Ease Of Movement

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Introduction

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.

Formula

EMV = [ ( High(today)+ Low (today) ) / 2 - ( High(yesterday) + Low (yesterday) ) / 2 ] / ( Volume / ( High (today) - Low (today) ) )

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Interpretation

Arms designed the EMV indicator to quantify the ease in which prices moving. The idea behind the EMV indicator is to identify the path of least resistance to predict future price action. Or put another way, the Ease of Movement indicator highlights the relationship between volume and price changes which can be particularly useful for assessing the strength of a trend. High positive values on the indicator indicate that prices are increasing on low volume. Strong negative values indicate that prices are falling on low volume. Conversely low values on the EMV indicator with heavy volume combined with a small price changes are interpreted that prices are not changing easily.

Conclusion

The Ease of Movement indicator developed by Richard Arms was designed with the purpose of expanding the work of his Equivolume charting tool. Arms goal was to quantifying the shape aspects of the equivolume charts and make it easier to determine the ease or lack of which price action was able to move in one direction or another. A moving average can be applied to the EMV indicator to improve its value as a trading tool. Like all technical indicators, the Ease of Movement indicator should not be used in isolation when making trading decisions. It is suggested that traders look for confirmation with additional indicators and always letting price be the final arbiter.