FreedomOfMovement

Description

The Freedom Of Movement study is a support-resistance technical indicator developed by Melvin E. Dickover. Sharing the principle of the Relative Volume StDev, it takes into account price-volume behavior in order to detect points where movement of price is suddenly restricted, the possible supply and demand pools. Just like in Relative Volume StDev, these points are also marked by Defended Price Lines (DPLs); the two indicators should be used together in order to adjust and refine position of the DPLs.

In mathematical sense, the Freedom Of Movement is the ratio of relative effect (relative price change) to the relative effort (normalized volume), expressed in standard deviations. This value is plotted as a histogram; its bars are highlighted when this ratio is unusually high. These highlighted bars, or "spikes", define the positioning of the DPLs.

As it was mentioned in the Relative Volume StDev article, DPLs can be drawn using the Price Level drawing. Suggestions for placing these lines are the same as for the Relative Volume StDev:

  • Overlapping bars. If the indicator spike corresponds to a price bar overlapping the previous one, the previous close can be used as the DPL value.
  • Very large bars. If the indicator spike corresponds to a price bar of a large size, use its close price as the DPL value.
  • Gapping bars. If the indicator spike corresponds to a price bar gapping from the previous bar, the DPL value will depend on the gap size. Small gaps can be ignored: the author suggests using the previous close as the DPL value. When the gap is big, the close of the latter bar is used instead.
  • Clustering spikes. If the indicator spikes come in clusters, use the extreme close or open price of the bar corresponding to the last or next to last spike in cluster.

Clustering spikes provide the strongest DPLs while isolated spikes can be used to confirm and refine those provided by the Relative Volume StDev. Coincidence of spikes of the two indicator can be considered a sign of greater strength of the DPL.

Input Parameters

Parameter Description
length The number of bars used in calculation of the standard deviation.
num dev The critical indicator value exceeding which will indicate the spike.
allow negative values Defines whether or not to display negative values of the indicator.

Plots

Plot Description
FoM The Freedom Of Movement histogram.
StDevLevel The critical level.

Further Reading

1. "Evidence-Based Support & Resistance" by Melvin E. Dickover. Technical Analysis of Stocks & Commodities, April 2014.

Example*

*For illustrative purposes only. Not a recommendation of a specific security or investment strategy.

You may also like
Trailing Stop Links
Trailing stop orders can be regarded as dynamical stop loss orders that automatically follow the ...