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Scan for Volume less than 50% average
Hey guys, I'm trying to create a scan for Gil Morales's VDU(Volume Dry Up) strategy that occurs at the end of a consolidation before an explosive move. Essentially, I want to search for volume that dries up more than 50% of the average volume on a given day. Any ideas how to write this?
Thanks in advance,
and [EMA(50,volume) > 9999999]
You would want to change the MA to what your preference is. Then you want to take that part of the equation and multiply it by 0.5 or divide by 2. I prefer multiplication myself.
and [EMA(50,volume) *0.5 > 9999999]
You then want to change the other side of the equation. You are looking for Volume again, so swap in the volume in place of the numbers.
and [EMA(50,volume) *0.5 > volume]
and [volume < sma(21, volume) * .5]
Also note that low volume is a pretty common occurrence, so by itself it doesn't signal a breakout. I'm not familiar with Gil Morales, but I'm assuming there are also some price related conditions to go along with the volume test. Even so, you can get several instances of low volume in a consolidation before a breakout.
You could also try testing for whether current volume is the lowest in some number of bars, maybe 21 - which is a month of trading days - see if that improves the hit ratio.
Also, consolidations can take many shapes. Some are long and fairly flat, with a gradual sort of up slope to them. Others can be pretty short. Some have a nasty breakdown at the end to flush the stops of the low conviction early buyers.
The low volume idea is not original. You might take a look at the Wyckoff page in Chart School for the anatomy of stage rotations (accumulation, mark up, distribution, mark down). Bullish consolidations would happen in the accumulation and mark up phases. In general, the better ones will occur in the mark up phase, when the sponsors ("smart money") want prices to rise. In the accumulation phase, the sponsors will suppress rallies until they are ready. You can also get consolidations in the distribution phase, but they are less likely to get much above the previous high.