- Upside/Downside
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Upside/Downside
Measures
of Upside/Downside separate the volumes for rising
markets from those in falling markets. Since volume
is independent of price, it makes a valuable tool
for measuring the quality of a price trend.
There
are two common measures for Upside/Downside:
- The Upside/Downside
Ratio, and
- Upside/Downside
Volume Line Index
Overview
- The Upside/Downside
Ratio is calculated by dividing the daily
volume of advancing stocks on a particular
exchange by the daily volume of declining
stocks. The NYSE Upside/Downside Ratio, for
example, shows the relationship between rising
and falling volume on the New York Stock Exchange.
- A U/D Ratio greater
than 1 shows there is more volume with rising
price stocks than with falling price stocks.
Signals
The
higher the U/D ratio, the more bullish the signal:
high readings above 4 are considered bullish
signals, and low readings below .75 are considered
bearish signals.
Martin
Zweig wrote in Winning on Wall Street, "Every
bull market in history, and many good intermediate
advances, have been launched with a buying stampede
that included one or more 9-to-1 days" ("9-to-1"
refers to a day were the Upside/Downside Ratio
is greater than nine). He goes on to say, "the
9-to-1 up day is a most encouraging sign, and
having two of them within a reasonably short
span is very bullish. I call it a "double 9-to-1"
when two such days occur with three months of
one another."
Overview
- The Upside/Downside
Volume (U/DV) Line is constructed by keeping
a running total for the difference between
the daily volume in advancing and declining
issues.
- Since the indicator
starts with an arbitrary number, it is usually
wise to choose a relatively large number
(five thousand works well).
- A moving average
can be constructed from weekly and monthly
figures and plotted alongside the U/DV line.
Signals
- Normally, the
U/DV line will move up and down with the
price, and trend lines drawn on the U/DV
and price lines will correspond.
- When the U/DV
line doesn't confirm a price move (divergence),
a signal is given for a possible trend reversal.
For example, upside volume may fail to expand
to support increased prices.
- Signals are
also provided when the U/DV line crosses
its moving average.
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