Technical Analysis, Studies, Indicators:
Up-Down Momentum (UDM)
"Proudly invented, developed and implemented by us"
Legal Notice
Up-Down Momentun (UDM) is our proprietary indicator. Readers are permitted to explain/describe Up-Down Momentun (UDM) on other websites/publications and/or to include/reproduce the formula in other software for personal and professional use provided that they recognize the inventors and display a hyperlink to this web page describing the Up-Down Momentun (UDM) indicator.
Description
The Up-Down Momentum (UDM) indicator was developed by Victor Kalitowski for our subscribers as an alternative of the TRIN indicator for stocks. The Up-Down Volume indicator was developed in the result of the research dedicated to up-volume and down-volume during up- and down-trends (the research results could be found HERE). Before implementing the UDM indicator, it was tested on the history of 500 most popular stocks (see scan results here) and comparing the performance of the UDM to other popular indicators (see technical indicators rating table HERE).
The Up-Down Momentum volume measures relation between bullish and bearish volume per price change unit. It allows to see whether volume traded during price up-move is bigger or lower than the volume traded during the price down move. Basically the UDM indicator reveals group of traders (bearish or bullish) that are more active within analyzed period.
The UDM indicators formula is similar to the TRIN formula with difference that instead of Advance/Decline Issues the UDM uses up/down price changes. Respectfully, instead of Advance/Decline Volume the UDM indicator uses up/down volume associated with up/down price changes. Also, in opposite to the TRIN indicator the Up-Down Momentum indicator was not made as contrarian indicator. The main purpose of having this indicator as not contrarian is to have it compatible to automated and mechanical trading systems that uses higher reading as bullish and lower readings as bearish.
Technical Analysis
The Up-Down Momentum indicator is used in technical analysis in the same way as TRIN is used. The same as a TRIN indicator it oscillates around 1 in the range from 0 (zero) to infinity. The only difference is (as was already mentioned above) that UDM indicator in opposite to the TRIN indicator is not a contrarian indicator and the UDM readings above 1 are considered bullish and the UDM reading below 1 are considered bearish.
When UDM is analyzed, in order to understand this indicator and processed behind it you should remember that:
- Declining UDM readings indicate decline in activity of bullish traders and increase in activity of bearish traders;
- Increasing UDM readings indicate decline in activity of bearish traders and increase in activity of bullish traders;
- the UDM reading above 1 indicate that bullish traders are more active than bearish traders;
- the UDM readings below 1 indicate that bearish traders are more active than bullish traders.
Based on the statements above, a trader can explain the processes behind the price movements and predict possible future trend developments. Following points could help when it comes to generating trading signals:
- During an up-trend, the UDM readings above 1 confirm an existing up-trend;
- During a down-trend, the UDM readings below 1 confirm an existing down-trend;
- The UDM readings below 1 during an up-trend suggest the possibility of a reversal down;
- The UDM readings above 1 during a down-trend suggest the possibility of a reversal up.
A simple trading system based on the Up-Down Momentum technical analysis would generate trading signals on the crossovers of the UDM indicator and 1-line around which UDM oscillates:
- Buy when UDM advances above 1 after being below it;
- Sell when UDM drops below 1 after being above it.
Chart 1: QQQ stock chart - UDM (Up-Down Momentum)
Formula and Calculations
The Up-Down Momentum indicator is based on price and volume data. It is calculated by the following formula:
Up-Down Momentum = SMA applied to [(Up Price Change) x (Down Volume)] / [(Down Price Change) x (Up Volume)]
where
"Up Price Change" is the sum of up-price changes (positive price changes) over specified period.
"Down Price Change" is the sum of down-price changes (negative price changes) over specified period.
"Up Volume" is the summary volume associated with up-price changes over specified period.
"Down Price Change" is the summary volume associated with down-price changes over specified period.
In similar to the TRIN indicator the UDM formula could be rewritten as ratio of bullish (up) and bearish (down) volume per price change:
Up-Down Momentum = SMA applied to (Down Volume per Price Change) / (Up Volume per Price Change)]
where
Up Volume per Price Change = Up Volume / Up Price
and
Down Volume per Price Change = Down Volume / Down Price
By V. K. for MarketVolume.com
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