|  FEB 1988

Money flow analysis by Steven B. Goldstein and Michael N. Kahn

Money flow analysis by Steven B. Goldstein and Michael N. Kahn In 1976, Joe Granville documented several theories of stock market price and volume movements in Granville's New Strategy of Daily Stock Market Timing for Maximum Profit. The book explained the calculation and interpretation of on-balance volume, a market analysis technique that compares volume on up days to volume on down days. His theory was that, as stock prices move higher in a rising market, volume on days that prices increase should be higher than volume on days when prices decline. Conversely, volume on down days should be greater than volume on up days when price is falling. The cumulative sum of up volume less down volume should move in the same direction as price. If it does not, a divergence exists that may be a trading opportunity because prices tend to correct in the direction of on-balance volume. While Granville has fallen out of favor, the theory of on-balance or cumulative volume has not. (See Stocks & Commodities, ""Volume analysis,"" January 1988.) A fair number of market technicians still religiously calculate on-balance volumes. The problems with on-balance volume are that only end-of-day figures are used in the calculation and the calculation does not differentiate between a 1% move in a security or market on a given day and a 2% move. The weights are determined by volume, not price movement.

by Steven B. Goldstein and Michael N. Kahn