Also, not sure what they mean by "dollar volume." Maybe dollars change from open on 1st day of month to close on last day, times total volume for the month?? Who knows....but this definition could be critical to the indicators performance.
Still haven't plugged the formula into WOW yet. From testing what they were doing on paper the other night while watching TV, I was playing with some phony whole numbers to see what they were trying to accomplish. To me, it seems that by coming up with a value; let me see if I can explain what I think the intention of the formula is.
Stock Price $10.00 Daily Volume 50,000 Liquidity Ratio 2.5
Now this is from memory, but the idea that it was 2.5 times the volume (100,000) to get the stock to move 1 full point to $11.00, or to $9.00. But the ratio is not really 2.5 as stated, I think the real interpretation was that if the value was 2..5, it would actually mean 250000 and that was volume needed to move the stock up or down a buck/point.
The basic principle is that whatever the value from the equation comes to is the total volume needed to move a stock price up or down a point. My example of 50,000 volume and liquidity ratio of 2.5 is probably not really a valid number but 'was' hoping to show it. I am sure if I used that site and put in a stock, a real number would come to the screen which would make it more clear.
What I want to do is maybe use it to guide with some calculations to see if it could be possible to predict a quarter point out of it. If I know that the average volume of the stock from calculations is 50,000 per day and from the liquidity ratio that it takes 1,000,000 volume to get the stock to move a full point, then I can guess that it would take about 250,000 volume to move the stock 1/4 of a point. This would mean that it would take about 5 days of 50,000 volume to get that 1/4 point move. Then possibly check the past 5 days or 10 days to see at what percentage increase in volume is taking place and if all other indicators showing moving up, I might be able to guess that based on volume for the past few days and the percentage increasing, that it will take approximately 4.25 days to get the stock to move 1/4 point.
The above is all free form thoughts and the figures are not actually real numbers. All of this is just stated for simplicity in viewing. Hopefully it is enough for others to think if they could use this liquidity ratio or not. For those that missed it, the formula criteria to create it is a few messages back. |
