Minimum Tick Value

[carltonp 10]

Hello Traders,

 

I have commissioned a developer to compile an indicator called the Trade Volume Index. However, in order to use it I need to fully appreciate all aspects of the indicator. The most important aspect of the indicator is the Minimum Tick Value, MTV.

 

I've read a lot about it but I just can't grasp the concept. So I thought if I pasted a brief explanation of the indicator with a few people would provide comments on what the MTV is in plain English and may be the penny will drop.

 

So the following is a brief explanation. I look forward to hearing your explanations on the MTV.

The trade volume index is a trader’s crystal ball. It has a predictive power when assessing a stock, especially on flat liners. Say, you want to purchase a stock on a break of a certain amount, but it has been idle for about 1-½ hours to 3 hours, you might want to think twice on making a call. The market being dull for hours before the breakout is a bad omen. But if you notice that the trade volume index ballooned after the 2 hour period, it could be an indication that the traders are accruing the stock at the ask price. Therefore, this momentum increases the likelihood that the stock will move when it clears the resistance.

 

Know the direction of accumulation and distribution. First of all, you must be familiar yourself with the term, minimum tick value. The minimum tick value is a specified amount that is used to compare the rate of change, indicating whether the stock is in an accumulate or distribute pattern. The change is the price less the extreme price since the time the direction was last changed. If the change is more than the minimum tick value, then the direction indicates accumulate. If the change is less than the minimum tick value, then the indication is to distribute. If the change is less than or equal to the minimum tick value, then the direction will still be the last direction, accumulate or distribute.

Learn to calculate the trade volume index. This will be very simple once direction is known. If the direction is to accumulate, then the trade volume index is the sum of the previous trade volume index and the volume. Otherwise, if the direction is to distribute, then the trade volume index should be the previous trade volume index minus the volume.

 

In particular, can someone please explain the following:

 

The Minimum Tick Value controls when volume switches from the buy side to the sell side. If the absolute value of the uptick or downtick is less than the Minimum Tick Value, MetaStock Pro will continue to assign the volume to the current side (i.e., buy or sell side). If the absolute value is greater than the Minimum Tick Value and the price changes direction, MetaStock Pro will switch and begin assigning volume to the opposite side.

 

Although the TVI will plot on any chart, it was originally designed to analyze intraday tick charts. Therefore, you may want to use On Balance Volume for non-tick charts (i.e., 5-minute, hourly, daily, weekly, monthly).

 

I understand the above. Can you please explain the following:

 

TVI can be used with non-tick data by increasing the Minimum Tick Value. For example, you could set the Minimum Tick Value to a large value (e.g., 1, 2, 3, 4 points or more) on a daily stock chart. This produces a smoothing effect when compared to On Balance Volume. Volume will cumulate in the direction of the trend until the price reverses by the specified number of points from a previous trough or peak. When this occurs, volume will then begin to cumulate in the opposite direction.

 

I eagerly await your explanations ladies, and gents.

 

Cheers

 

Carlton

[Tams 20]

why don't you go to the inventor of Trade Volume Index and buy his indicator and have him to explain everything you need to know?

Second guess is only a second guess,

you are not re-engineering the wheel,

you are trying to re-invent the wheel.

[Tams 20]

Before you venture further with cold hard cash,

this TVI is a good theory, but...

just to let you know that most of the data cannot provide the data resolution to make this meaningful.

Google for tick aggregation for detail.

[carltonp 10]

most of the data cannot provide the data resolution to make this meaningful.

 

Tams,

 

Thanks for replying. Can you explain what you mean.

 

The inventor of the indicator is Steve B Achelis. However, he doesn't give a very good explanation of the indicator in his books.

[Tams 20]

Tams,

 

Thanks for replying. Can you explain what you mean.

....

 

read the next line in my post.

[carltonp 10]

Ahhhhh, Tams, are you saying that because most data providers aggregate trade volume and this indicator relies on Tick information the results won't be reliable?

 

BTW, I use Interactive Brokers as both data provider and broker, and I know they aggregate their data.