Using Log Dollar Volume Percentiles to Gauge Trading Activity

Summary

This indicator measures trading activity by multiplying closing price by volume, smoothing that dollar-volume series with a configurable simple moving average, and taking its logarithm. The log transformation compresses large values. It plots the resulting series alongside rolling 20th, 40th, 60th, and 80th percentile levels, calculated over a separate history window. A rolling minimum-to-maximum normalization also colors the line from light blue at its low end to orange-red at its high end.

The accompanying guidance suggests using the bands to compare current participation with recent history, and considering activity as context for breakouts, quiet markets, or mean-reversion setups. These are proposed interpretations, not demonstrated trading results: the document provides no tests showing that high activity predicts follow-through or that low activity identifies failed breaks. Because the color rank uses the rolling range while the bands use percentiles, the color alone does not indicate a percentile rank. The measure is relative to the selected lookback and depends on the instrument's volume data and price scale.

Key ideas

• The indicator uses closing price times volume as a proxy for dollar volume.
• A simple moving average smooths dollar volume before the logarithm reduces the influence of large values.
• Rolling percentile bands provide historical context for the transformed activity series.
• Line color is based on its position between the rolling minimum and maximum, rather than its percentile rank.
• The suggested breakout and regime uses are hypotheses; the document reports no performance tests.

Tags

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