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
/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
/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
/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
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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