V. 22:6 (40-51): Using Money Flow To Stay With The Trend by Markos Katsanos
Avoid impending disasters and stay on the right side
of the trend with the volume flow indicator.
In their classic Technical Analysis Of Stock Trends, Robert Edwards and John Magee make an appropriate
introduction to my topic:
Changes in trend, which represent an important shift in the balance between supply and demand … are detectable sooner or later in the action of the market itself. The … real value of a share is determined at any time … by supply and demand, which are accurately reflected in the transactions consummated in the floor of the New York Stock Exchange.
It is this change in supply and demand that I attempted to detect and quantify with my new indicator, which I call the volume flow indicator (VFI).
Why this new indicator? I was looking at the performance of some stocks that I had sold six to
eight months earlier because of short-term sell signals. These same stocks had since doubled in price, or in some cases tripled. Since small, random price movements tend to distort the underlying trend, I thought I’d create a long-term money flow indicator.
THE VOLUME FLOW INDICATOR
The rationale behind VFI is not new, but merely an
improvement on Joseph Granville’s approach to the
classic on-balance volume indicator (OBV). In designing the VFI, I attempted to improve on the following...