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February 28, 2024

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Volume Analyzer (VA) and VA RANK Functions

What is the Volume Analyzer?

Insider TA's Volume Analyzer (VA) stems from the concept of On-Balance Volume (OBV), a simple accumulator function that counts volume based on "up" and "down" days. OBV uses closing price for determining Up/Down days. Some believe the "closing" price merely represents an instant in time, and as such, has no inherent significance. Consequently, we decided that up/down volume accumulation would be more accurate by basing it on the price midpoint, or the average of the high and low for the day.

The VA, like the OBV, assumes ALL volume on any given day was either up or down, depending on the midpoint price move. A more precise approach would involve detailed analysis on volume vs. price performance throughout the day, referred to as the Cumulative Volume Index (CVI). Since data providers do not provide this statistic, our best approach is to work off the average of the high and low (i.e., the midpoint).

Simply stated, the Volume Analyzer function is a rough measure of the demand for a stock. We quantify the plotted VA Line by calculating the "Up Volume to Down Volume" ratio, or UV/DV. As in the VA calculation, this is based on price midpoint and not the closing price. UV/DV ratios greater than 1 signify an inclining VA Line; less than 1 signify a declining VA Line.

We have extended the VA concept with an additional function that measures the relationship between a stock's price and its corresponding VA line. Large gaps between the Price line and VA line are given high "ranks", and may signal possible "buy" points. Small gaps are given lower "ranks", and may signal possible "sell" points. Our VA RANK Function plots these rank values in a separate graph. The resulting peaks and valleys observed in the VA RANK Function reflect these possible "buy" and "sell" points.

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Upon clicking the VA Line button, a "VA Reference Point: Click Pending" prompt appears in the viewport. What does this mean?

Upon clicking the VA LINE button, the software will wait for you to click a point in the box chart. This identifies to INSIDER TA at what point to begin calculating (and plotting) the VA Line, and it is called the VA Reference Point.

You have two choices- put the VA Line at the very beginning of your box chart, or select a point somewhere within the box chart. In either case, vertical position is irrelevant, only the horizontal placement is significant.

Starting the VA Line at the very beginning of the Box Chart:

Generally, you will always put the VA Reference Point at the left-most point in the box chart, as shown in the following steps...

  1. Left-click the "VA LINE" button, illuminating it. INSIDER TA will display the prompt "VA REFERENCE POINT: Click Pending", indicating it is ready to accept a VA Reference Point location in the box chart.

  2. If the beginning of your box chart is off the left edge of the viewport, then RIGHT-click the Viewer Pan Left button to "snap" the viewer to the beginning of the box chart.

  3. Now LEFT-click the first entry in the box chart (actually, above or below, the vertical location doesn't matter).

  4. Observe the "VA LINE" button now has a "thumbwheel" attached to it. Spinning the thumbwheel with the mouse moves the VA Line up or down. This simply makes the graphs neater in appearance for you. If you should ever want to remove the VA Line, simply click the main button again.

  5. Now use the Zoom In/Out button in the Viewport Control Panel to bring the graph to your desired viewing level.
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Why am I given a choice put the VA Reference point anywhere?

For whatever reason, there are times when a stock's price movement may abruptly change its signature (i.e., behavior). We can't begin to list all reasons, but events like corporate buyouts, bankruptcy, mergers -- any of these external forces will have significant impact on the volume and price characteristics from that point on.

For this reason, you might prefer to begin the VA's accumulator function at the point of this dramatic change, in effect, ignoring any past behavior.

There are other reasons you would want to put the VA Reference point at your own "custom" location. For instance, some users like to put the VA reference point where they purchased a stock (a dramatic event in and of itself!).

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Depending on where I place the VA Reference point, I get a different VA RANK Graph. Why is this?

Actually, the VA RANK graph stays constant. You're only seeing more or less of it, and consequently the vertical scaling over the visible horizontal span may change. But the peaks and valleys that result from the VA RANK calculations do not change.

The only way you can truly change the VA RANK function is by adjusting the RANK WINDOW switch, which is explained in the next section.

Your observation on the changing appearance of the VA Line, with different reference point locations, is perfectly valid though. INSIDER TA auto-scales the breadth of the VA Line (i.e., vertical height between max and min VA points) to always equal the breadth of the price points it spans. So if you select a new horizontal location for the VA Reference Point, the breadth of the VA Line will change accordingly. The calculations stay the same...only the plotting scale is adjusted.

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How do the "Rank:Buy%" and "Rank:Sell%" switches work? Show me how to take advantage of these controls.

A: To effectively use the VA RANK, you want to see "peaks" and "valleys" in the VA RANK Function. Points where the VA RANK function rise to high levels (the peaks) depict a favorable buy period, and where they fall to relatively lower levels (the valleys) may depict favorable sell periods.

The two switches labeled "Rank:Buy%" and "Rank:Sell%" are used to position two horizontal lines in the VA RANK graph: a "BUY @ _%" and "SELL @ _%" line respectively. Any time the purple VA RANK function rises above the "BUY @ _" line, the software generates a buy tag. Similarly, whenever the VA RANK drops below the "SELL @ _" line, a sell tag is generated.

In retrospect, the location of the RANK:BUY and RANK:SELL lines are actually "threshold" levels that YOU set for stimulating buy and sell tags. The primary objective is to position the RANK:BUY line so it pierces the top of the VA RANK's "peaks", and similarly position the RANK:SELL line over the VA RANK's "valleys". Of course, the peaks and valleys will not be perfectly symmetrical, so you will have to use your judgment as to where the significant peaks and valleys are. Observe how we placed the RANK:BUY and RANK:SELL lines in the following example:

Successful analysis requires that the vertical space between the VA RANK's peaks and valleys be well pronounced, primarily so that the resulting RANK:BUY and RANK:SELL lines are placed a sufficient distance apart. If the two lines are two close to each other, you may be trapping the superfluous ripples, or "noise" of the VA RANK line that results from day-to-day activity. Instead, you want to target the major trends. This is why we suggest a margin of, say, 15-20% between the RANK:BUY and RANK:SELL, but this is only a suggestion. Your experience and the "signature" of the stocks you follow may permit a slightly smaller value, but we do insist on keeping them at some "safe" distance from each other.

If well-placed buy/sell tags are generated from your selected VA RANK threshold values, then you've got a pretty good model on what may happen in the future. Nothing is guaranteed, however, as we all know.

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What is the purpose of the VA Rank Window switch?

Technical analysis methods generally derive their output from pertinent data over a fixed "window" of previous trading periods (for example, a simple moving average function). This is what the VA Rank Window accomplishes. It ensures that the calculations of VA Rank values are generated by looking at price and Volume Analyzer (VA) points over a fixed "window" of past data.

For instance, if a VA Rank Window setting of 100 is chosen, then for every trade day, a VA Rank value is calculated -- based exclusively on the 100 days of price and VA points that preceded it.

So what's the best VA Rank Window setting? It's your call. Whatever value you believe best fits the unique aspects of the stock you're analyzing. Our tip: make it large enough to filter out the day-to-day fluctuations, but small enough to differentiate the significant trends.

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