Well know Technical Analysis Guru Richard Arms believed that of one most common
mistake that novice technicians make is to ignore the importance of volume in the
study of price charts. Arms believed that one basic tenets of technical analysis
was that volume often preceded changes in price.
The Ease of Movement Indicator was created to expand upon the equivolume charts
that he also created. Like the equivolume chart, the Ease of Movement indicator
(EMV) was constructed to highlight the relationship between changes in price and
volume with the goal of determining trend strength. Arms believed that the ease
with which stocks could move was a product of a ratio between price and volume.
He created equated the equivolume charts to visually display this idea. By using
the height representing a trading range and width representing trading volume one
could get a feel for the path of least resistance for future price movements. This
was all plotted box format. Basically a higher ratio resulted in a wider box and
indicates difficulty of movement. Lower ratio created narrower box which indicated
easier movement. To visually simplify this information, Arms created the Ease of
Movement indicator. Where this ratio is compared between today's and yesterday's
trading-range midpoint values to determine the Ease of Movement indicator value.
Traders who wish to gauge the strength of new trend should look to the Ease of Movement
indicator (EMV) to help them improve their trading decisions.
EMV = [ ( High(today)+ Low (today) ) / 2 - ( High(yesterday) + Low (yesterday) )
/ 2 ] / ( Volume / ( High (today) - Low (today) ) )