[blackcat] L1 Markos Katsano Finite Volume Element

Level: 1

Background

If you use both an interday indicator (such as the OBV) and an intraday (such as Chaikin’s money flow or intraday intensity) you might have noticed that they sometimes move in opposite directions.

This is because intraday money flow indicators leave out all price action from the close to the next day’s open. This omission should not be ignored, since major news such as earnings announcements are usually released overnight. You can find examples of contradicting signals between the OBV and CMF in Markos Katsanos' April 2003 and July 2011 articles in S&C.

To reconcile both methods Markos Katsanos designed a money flow indicator which takes into account both intra and interday price action and presented it in the April 2003 issue of S&C. In designing the FVE, Markos Katsanos also introduced a volatility threshold that excludes minimal price changes.



Function

Markos Katsanos' article "Detecting Breakouts" described the calculation and use of a price-volume indicator called the finite volume element (FVE) in April, 2003. Katsanos provides a detailed Excel spreadsheet in the article, and I've used it to write the equivalent pine code for the FVE. I named this indicator "Markos Katsanos Finite Volume Element" indicator.

The FVE provides 2 types of signals:

The strongest signal is divergence between price and the indicator. Divergence can provide leading signals of breakouts or warnings of impending corrections. The classic method for detecting divergence is for FVE to make lower highs while price makes higher highs (negative divergence). An alternative method is to draw the linear regression line on both charts, and compare the slopes. A logical buy signal would be for FVE, diverging from price, to rise sharply and make a series higher highs and/or higher lows.

The indicator level is a unique and very important property of this indicator. Values above zero are bullish and indicate accumulation while values below zero indicate distribution. FVE crossing the zero line indicates that the short to intermediate balance of power is changing from the bulls to the bears or vice versa. The best scenario is when a stock is in the process of building a base, and FVE diverges from price and rises to cross the zero line from below, at a sharp angle. Conversely the crossing of the zero line from above is a bearish signal to liquidate positions or initiate a short trade.


Inputs

CutOff --> Cut Off Coefficient.
Samples --> Sample Periods.

Key Signal

FVE1 --> FVE fast signal
FVE2 --> FVE slow signal

Remarks

This is a Level 1 free and open source indicator.

Feedbacks are appreciated.

版本注释:

Improve signal quality by introducing linear regression