What is Ease Of Movement
BREAKING DOWN Ease Of Movement
The Ease of Movement 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 Ease of Movement indicator involves several different calculations:
High positive values suggest that the price is increasing on low volume, while high negative values suggest that the price is dropping on low volume. The moving average is often treated as a trigger line, similar to the moving average convergence-divergence (MACD), 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.
Most traders use Ease of Movement 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 Ease of Movement indicator applied to the SPDR S&P 500 ETF (NYSE ARCA: SPY) in late 2017 and early 2018.
In the above example, the Ease of Movement 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.
Chart courtesy of TradingView.com.