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Finite Volume Elements (FVE) - Indicator Divergences by Markos Katsanos

Markos Katsanos' article "Detecting Breakouts" includes the MetaStock formula
for the finite volume elements (FVE) indicator. However, Katsanos lists six methods of detecting a divergence between the FVE and price. Three of those were formula-based. As no actual buy or sell signals were included, these are provided as indicators only.

Linear Regression Slope method:


Finite Volume Elements (FVE) - Lin Reg Slope

pds:=Input("period for FVE",10,80,22);
pds1:=Input("period for regression line",5,100,35);
mf:=C-(H+L)/2+Typical()-Ref(Typical(),-1);
fve:=Sum(If(mf>0.3*C/100,+V, If(mf<-0.3*C/100,-V,0)),pds)
/Mov(V,pds,S)/pds*100;
If(LinRegSlope(fve,pds1)>0,1,-1)-
If(LinRegSlope(C,pds1)>0,1,-1);

 

This formula plots a 2 when the FVE slope is positive and price slope is negative, and plots a -2 when the FVE slope is negative while price slope is positive. At all other times, it plots a zero (Figure 26).

 

FIGURE 26: METASTOCK, FINITE VOLUME ELEMENTS. In the linear regression slope method of detecting divergences between the FVE and price, a 2 is plotted when the FVE slope is positive and price slope is negative. A -2 is plotted when the FVE slope is negative while price slope is positive. At all other times, it plots a zero.

%B method:
 


Finite Volume Elements (FVE) - %B

pds:=Input("period for FVE",10,80,22);
pds1:=Input("periods for bollinger bands",10,80,20);
mf:=C-(H+L)/2+Typical()-Ref(Typical(),-1);
fve:=Sum(If(mf>0.3*C/100,+V, If(mf<-0.3*C/100,-V,0)),pds)
/Mov(V,pds,S)/pds*100;
bbfve:=(fve-BBandBot(fve,pds1,S,2))
/(BBandTop(fve,pds1,S,2)-BBandBot(fve,pds1,S,2));
bbc:=(C-BBandBot(C,pds1,S,2))/(BBandTop(C,pds1,S,2)
-BBandBot(C,pds1,S,2));
bbfve-bbc

 

 
No buy or sell conditions were included with this method. The results of the indicator will be similar to the chart in Figure 27.
 
 
FIGURE 27: METASTOCK, FINITE VOLUME ELEMENTS. Here are sample results of using the %B method to detect divergences between the FVE and price, as described in Katsanos' article this issue.
Storz's Divergence method.
 


Finite Volume Elements (FVE) - Storz's Divergence

pds:=Input("period for FVE",10,80,22);
z:=Input("zig zag percent",1,80,5);
r:=Input("bars used to normalize data",10,500,125);
mf:=C-(H+L)/2+Typical()-Ref(Typical(),-1);
fve:=Sum(If(mf>0.3*C/100,+V, If(mf<-0.3*C/100,-V,0)),pds)
/Mov(V,pds,S)/pds*100;
dfve:=(Peak(1,fve,z)-Peak(2,fve,z))/
(HHV(fve,r)-LLV(fve,r));
dc:=(Peak(1,C,z)-Peak(2,C,z))/
(HHV(C,r)-LLV(C,r));
dfve-dc

 

 
Again, no buy or sell conditions were included with this method. The results of the indicator will be similar to the chart in Figure 28.
 
 

FIGURE 28: METASTOCK, FINITE VOLUME ELEMENTS. Here are sample results of using Storz' method to detect divergences between the FVE and price.

--William Golson
Equis International, www.equis.com

 


 

FVE is a money flow indicator but with two important differences from existing money flow indicators:

  • It resolves contradictions between intraday money flow indicators (such as Chaikin?s money flow) and interday money flow indicators (like On Balance Volume) by taking into account both intra- and interday price action.

  • Unlike other money flow indicators which add or subtract all volume even if the security closed just 1 cent higher than the previous close, FVE uses a volatility threshold to take into account minimal price changes.

The FVE provides 3 types of signals:

  1. 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.

  2. The most obvious and coincident signal is the slope of the FVE line. An upward slope indicates that the bulls are in control and the opposite for downward.

  3. This 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.

 

Source / From: TOP
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