V.7:12 (453-455): Volume percentage ratio by Mike Burk

V.7:12 (453-455): Volume percentage ratio by Mike Burk
Item# \V07\C12\VOLPERC.PDF
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Volume percentage ratio by Mike Burk

Volume is best used as a confirming indicator for general market trends and, in developing stock market indicators, I've found a trio of volume calculations that work well in anticipating cycle tops and bottoms. My basic volume indicator (Figures 1 and 2) is an exponential moving average of total volume with a 0.04 smoothing constant.

It is plotted on a normal Y scale, that is, high values are the top of the scale. Although I have chosen the Dow Jones Industrial Average to represent prices in these charts, broader indices such as the New York Stock Exchange Index or Standard & Poor's 500-stock index give similar results.

The volume indicator usually begins to rise shortly after prices begin to rise and begins to fall shortly after prices begin to fall. Volume has risen fairly steadily from the first of 1978 (which is as far back as my data files go) until the peak in August 1987. There was a volume spike at the time of the October 1987 stock market crash, after which volume declined until shortly after November 1988. Since then, volume has risen with prices.

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