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June 22, 2024

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Volume - the amount of a security that is being traded in its market - is the poor relation of investment software. But this month’s road test features a piece of software devoted to spotting volume-related opportunities.
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 to see.

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 diverge.

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 on.

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 independent confirmation.

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 analysis techniques.

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 WWW Site:

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