Normalized Up/Down Volume Extremes with R-Multiple Exits

Summary

This strategy estimates directional participation by assigning each bar’s volume to the up or down side according to whether its close rose or fell from the prior close. It smooths both volume series, divides up volume by down volume, and rescales the ratio against its historical low and high to form a sentiment oscillator. The stated defaults use a 50-bar smoothing length and a 756-bar normalization window.

The rules enter long at or below an oscillator reading of 10 and short at or above 90, treating one-sided volume as a possible exhaustion signal and reversal opportunity. Stops are set 5% from average entry price, with profit targets at a configurable risk multiple, defaulting to 2R. The excerpt supplies no backtest results or market and timeframe context. The ratio can be undefined when down volume is zero, and normalization can be unstable when its historical range collapses; the text does not explain handling for these cases or discuss costs and execution.

Key ideas

• Up and down volume are assigned based on whether each close is higher or lower than the previous close.
• The smoothed up/down volume ratio is normalized over a historical lookback to create a bounded sentiment reading.
• The strategy looks for long entries at low oscillator values and short entries at high values.
• Stops use a percentage of average entry price, while targets scale that distance by an R multiple.
• The document supplies rules and defaults but no evidence of tested performance.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.