VADER: Combining Price Displacement and Volume into Directional Energy
Summary
VADER estimates buying and selling pressure by combining the direction and size of close-to-close price changes with associated trading volume. It normalizes price movement by a recent bar range, limits extreme normalized changes, and weights the result by a selectable volume measure. Separate smoothed demand and supply series are compared to produce net directional energy, with a further smoothed line serving as the main signal.
The indicator offers relative, full, or no-volume modes, plus selectable averaging and smoothing lengths. Relative volume scales activity against a lookback range; without usable volume, the calculation falls back to an unweighted mode that the author likens approximately to an RSI. Suggested readings include zero-line crosses and comparisons with an optional longer-period sentiment baseline, for which alerts are available. The document explains the intuition and settings but supplies no controlled performance results. Volume quality, instrument behavior, and parameter choices may affect interpretation, and the energy analogy is a trading heuristic rather than a physical measurement.
Key ideas
- The indicator combines normalized price displacement with volume to estimate directional energy.
- Separate demand and supply measures are smoothed and differenced to form net energy.
- Users can choose relative-volume, full-volume, or volume-free calculations.
- Zero-line crosses and movement relative to a longer baseline are presented as possible signals.
- The explanation provides intuition but no systematic evidence that the signals are profitable.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.