Average Volume Implementation

Introduction

I really liked Dr. Brett Steenbarger's Volume and Opportunity in the Stock Market blog post. I had wanted something to help me judge volume levels as the markets slowed down durring the midday action. This makes sense to me, and I think it can payoff in helping me filter my trade selection better.

First Version Implementation

I have completed the first version of my average volume implementation for the ES. The purpose of this indicator is to display a reference line on the chart at the level where volume should be averaging for the current 15 minute period.

One of my goals was to be able to use this indicator on several different time periods. The two primary time based chart I watch throughout the day are a 1-minute and a 5-minute chart. For the "15 minute average" to make sense on these charts I decided to take the average for the 15-minute period and break it down to a 1-minute value within the period. Then I calculate the 15-minute bar period using the following formula:

INT(((SBAR - 1) * MPB) / 15) + 1

The following is a description of the Investor/RT functions:

INT is the integer function
SBAR returns the number for the current bar in the session
MPB indicates the number of minutes displayed per bar

Now I just display the right 1 -minute average based on the calculated 15-minute period. For this to work on multiple time frames I must multiple the 1-minute average by the minutes per bar (MPB) function value.

If you use either Investor/RT or Market Delta (both developed by Linnsoft), I can send you a chart template if you are interested in this indicator.

Side note - The beta implementation used IRT's BARNO function. This was replaced by the SBAR function when I discovered that BARNO seemed to "restart" the bar number value for some reason. I discovered the SBAR function while trying to figure out what was going wrong. I never figured out why BARNO did not work after discovering SBAR did what I needed.

Limitations

Hard coded 15-minute values - For this first implementation I'm not dynamically calculating the 20 day average volume for the period. So my values are hard coded to Dr. Brett's values for now.

Only for 15-minute periods or less - This indicator was not designed to work for charts greater than a 15-minute time frame. I make no attempt to combine 15-minute averages to use on higher time frame charts.

Enhancements

The first enhancement is to add a component to update the 20-day average that is used for each 15-minute period. I do not want to waste calculating time to have the main indicator perform this calculation. There is no need to repeatedly perform this calculation throughout the day.

Investor/RT support a display of multiple time periods on the same chart. I'm interested in using this capability to add the 15-minute total volume to the lower time frame charts. I would also add the "combined" 15-minute value as another reference level.

Next Steps

The immediate next step for me is to review historical charts to get a better feel for this new average volume indicator and see how it can help me in my trade selection.

Trade Wise, Trade Well
John