motivated by e-mail from Ken G.
I always wondered how people measured momentum. When a stock price is on the move, upwards, maybe it's time to buy and go along
for the ride and ...
>Or on the move down, eh?
Yes, of course. But what does it mean ... this "on the move" stuff?
That's what it's called, but it's measured in so many ways and may involve so many factors and ...
- Strong upward trend in the price chart and greater than expected earnings growth.
- Strengrh, relative to other stocks (or "the market" as a whole), measured
(perhaps) by the Relative Strength Index. (See RSI, here.)
- The market goes down, but your stock doesn't ... so it may explode when the market starts up again.
- Don't hold on to a falling stock ... and look for one that stays above its 50-day moving average.
- Small cap, low volume, less liquid stocks can make explosive moves.
- Look for new highs before the stock goes even higher.
- Keep your eye on the Directional Movement Indicator and ADX and ...
Anyway, I now discover that the ol' standby RSI is being volume-weighted.
>DMI? Didn't you play with that some time ago?
Yes, here and here.
In particular, I was interested in weighting the stock price according to the volume of trades associated with that price.
A day when a million shares traded is more significant than a day where a hundred thousand traded, so I volume-weighted the prices and called the
"modified" value of ADX ...
Yes, as shown in Figure 1. (See also this.)
>So I should buy that COS-UN stock?
Huh? You asking me? What do I know?
Remember that, if RSI = 0.75, then you'd say: "The price has increased 75% of the time, over the past umpteen days".
Now, RSI, when volume-weighted, is called ...
>Money Flow Index?
Very good! You've read the title, eh?
The idea is this:
>So if MFI = 0.75, then I'd say: "The money flow was positive 75% of the time, over the past umpteen days".
- Consider some representative daily price, say P = (High + Low + Close)/3
... a daily "average" price
- Multiply P by the volume for that day giving P*V
... representing the value of all the day's trades, hence the daily "Money Flow"
- Keep track of the Money Flows on those days when the price went UP, calling them "Positive" Money Flows
- Add ALL the volume-weighted prices for the past umpteen days
... giving the total "Money Flow" over this time period
- Add up all those "Positive" Money Flows
... summing the "positive" volume-weighted prices over the past umpteen days
- Determine the ratio: MFI = (SUM of positive Money Flows) / (SUM of ALL Money Flows)
You can say that if you like. It don't hardly matter to me.
>So where's the spreadsheet?
Just click on the picture:
>And what do I look for?
I'd suggest playing with the spreadsheet, for various stocks, and seeing if, for example, large values of MFI (like 80% or better) indicate that you've reached
a maximum stock price or maybe small value (like 30%) means you're at a minimum or maybe ...
>And that's it?
That's it for me! ... but here's a few (for cogitation purposes):
... and what happens when you change the number of days:
>You call that "momentum" investing?
Who me? No, I don't ... but maybe this is closer to momentum.