|A FREQUENTLY neglected aspect of technical
analysis is volume. More often than not, the focus of most investors'
attention is the price history of a security rather than how many shares
were traded. A number of indicators have emerged that take account of
traded volume (such as on-balance volume), but complete programs that
focus on volume are few and far between.
One that does is Insider TA from Stock Blocks. The program runs under
DOS, but provides mouse support and command buttons that give something
of a Windows feel. The resolution of the display isn't stunning, but
it's nevertheless one of the better DOS displays that you're likely
In many respects, it's like a standard technical analysis package that
allows you to display charts of security prices. Stock Blocks hasn’t
expended a lot of effort in this respect. If you don't want one of the
specialist displays, the only alternative bar type is candlesticks.
The software has five volume-related tools: Box
Charting, Consolidation Mapping,
Box Analyser, Volume
Analyser and VA Rank.
At first glance, data displayed using the Box Charting function looks
like an ordinary Equivolume chart, the width of the bars depends on
the volume. The difference is that there is no time scale. The height
of the bars represent the high and low for the day, but the x axis effectively
denotes volume, not the date.
Getting to grips with width
The general principle is that boxes (price bars) that have greater
width than height denote periods of consolidation and sluggish movement.
Narrow boxes moving sharply up or down obviously denote a strong trend.
A basic trading rule is to wait for a period of "fat" boxes to be succeeded
by a tall "thin" one before buying or selling the stock in question.
Obviously, discerning the difference between the box shapes can be both
subjective and tricky, so the software has both automatic and manual
methods for stretching the chart for optimum display.
Consolidation Mapping gives a further
value to box charting. It is based on the idea that the volume accumulated
during a consolidation period will be expended in approximately equal
quantity during any subsequent trend. The actual tool allows you to
click and drag a pair of vertical lines to bracket a consolidation or
trending period. As you do so, a third line is automatically extended
the same distance into the future. As the x axis displays volume, this
line indicates where the final box bar of the next trending/consolidation
period will be.
As already mentioned, quantifying the difference between box shapes
is subjective, so the Box Analyser seeks
to improve this by objectively quantifying trends in box shapes and
price movements. It then places suggested buy and sell tags on the chart
and gives an instant performance summary.
An automatic optimiser is included. This will search for the best settings
for the equity you are testing. It should be used carefully. There is
no guarantee that historically successful settings will continue to
be so in the future. Changing a setting (say the length of an average)
by just a day can also have a dramatic impact. To be fair, Stock Blocks
responsibly hammers this point home in the manual and stresses that
it is a blend of its analysis techniques (and others) that will produce
the best long-term results.
Volume Analysis and VA Rank go hand
in hand. Vo1ume Analysis is plotted as a single line in the main chart
window. It's a handy tool, as it gives an indication of how much of
the trading volume is done at the bid or offer price. An upward slope
means more of the volume is being conducted at the offer price - a bullish
signal. The opposite obviously applies for a negative gradient. Often
the best trading signals coming when the VA line and the equity price
VA really comes into its own when used with the Rank function. This
calculates the difference between the VA line and the equity price,
compares this with previous VA data, quantifies the relationship as
a ranking and displays it as a separate line chart. The default setting
is that a buy signal is given if the line rises above 70 and a sell
if it falls below 40. It doesn't give many signals (with the standard
settings often only one a year) but a lot of them are absolutely spot
Just a few stinkers
If you are looking for an all-encompassing trading solution, keep looking
because this isn't it. That's fair enough - Insider TA has no pretensions
to be one, but it does provide valuable tools to incorporate into your
overall strategy. Using a combination of all five Insider TA techniques
produced some impressive results on the 40 UK stocks that I tested it
with (Like any methodology it also came up with a few stinkers as well.)
Its real strength lies in providing confirmation signals for other
analysis techniques. A common problem with technical analysis is redundancy:
too many technical tools use the same pieces of data in similar ways
and merely replicate each other. Because Insider TA unusually makes
extensive use of volume as an input it has the ability to provide truly
That aside, it's well put together with a reasonably intuitive interface.
There are many useful data manipulation tools and the software can read
popular data formats such as ASCII and Computrac. The File Scan utility
is a great time saver. You can automatically search your database for
equities that meet criterion that you can specify based on the volume
The screen layout could do with some tidying up. Some of the command
buttons are too large, others too small and rather fiddly to operate.
So space that could be used for a bigger chart display gets wasted.
[Considering the price of the software, ]
I shouldn’t complain. Insider TA is excellent value for [the] money.
Insider TA™ is available from: Stock Blocks, P.O. Box 416, North Stonington,
Connecticut, USA Tel: 001-860-889-6398 Fax: 001-860-237-8454 WWW Site:
Reprinted with permission by Investors Chronicle, Greystoke
Place, Fetter Lane, London EC4A 1ND
Telephone 071-405 6969 Facsimili 071-405 5276