Dynamic Volume-Volatility Adjusted Momentum

2023년 11월 26일

This Indicator in a refinement of my earlier script PC*VC Moving average Old with easier to follow color codes, overbought and oversold zones. This script has converted the previous script into a standardized measure by converting it into Z-scores and also incorporated a volatility based dynamic length option. Below is a detailed Explanation.

The "Dynamic Volume-Volatility Adjusted Momentum" or "Nasan Momentum Oscillator" is designed to capture market momentum while accounting for volume and volatility fluctuations. It leverages the Typical Price (TP), calculated as the average of high, low, and close prices, and introduces the Price Coefficient (PC) based on deviations from the simple moving average (SMA) across various time frames. Additionally, the Volume Coefficient (VC) compares current volume to SMA, and calculates Intraday Volatility (IDV) which gauges the daily price range relative to the close. Then intraday volatility ratio is calculated ( IDV Ratio) as the ratio of current Intraday Volatility (IDV) to the average of IDV for three different length periods, which provides a relative measure of current intraday volatility compared to its recent historical average. An inter-day ATR based Relative Volatility (RV) is calculated to adjusts for changing market volatility based on which the dynamic length adjustment adapts the moving average (standard length is 14). The PC *VC/IDV Ratio integrates price, volume, and volatility information which provides a volume and volatility adjusted momentum. This volume and volatility adjusted momentum is converted into a standardized Z-Score. The Z-Score measures deviations from the mean. Color-coded plots visually represent momentum, and thresholds aid in identifying overbought or oversold conditions.

The indicator incorporates a nuanced approach to emphasize the joint impact of price and volume while considering the stabilizing effect of lower intraday volatility. Placing the volume ratio (VC) in the numerator means that higher volume positively contributes to the overall ratio, aligning with the observation that increased volumes often accompany robust price movements. Simultaneously, the decision to include the inverse of intraday volatility (1/IDV) in the denominator acts as a dampener, reducing the impact of extreme intraday volatility on the momentum indicator. This design choice aims to filter out noise, giving more weight to significant price changes supported by substantial trading activity. In essence, the indicator's design seeks to provide a more robust momentum measure that balances the influence of price, volume, and volatility in the analysis of market dynamics.

2023년 11월 27일

릴리즈 노트

minor corrections no changes to the function.

2023년 11월 28일

릴리즈 노트

Included an option to use Coefficient of variation (CV) as mean to normalize intraday volatility. If use CV option is selected the CV (I call it relative price dispersion) value will used in volatility normalization and subsequent momentum adjustments. I would prefer this in assets which gap frequently.