Volume-Normalized Price Change as a Sentiment Oscillator
Summary
The indicator estimates market sentiment by smoothing price changes and trading volume separately, then dividing the smoothed change by smoothed volume. An alternate calculation smooths each bar’s price change per unit of volume directly; the document notes this version may react faster but can fluctuate more when volume changes sharply. Fast and slow exponential averages of the resulting series form a MACD-style line, with a signal average and histogram to show momentum and crossovers.
A configurable long-only backtest enters and exits when selected oscillator components cross one another or a zero reference. The default selections use the histogram crossing above zero for entry and the MACD crossing below zero for exit, while other components and crossing directions can be chosen. The document supplies parameters and a historical BTC/USD backtest setup, but gives no performance results, so effectiveness is unsubstantiated. The volume normalization also makes the measure sensitive to unusual volume, and the alternate method is explicitly described as more volatile in such conditions.
Key ideas
- The default sentiment measure divides an EMA of price change by an EMA of volume.
- An alternate method smooths bar-level price change per volume and may respond faster with larger swings during volume shocks.
- Fast and slow EMAs of sentiment produce a MACD-style line, signal line, and momentum histogram.
- Users can select oscillator components and crossing rules for long entries and exits.
- The document provides a backtest setup but no results demonstrating the strategy’s performance.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.