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If you look at the chart below, you will notice that there are two blind spots, where the indicator will trigger lots of signals, irrespective of market conditions
- after the London Open
- after the New York Open
These signals are meaningless. They just indicate that the market is now open.
Do you take trades based on these signals from a 5min chart? Or is this something you just look at through t the day and take your setups on a different chart?
Do you have more reference charts where you see what you're looking for? Like a manual? That would be helpful for starters.
I use range bars so I'll have to add another window to my workspace, and since you now got me interested I'll be spending some time back-testing this.
I do not take trades directly from those signals. But I am attentive to churn bars. They are often decision points. After a churn bar, half of the traders is unhappy because they exited too early or were trapped. At least some of the trapped ones will add fuel to the move. This is why a narrow range churn bar can be a good signal to enter a trade. It needs a trend filter though. If the breakout that follows is a trend continuation it can be taken faster, while a trend reversal will typically need a confirmation other than the churn bar.
For range bars you can not use VSA volume spread analysis, but what you could do is to analyze
- the number of ticks or the volume per range bar
- the duration of the range bar
High volume per range is not exactly churning, but will have a similar impact as part of the traders who were responsible of that high volume will quickly be unhappy. So you can use the volume per bar as well.
The range analysis basically detects bars with a high momentum. The same would be true for range bars with a short duration. I think, if you replace the range of the Better Volume Indicator with something like 1/Sqrt(1+ bar duration), that should do the trick. Let me try, whether it is feasible.
I guess the perfect thing would be to have a tick chart with the close of the candle based on the close of the range chart! Now that would be something!
Didn't quite understand what you meant with "replacing the range of the Better Volume Indicator" though...
The Better Volume indicator detects the range of each bar to perform calculations. This is not useful on a range chart, as the range will always be the same.
What is the range used for? A large range on a fixed period chart indicates a high momentum, as price moves far. To detect high momentum on range bars, you cannot measure the range of that bar, because it is always the same, but the speed, with which it is completed. This can be measured as the duration of the bar in seconds. A short duration would indicate high momentum. You would therefore use the reciprocal value of the bar duration. which is 1/duration to measure momentum. To avoid division by zero, and for scaling and model reasons, I would not use 1/duration but calculate 1/SQRT(1+duration). Will post that indie, can be quickly created from the other one.
I have played a little, and here is a first version called anaBetterVolumeX, which can be used on
- range charts
- volume charts
- tick charts
- and maybe other charts
The X stands for experimental, it is not yet a final version.
This is what I did
- volume was replaced with volume per bar time (this indicates the pressure)
- range was replaced with range per bar time (this indicates the intra-bar momentum)
The low volume alert sound will only play on minute charts. For other bar types this will be added, once I have modified the bar timer, which is used by the indicator.
I'll be spending some time back-testing this.
