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Ease of Movement

Posted in Indicators of technical analysis

Ease of Movement indicator was created by Richard W. Arms, Jr.. As the title says, its aim is to assess "easiness" by which the asset price is changing. It takes into consideration not just the prices but also the volume of trades that have been at those prices realized.

Ease of Movement reaches high values in case the asset prices rise very fast and the Volume is low. On the contrary, low EOM values mean that the prices fall very easy at low Volume. If the prices are steady, or high Volume is needed to move them up or down, the indicator values oscillate around the Zero line.

 

Ease of movement formula is as follows:

EOM = [(H – L) / 2] – [(H n-1 – L n-1) / 2] / [(Volume / 10000) / (H – L)]

 

The Volume is divided by a high number (usually 10000), so it is easier to work with the result. Every trader can adapt the number according to the Volume that is mostly reached at the market he trades.

There is Ease of Movement displayed on the picture bellow. Yellow vertical lines point out to the moments when Ease of Movement's Moving Average crosses the Zero line either upwards or downwards.

 

Ease of Movement indikator

Copyright © Picture made by Incredible Charts


How to use it:
Traders use this indicator to identify the real strength of the prevailing trend. If the indicator values cross zero line upwards, i.e. the prices tend to rise, too. The analogy would be right, should the zero line be crossed downwards. In such case it is better to enter a Short trade.
It's quite usual to combine the EOM with its Moving Average – usually 10-days EMA. Crossing above the EMA mean a signal to Buy and vice versa.
As a matter of fact, there is a lot of crossings in these examples described above. It would mean a lot of trades and many of them would be a loss. If the trader wants to get less signals, he can use just the EOM Moving Average crossings above/below the zero line.

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