Trader’s Narrative

One of the eternal battles within technical analysis is the relationship between price and volume. Some argue that volume is not important at all. Especially when different exchanges have different methods for calculating it and different market data sources provide slightly different volume data.

Others have gone so far as proclaim the relationship between price and volume to be the ‘holy grail’ of trading. There are many indicators which incorporate volume. The most popular is the On Balance Volume (OBV) invented by Joe Granville. It is a straightforward indicator which adds today’s volume to yesterday’s if we’ve had a higher price, subtracts today’s volume from yesterday’s if we’ve closed lower and nothing if price was even.

The winner of this year’s Charles H. Dow Award is another indicator that incorporates price and volume but in a much more complicated way. The paper was written by Buff Pelz Dormeier, an executive and portfolio manager with Wachovia (WB).

I’ve put Dormeier’s paper in my ‘goodies box’ - look for the Charles H. Dow Award folder. You can also find the other Dow Award winners there, as well as a whole bunch of other interesting articles, reports and even whole trading books.

I’ve read the paper but not fully digested it yet. At first glance it looks to be interesting but doesn’t provide the same Eureka! insight into the markets that previous Dow Award papers have.