06/07/2021 |
TrendSpider Software Update: Anchored OBV & Anchored A/D
Hello, everyone. It’s another day and that means it’s time for another software update. In this update, we announce two new, experimental indicators that have been added to the platform: the Anchored On Balance Volume (OBV) and the Anchored Accumulation/Distribution line. Both of these indicators are new takes on old classics. Let’s dive in!
Overview
Generally speaking, indicators can be divided into two broad group sets. The first set is the traditional indicators that use a rolling window to define a “look back period.” For example, a Simple Moving Average (SMA) with a 20-period look back, will calculate a simple moving average looking at the most recent 20 candles. Each new candle will move the “rolling period” forward. Each data point represents the average of the previous 20 candles. Almost all indicators work this way – with a rolling look-back window. That is what the numeric values in indicator settings typically represent: the number of candles (or periods) that the indicator looks back and rolls with.
The other type of indicator is the aggregated (or cumulative) type. This includes indicators such as VWAP, OBV, and A/D. The difference between a traditional indicator and a cumulative one is massive. Unlike traditional indicators with rolling windows, cumulative indicators do not have a rolling window… instead, they start the measurement somewhere, and then all data that exists from that point forward is incorporated into the indicator. There is no resetting of data, it just incorporates it all.
This fact highlights one of the major challenges with this type of indicator: the user cannot control the start point, and there is no mechanism to reset or control the indicator at a point in time when the status quo has changed. This is the challenge that anchoring addresses and why it is useful for this type of indicator.
Anchored OBV (On-Balance Volume)
The On Balance Volume indicator (OBV) is a momentum indicator that is not an oscillator. It collects and aggregates data about volume flow in order to help gauge changes or movements in the underlying market for a given asset. The indicator is not new, having been around since the early 1960s. It was first proposed by Joseph Granville in his book “New Key to Stock Market Profits.” This indicator is sometimes described as a momentum indicator, but it generally represents data about volume more than price movement.
Anchored A/D (Accumulation/Distribution Line)
The Accumulation / Distribution indicator (A/D line) is designed to take into account both price movement and changes in volume. Traders sometimes seek to identify divergences with this indicator, as if it is falling when price is going up, it can indicate that the moves volume may be behind us. Traders can also use this indicator to make a judgement about whether a stock is in an accumulation phase or a distribution phase. The A/D line plots the aggregated (or cumulative) sum of the delta between possible accumulation and distribution. Like OBV, it is not technically an oscillator.
The Problem With Cumulative Indicators That Anchoring Solves
One of the challenges with cumulative indicators is they can become rather “crowded”. Meaning, if enough time passes, the cumulative nature of the indicator will hide subtle changes from the user. This is simply because the vast amount of data that has accumulated in the indicator is preventing new data from affecting its calculation and plot in a meaningful enough way to be noticeable to a user. This is why many traders prefer to use oscillator indicators instead of cumulative ones. We propose that this can be addressed by ‘resetting’ the calculation and data in a cumulative indicator, as well as by giving the user control over where the accumulation of data starts.
Manual Anchoring
To manually anchor an OBV or A/D line, simply right-click on any candle. This works exactly the same way that it works on Anchored VWAP. To remove a manually anchored A/D line or OBV indicator, simply right-click on it.
Automated Anchoring
To automatically anchor an OBV or A/D line, goto indicator settings and select an automated anchoring rule. We strongly recommend using time-based aggregation periods for these indicators, such as the Month-to-Date option, and stick to the daily chart to get a feel for it.
When enabling automated anchoring, it is important to be sure to check the box for “Continuous” and the box for “Anchors” – as they will make the indicator more visually useful.
In the below screenshot, we show what anchored A/D line looks like with the settings described on the Bitcoin/USD chart. You can clearly see that when the anchoring is reset (on a quarterly basis on this chart) typically there is a great deal of accumulation until there is not.
In the screenshot, you can also see that the anchor point resets are marked by the TrendSpider Anchor icon and the text states “Q2D” which means Quarter to Date.
Of course, time-based criteria are not the only way to automatically anchor indicators. TrendSpider offers a wide range of automated anchoring options. Here is a list of them and some of their nuances:
- Date: Manual Anchoring (right-click on a candle manually)
- Highest Volume: Will anchor once from the most recent highest volume day in a rolling period.
- Highest High: Will anchor once from the most recent highest high in a rolling period.
- Lowest Low: Will anchor once from the most recent lowest low in a rolling period.
- Blue Raindrop: Will anchor and re-anchor at each blue dojo Raindrop.
- Recent Gap: Will anchor at the most recent gap, and if Continuous is checked, will re-anchor at all gaps.
- Day to Date: Will anchor day-to-date. If Continuous is checked, will anchor at start of every day.
- Week to Date: Will anchor week-to-date. If Continuous is checked, will anchor at start of every week.
- Month to Date: Will anchor month-to-date. If Continuous is checked, will anchor at start of every month.
- Quarter to Date: Will anchor quarter-to-date. If Continuous is checked, will anchor at start of every quarter.
- Year to Date: Will anchor year-to-date. If Continuous is checked, will anchor at start of every year.
Scanning With Anchored OBV & Anchored A/D
As previously mentioned, the best way to utilize these indicators is with a continuous “Automated Anchor” point. With this feature enabled it also opens the door to scanning and backtesting capability. Want to scan for stocks in the S&P 500 trading below their 200 moving average with positive readings on the Monthly-anchored A/D line? accumulation volume? Now you can! (Sample shown below).
Additional Supported Functions
The new Anchored OBV and Anchored A/D line indicators are supported fully throughout TrendSpider, including in:
- On Charts
- The Market Scanner
- The Strategy Tester
- Multi-Factor Alerts
- Script Templates
See It in Action
We understand this concept may be somewhat hard to wrap your head around. Please check out this video for more information on how these indicators work and how to use them.
