, called Volume Adjusted Moving Average. The idea is, on a high turnover trading day, the price on that day is more significant than the price on a low turnover day.

 

Let’s look at this chart. On early Feb, there was a 58M shares -8% at closing selling down day. This selling was significant. Although the stock price rebounds a bit in the coming few days, the turnover was small. The real selling was coming after that. On April 9, there was a 17% gap up with 71M shares. This is the beginning of a strong rising trend.

 

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If use two SMA lines, 10 days and 20 days:

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Since SMA only consider the price but not the volume, it would not tell the significant of early Feb selling day. In the above chart there are total 6 crossings of the fast and slow SMA lines. Note that there are two crossings in Feb. The April 9 event is recognized by these SMA lines on time.

 

In the following chart, two VAMA is used:

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Since the early Feb sell off is significant, VAMA is able to recognize it and both trend lines were not affected by the fake rebound in Feb. There are total 4 crossings in the above chart. The April 9 event is recognized by these VAMA lines on time.

 

In this particular example, VAMA seems works better, more accurate, and yet produce fewer fake signals.

 

To reduce fake signals, how about using a slower SMA line ? If 10 day with 30 day SMA line is used, fewer signals are generated with bigger time lags.

 

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Another stock , the SMA lines did a good catch this time.

 

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VAMA lines seems do a bad job:

 

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However, if you look at the green line above, while the stock price kept going up, the trading volume was going down (indicate by the red line). Price and Volume not confirming each other, the VAMA lines thus do not follow the stock price. It gave a very early alert already. By observing the gaps between the stock price and trend line, the price volume divergence is clearly identified.

 

In conclusion, the VAMA lines in these two cases are very useful. Valuable information shall be easily obtained from it, because it is in the stock price domain and at the same time embedded with volume information.

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