What is Ease Of Movement?
Richard Arms' Ease of Movement indicator is a technical study that attempts to quantify a mix of momentum and volume information into one value. The intent is to use this value to discern whether prices are able to rise, or fall, with little resistance in the directional movement. Theoretically, if prices move easily, they will continue to do so for a period of time that can be traded effectively.
- This indicator calculates how easily a price can move up or down.
- The calculation subtracts yesterday's average price from today's average price and divides the difference by volume.
- This generates a volume-weighted momentum indicator.
How the Ease Of Movement Indicator Works
The Ease of Movement indicator, also known as the Ease of Movement Value (EMV) indicator, is an oscillator that was developed by Richard W. Arms, Jr. to help traders identify the "ease" of price movement. Since it looks at both price volatility and volume, many traders find it useful when assessing the strength of a trend.
The EMV indicator involves several different calculations:
- Distance Moved = ((High + Low) / 2 - (Prior High + Prior Low) / 2)
- Box Ratio = (Volume / Scale) / (High - Low)
- 1-Period EMV = ((High + Low) / 2 - (Prior High + Prior Low) / 2) / ((Volume / Scale / (High - Low))
- Scale equals 1,000 to 1,000,000,000 depending on the average daily volume of the stock. The more heavily traded the stock, the higher the scale should be to keep the indicator value in single or double digits.
- 14-Period Ease of Movement = 14-period simple moving average of 1-period EMV
When the indicator creates output values above zero and rising, this suggests that the price is increasing on low volume, while falling negative values suggest that the price is dropping on low volume.
Some analysts prefer to add a moving average to the EMV line and use it as a trigger line to generate trading signals. Traders may also look for divergences and convergences between the Ease of Movement and price as a signal of upcoming reversals. Because the calculations of the EMV result in a line very similar to a momentum or rate-of-change indicator, the EMV can be considered similar to a volume-weighted momentum line. Comparing the EMV and the Momentum indicator may provide useful information about the influence of volume on price.
Most traders use EMV in conjunction with other forms of technical analysis, including both technical indicators and chart patterns, to improve their chances of success. For example, a trader may notice a bullish reversal chart pattern, see that the Ease of Movement is improving, and buy the stock after it breaks out from a specific price point, rather than relying exclusively on the indicator.
Example of the Ease of Movement Indicator
The following chart shows the EMV indicator applied to the SPDR S&P 500 ETF (NYSE ARCA: SPY) in late 2017 and early 2018.
In the above example, the EMV indicator appears below the price chart as an oscillator. A trader may have noticed that the Ease of Movement wasn't rising as quickly as the price between January and February, suggesting that the rally could be losing steam, and potentially helping generate a timely sell signal when combined with other forms of technical analysis. The peaks and valleys over the subsequent periods also show when the stock began to regain some of its momentum, which may be helpful when trading in choppy markets.