Advance Decline models
Advance means the stock is going up and Decline means it is going down. Promotion or demotion. In the Viking, only the price of the object itself is measured, not the number of shares in an index.
The Advance Decline model is a graphical description of when the price goes up or down compared to a previous period. It does NOT tell you when to buy or sell, but is a piece of the puzzle to understand the strength or rhythm of the stock. A common perception is the rule of 3. In an upward trend, it is said that the stock goes up for three days then goes down or stays put. But is it? Look at the pictures below:
In the top chart on the left, it is presented as a Candle Stick chart. The empty squares show that the price has gone up on that day compared to the day before. It corresponds to a bar in the Advance section for each day.
Similarly when it goes down. Then the Candle Stick block is filled in and a stick appears in the Decline section below.
In Viking you can choose whether you want to see the price as a candle stick, line or bar chart. It is also possible to delete the course and show only the AD graph. In this case, right-click on the chart and check our main object.
Interpretation of Advance Decline
As you can see above, there are more Advance bars in an upward trend. You can quickly get a sense of whether the stock is generally going up or down. A bit like an RSI chart, the more bars at the top, the more likely the stock will soon lose momentum and go down or stand still. It will be overbought. Many bars in the Advance section mean that the stock is in a strong upward trend. If there are many bars in the Decline area, the stock is trending downwards.
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Sum of Advance Decline
Total= The number of increases over a period minus the number of decreases over a period. ATTENTION! No average but a sum.
By creating a sum of the number of ups and downs, the sum is interpreted similarly to a Relative Strength Index (RSI).
When the sum of the number of rises minus falls is high, it indicates an overbought condition. When the total is low, it indicates an oversold situation. Overbought means that the price is likely to stop or fall soon. It may also mean that the rate of increase of the exchange rate is decreasing. It goes up more slowly.
On the contrary for an oversold location. When the amount is low, the price is likely to stay or go up. Or the rate of decline is slowing down.
A very good interpretation, which also applies to RSI, is to look at formations. Double top, double bottom, trends, triangles, Head and shoulders. A double top at a high level indicates a very likely reversal in price.
Too short a period makes the signals too early and too long a period makes it slow. The sell signals come too late at too long a period to summarize. A value of 20 periods, day or week, is good. In the image below, it is a sum over 20 weeks. The double top indicates a reversal of the downward trend.
Average of Advance Decline
The line in the bottom graph (blue) is the mean value of Advance Decline. In the image below we can see a nice buy signal in the form of a double bottom in the sum curve.
The mean value varies between +1 and -1. Average = The sum over a number of periods divided by the number of periods, M = Sum/Per. For example, for a period of 5 days where all courses have gone up, the average is 1 = (1+1+1+1+1+1)/5. It is difficult to see any signals. The mean actually needs its own graph and also another mean in order to get the signals provided by the mean. Buy-sell signals in averages are given when the averages cross each other, ideally they should be leaning in the same direction. You can also look at the slope of an average when it turns. The stronger the slope (derivative), the stronger the signal. The seven-day average can be a good thing to work with in the short term.
ACCUMULATION – DISTRIBUTION VOLUME
Wärtsilä gave 39 times the money with 108 weeks AD Volume average of 30 years. Wow, maybe this is a good model?
One idea with this model is that if you take the volume and mix it with a nice model like Stochastics, there should be good signals for buying and selling.
Stochastics is like a temperature gauge. When the average of the last payment is on the upper side of the bar, the stock is trending upwards. Amplifying that signal with volume should give good early signals. For a sustainable signal to provide a longer-term trend, we want the volume to be large and increasing. Applies to both buy and sell signals. Another thing about volume is that there can be an upswing. That is, if the volume is increasing and the price is flat, it is likely that the price will soon go up. This can be easily seen in an AD Volume chart. Because when last paid starts to settle on the upper half of the High-Low and the volume increases, it is easier to see it in the AD Volume chart.
C = Close, Last L = Lowest, H = Highest, V = Volume AD=Accumulation, Distribution
If C=L, it is -(H_L)/(H-L) times the volume, i.e. -1*V. On the contrary, if C=H, then it is 1*V. The value thus varies between Volume and – Volume. Of course, the volume also varies. You could say that you get a stochastic weighted turnover. Moreover, if the volume (turnover) is high, the extreme values become more apparent.
In AD Volume you want to see if the average of AD Volume confirms the price. The average value is calculated by calculating for each period all AD Volume values and summing these values for a time. Finally, the sum is divided by the number of periods in the time period.
How good is the model?
What is the best period value? An optimization on 323 Nordic most traded stocks yielded only 49 positive results with an average of 227 days. Unfortunately, there were very different periods between stocks. In Viking, the unique period per share, index, option, etc. is saved…. when you have run an optimization in Vikingen Trading, i.e. a back testing.
Same with weekly data, scattered values, average of 167 weeks. For example, for Volvo B, the best was a 348-week average, giving a 222% increase in 43 years. A rather mediocre rise for such a long time. 233 out of 476 transactions made a profit when the computer was at its best. Fairly well, about half of them made a profit. But the results are significantly worse than Bollinger, Multimodel, MRudolph3, Kursband, BEST and Peter’s specialists.
For monthly values, there were also scattered values, with an average of 70 months. However, the chance of winning was greater. About 6 out of 10 transactions made a profit. For Volvo, 53 out of 84 transactions were profitable. 782% increase. Most people have the idea that you get richer the more you are updated. But when you run tests, it is almost always the case that weekly or monthly data is best. In other words, it is sufficient to monitor the price once a week or month. …… But it’s not as much fun and the banks don’t earn much from it.
Interpret the AD Volume charts
If the closing price is closer to the highest price than the lowest price, we have an accumulation. If instead the closing price is closer to the minimum price, we have a distribution instead. A change in a rising price trend is signaled if higher and higher peaks in the price curve do not coincide with higher and higher peaks in the mean of the AD curve.
Similarly, in a declining price trend, a reversal can be expected if the average of the AD curve’s peaks starts to reach higher and higher levels.
Price charts provide an alternative way to see if the peaks and troughs of price and volume confirm each other or not. This is done by studying whether rising peaks in the price correlate with rising peaks in the volume and vice versa.
Buy signals are given when the average curve for AD Volume crosses a bottom. Sell signals are given when the same curve has passed a peak.
In the chart you can see that there are too many signals, especially when the price is stationary. A common problem with engineering models. You can see that it looks good when the AD Volume curve goes in the same direction as the curve. That is, the model becomes a complement to other models. The AD Volume model shows whether there is a healthy relationship between volume and last paid in relation to highest and lowest.
To show only the mean value of AD Volume as in the graph above, right click on the graph -> click on model parameters -> click on graphs and then just check the Mean AD Volume box. Press OK for a temporary change or Save for a permanent change.