I have been experimenting with the concepts from Pascal Willian’s effective volume. Willian talked about a modified A/D indicator called effective volume in his book “Value in Time”. Also one can refer the article on “Effective Volume” in the Traders online magazine.
The effective Volume is a modified version of the Accumulation Distribution Indicator proposed by Larry Williams.
The Larry William’s A/D indicator AD = Ref (AD-1) + V x ( C-(Ref(C-1))/(H-L)
Effective Volume EF = Ref (EF-1+ (C-(Ref(C-1)) + SP/(True High-True Low)+SP
Ref (AD-1) = The AD of previous bar
Ref (EF-1) = The Effective volume of previous bar
Ref(C-1) = Close of the previous Bar
SP = Correction Factor
Right now I am not going into the Full calculation of the effective volume. I am just sharing some of my observations. I plotted the bar by bar volume part without adding the previous day value of the Effective volume. We will call it the buy sell volume because the value will be positive on an up bar and the will be negative on a down bar. The basic assumption is that a Up Bar represents buying and a down bar represents selling which is in line with the assumption for the AD indicators. We will also plot the average value of the Buy volumes and Sell volumes. If we look at the Bars carefully it will be interesting to note that the Bars with volumes more than 2.5 times the average volume clearly foretell that change in the trend is likely very soon. Most times it indicates the turning points. One can notice in the chart below that these bars marked yellow is clearing indicating the changes. Since the volume and volatility of different instruments varies the value of 2.5 can vary. To differentiate this volume chart from the effective volume we will call it the BS volume chart (Buy and Sell Volume).
If anyone wants to experiment with this you can download the Indicator from the Link below