Q:
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On one particular stock the BA FUNCTION window will show a
flat line on the bottom of the window with a single spike at some
arbitrary location. Why does this graph look like this and is there some
setting I should use to make this more relevant? It doesn't seem to
effect the placing of the BA BUY signals but I would like to know
if there is anything wrong.
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A:
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This anomaly is observed for days whose boxes are extraordinarily
"thinner" than their preceding boxes, and most likely shows that one
of your days has a volume value that is incorrect due to a scaling
error.
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Check your tabulated data at the point where the "spike" begins.
The volume value may be missing a couple of digits, causing it to be much
smaller than its neighboring values, as in the following example (DATE,
HIGH, LOW, VOLUME) ...
9-6-1999, 18.25, 17.75, 54750
9-7-1999, 18.5, 17.50, 60736
9-8-1999, 18.5, 18.25, 282
9-9-1999, 19.75, 17.5, 107620
As shown above, all data is fairly consistent with the exception of the
third line, whose volume (value 282) appears to be off by a factor of 100.
Here's why the BA function "explodes" in these situations: The BA data points
are calculated by the following formula:
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BA = (normalized box ratio) multiplied by (% midpoint move)
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where: |
"normalized box ratio" equals (normalized height) / (normalized width)
and...
"normalized height" reflects the high:low price gap
"normalized width" reflects the volume
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So the smaller the normalized width is (that is, smaller volumes)
the larger the normalized box ratio is (the thinner the box, the
larger the box ratio). This results in amplifying the BA's magnitude for
that day, which is exactly what you're observing. Whether the magnitude
is strongly positive (as observed in the above figure) or negative depends
on the sign (+/-) of the "% midpoint move".
So check your data. If you find that the volume is off by a factor of
100, then add two 0's to its end, then see how the BA changes. It
should then look fine.
You may wonder why zero-volume days don't produce disastrous effects
with the BA (dividing by zero creates a box ratio equal to infinity!).
To avoid a divide-by-zero error, Insider TA ignores zero volume
days in its Box Analyzer calculations.
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