The Infinitely Useful FVE

Detecting Breakouts In Intraday Charts

by Markos Katsanos

Here's an important enhancement to the finite volume elements indicator that's especially useful with intraday minute charts.

In the April 2003 STOCKS & COMMODITIES, I introduced the finite volume elements indicator (FVE) and demonstrated how it can be used to detect breakouts in daily charts. To refresh your memory, the FVE is a money flow indicator, but it has two important innovations: first, the FVE takes into account both intra- and interday price action, and second, minimal price changes are taken into account by introducing a price threshold.

Those innovations were introduced to improve on two important limitations of existing money flow indicators:

  • Intraday money flow indicators (such as Chaikin's money flow or intraday intensity) leave out all price action from the close to the next day's open. This omission should not go unnoticed, since major news such as earnings numbers are usually released overnight.
  • Similar interday money flow indicators such as on-balance volume (OBV) add or subtract the volume from a running total, depending on whether the stock closed higher or lower. Thus, OBV will increase by all the day's volume even if the security closed just one cent higher than the previous close. In designing FVE, I introduced a threshold that will exclude minimal price changes.
  • Figure 1: The third column displays the square root of time relationship between different time intervals. The fourth column displays the proposed cutoff coefficients for the old FVE formula only. These are not to be used with the new volatility-enhanced formula. The fifth column displays the proposed time span (in bars) for FVE and for different time interval charts.

      ...Continued in the September 2003 issue of Technical Analysis of STOCKS & COMMODITIES

    Excerpted from an article originally published in the September 2003 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2003, Technical Analysis, Inc.

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