RelativeVolumeStDev

Description

The Relative Volume StDev is a support-resistance technical indicator developed by Melvin E. Dickover. Unlike many conventional support and resistance indicators, the Relative Volume StDev takes into account price-volume behavior in order to detect the supply and demand pools. These pools are marked by Defended Price Lines (DPLs), also introduced by the author.

In mathematical sense, the Relative Volume StDev is calculated as the ratio of the volume to its simple moving average (SMA), expressed in standard deviations. This value is plotted as a histogram; its bars are highlighted when the volume is unusually large. According to the author, this happens if the indicator value exceeds 2.0, thus signifying that a possible DPL is present.

DPLs are horizontal lines that run across the chart (feel free to use a Price Level drawing for that) at levels defined by following conditions:

  • Overlapping bars. If the indicator spike (i.e., indicator is above 2.0 or a custom value) 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.

DPLs can be used as support and resistance levels. In order confirm and refine them, it is suggested that you use the Relative Volume StDev together with the FreedomOfMovement, another indicator developed by Melvin E. Dickover.

Input Parameters

Parameter Description
length The number of bars used in calculation of both the standard deviation and the simple moving average.
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
RelVol The Relative Volume StDev 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.

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