Name, Sometimes Called:
Arms’ Ease of Movement
Sometimes called Ease of Movement
Brief Description:
The Ease of Movement indicator
relates price change and volume.
It calculates the “ease” at which prices are moving. The larger
the price move and the lighter the volume, the easier the movement.
Definitions, Formulas:
EMV is a momentum
indicator
that shows the relationship between volume
and price change, that is, how much volume is required to move prices.
When a small price change is accompanied by heavy volume, the indicator
returns a value near zero, indicating that prices are not moving
easily. Conversely, when a large price change is accompanied by
low volume, the indicator returns a large positive or negative value
indicating that prices are increasing or decreasing easily
Richard Arms, the indicator’s developer, describes an “exact”
and a “simplified” calculation. The ease of movement is calculated
based on the current period and the proceeding period. Period (n)
can be one day (today and yesterday) or a week (this week and last
week) or any equal time periods. The shorter the period the more
responsive the EMV. Shorter may also mean more signals leading to
damaging whipsaws.
The longer the period the more likely the indicator signal will
occur later than would be useful. Perhaps the most common period
n is 14 days.
When using multiple day periods be careful to use the high and
the low of the whole period. They probably did not occur
on the same day. Also be aware this indicator can use overlapping
periods or discrete periods. Discrete 5-day periods would be (1,
2, 3, 4, 5) then (6, 7, 8, 9, 10). Overlapping 5-day periods would
be (1, 2, 3, 4, 5) then (2, 3, 4, 5, 6). In overlapping periods
the oldest one day is dropped out and the newest period (today)
is added. In the n=14 chart below overlapping 14-day periods
were used.
In the example calculation below we use Arms’ exact calculation
and a period n of 1 day.
Calculating the EMV requires first calculating the so-called Midpoint
Move, MM:
MM = [( HighTODAY + LowTODAY)
/ 2 ] - [(HighYESTERDAY +LowYESTERDAY)
/ 2 ]
Then calculate the current period’s high-low Box Ratio, BR:
BR = Volume (in tens of thousands) / (HighTODAY
- LowTODAY)
Some calculations use volume in millions, rather than in tens
of thousands. It is merely a scaling factor.
The EMV is then the ratio of the two:
EMV = MM / BR
This is the “raw” EMV. It oscillates around zero, and is often
smoothed with an exponential moving average. We use a five-day EMA.
Some presentations fail to smooth the result.
Positive Development Calculation:
For this TAI, a new positive development (NPD)
occurs when EMA(5) (EMV) x+ 0.
This TAI is no longer positive when EMA(5) (EMV) x- 0.
If this TAI is still positive tomorrow, it will no longer be new,
but will be a cumulative positive development (CPD)
.
If this TAI was a new positive development (NPD)
yesterday, and is still positive today, then it becomes a cumulative
positive development (CPD)
.
History:
The Ease of Movement indicator was developed by Richard
W. Arms, Jr. and is described in his book Volume Cycles and
the Stock Market: Market Timing Through Equivolume Charting
(Irwin Professional Pub., May 1983; republished by Equis International,
Inc., March 1994). Arms is perhaps best known for the popular Arms
Index and the Equivolume charting method, of which the Ease of Movement
indicator is a product. The Ease of Movement indicator provides
one value (for each time period) representing the price and volume
for that period. It calculates the “ease” at which prices are moving.
The larger the price move and the lighter the volume, the easier
the movement.
The indicator shows:
- Large positive values when prices move upward on light volume;
- Large negative values when prices move down on light volume;
- Low values if price is not moving or if it takes heavy volume
to move prices, signaling distribution or accumulation.
These charts show the Ease of Movement indicator in use. Notice
that, for the same period of time, the EMV n=1 gives many more signals
than EMV n=14. Not all NPD and NLPD are marked for the n=1 chart.
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