One of the best indicators for analyzing the relationship between the price and trading volume is the Ease of Movement (EMV) Indicator.
What is Ease of Movement Indicator?
EMV or Ease of Movement Indicator is basically an oscillator. It was developed by Richard Arms. This indicator looks at both price volatility and volume. Therefore, it can be used for assessing the strength of a trend.
The value of EMV bounces above and below zero. In general, when the EMV readings are above zero, it indicates bullish money flow and buying pressure. Similarly, negative EMV readings imply selling pressure and bearish money flow.
- Above Zero: When the value of the EMV is above zero, it implies that the price is increasing with comparative ease. When the value of EMV is in high positives, it usually means that the price is increasing on low volume.
- Below Zero: When the value of the EMV is above zero, it implies that the price is decreasing unchecked. When the value of EMV is in high negatives, it usually means that the price is dropping on low volume.
The figure below shows the Ease of movement (EMV) Indicator.
Interpreting Ease of movement Indicator Values
The value of EMV basically denotes bullish and bearish dominance, as well as overbought and oversold levels.
- Bullish Dominance: When the EMV readings are positive, it indicates positive money flow and the dominance of the Bulls.
- Bearish Dominance: When the EMV readings are negative, it indicates negative money flow and the dominance of the bears.
- Bullish Bias: When the EMV readings are steadily increasing, it indicates buying pressure and bullish bias.
- Bearish Bias: When the EMV readings are steadily decreasing, it indicates selling pressure and bearish bias.
- Overbought: Whenever the value of EMV stays above the zero line for a longer time, a bigger bullish volume is accumulated and the overbought level would be stronger.
- Oversold: Whenever the value of EMV stays below the zero line for a longer time, a bigger bearish volume is accumulated and the oversold level would be stronger.
How Traders Use Ease of movement Indicator
Traders use the EMV indicator in its very basic form for choosing trades.
- Buying: Traders go long when the EMV is above the zero line and goes upwards.
- Selling: Traders go short when the EMV is below the zero line.
Some traders prefer to take trades only when the value of the indicator is above or below a specific threshold of the zero line in order to avoid false signals.
Most of the time, traders do not rely just on Ease of Movement (EMV) indicator when choosing trades. They use EMV in combination with other technical analysis indicators or chart patterns for better success rate. For instance, there is a higher chance of success if the trader chooses a trade when there is a bullish reversal chart pattern and an increasing EMV.
The figure below shows how to buy and sell using the EMV indicator.