MONEY-FLOW INDICATOR
Besides plotting the volume data to monitor the correlation of price and volume, nowadays, with the ease of computers, various oscillators have been developed to quantify the relationship between price and volume. These indicators are generally called money-flow indicators. There are many of them. The main purpose of price volume indicators is to segregate the total volume into positive volume and negative volume, which may reveal a new condition of the market when derived from certain calculations with the price. A money-flow indicator can be used as a stand-alone indicator, but it is better to combine it with another price-derivative trading system.
Figure 5.8 shows a simple money-flow indicator called volume zone oscillator (VZO). VZO is easy to understand.
FIGURE 5.8 Volume zone oscillator shows a drastic drop on the day of the announcement of a substantial placing of stocks, which causes the price to open with a downward gap. However, prices subsequently recover and rally back to the previous high.
VZO was developed by Walid Khalil and David Steckler. Details of the indicator and how to use it are stated in the May 2011 issue of Technical Analysis of tocks & Commodities magazine and in the IFTA Journal, 2008 edition. The original formula, together with its proposed trading method, is also described in the articles.
Certain modifications have been made ...
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