Technical Analysis works on the principle of studying price trends in the foreign exchange market, and uses various fields from past price history of the currencies. These fields include open price, close price, high price, low price, volume and open interest. The main purpose of this analysis is to identify trading signals in the live market, where immediate decision making related to movement of currencies is required. In this article we will discuss about Ease of Movement charting indicator that is based on volume.
Ease of Movement:
This indicator guide traders on the total amount of volume that is required for to move the price of a particular currency. This indicator works in correlation with the moving average, which is usually set at period 14. This helps in smoothening the value derived from Ease of Movement. The indicator is used by traders to generate buy and sell signals. This is an oscillator that is based on volume, and always moves above or below the 0 line. It quantifies the relationship between price and volume of the currency. The desired results are shown here as an oscillator. Foreign Exchange Market experts believe that a positive territory is expected when prices are moving relatively easy in upward direction, whereas when the situation turns opposite the oscillator is in negative territory. The formulae of ease of movement contain three vital parts. First part calculated the total distance moved, the second with the volume and last one deals in high and low range.
Signals in Foreign Exchange:
Ease of Movement Indicator shows various signals based on price & volume factor. A high ease of movement is witnessed when less volume is required to raise the prices of foreign exchange. It means that when market faces such a situation where prices are moving upwards but not in tandem with volume, then it is said that high ease of movement level has been reached. On the other hand, if prices are falling on account of low volume in the market, then such a situation is termed as low ease of movement. Finally, if more or high volume is required to increase the level of forex price, then traders expect ease of movement to move around 0. It is advised to buy the currency when this indicator crosses above the 0 line, else sell.
Confirming signals of other indicator:
Ease of movement is also used to confirm the signals that are generated by other technical studies plotted on the chart. Traders usually use this indicator to check on the breakouts or the bullish / bearish signal in the foreign exchange market. Similarly, bearish signal can also be checked if the indicator is moving into the negative territory.