Richard Arms is the creator of this indicator. His intent was to quantize the market prices together with volume prices with n period price/ volume etc.
The mathematical formula is as follows:\
EMV = [ [(H + L) / 2] - [(Hn + Ln) / 2] ] / [V / (H - L)]
where n is the n- day period.
The formula for Arm' s reach of movement is rather complex. The results, when run by backtesting of historical data were erratic to say the least. The purchases and sales of the stock were frequent which means that the indicator although was buying/ selling the stock, yet profits were not up to par to warrant to call this indicator useful.
Another way to follow this kind of indicator is to apply the m- day moving average to the EMV value above so we have the Moving Average of EMV if we want to smooth the data a bit. Because EMV depends on only one value in the past, it may have the same pittfalls as other indicators who do the same, i.e. rely only on one value from the past. Thus, applying an MA to smooth the data seems like a good idea.
The results were not very ecouraging, for values below m=10 the indicator was erratic, and for values greater than m=40, again the behavior of the indicator showed some randomness and losses.
Best values was the 14-day Moving average of the n=1 day EMV. Values higher than n=1 were not calculated by the backtesting computer software which means that there might be room for improving this indicator in the future. Someone may want to study again this indicator and run backtesting for all values of n as well, like they were done for m.
In overall, the profitability graph of the backtesting tests were slightly bell- shaped showing behavior that both values before and after m=14 were erratic. Therefore, it may not show any reliable results.
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