Ease of Movement Indicator
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Richard Arms’ Ease of Movement (EOM or EMV) indicator is a technical study that attempts to quantify a mix of momentum and volume information into one value.
The intent is to use this value to discern whether prices are able to rise or fall with little resistance in the directional movement.
Theoretically, if prices move easily, they will continue to do so for a period of time that can be traded effectively.
Understanding the Ease of Movement Indicator
The Ease of Movement indicator, also known as the Ease of Movement Value (EMV) indicator, is an oscillator 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 EMV indicator involves several calculations, including a simple moving average:
Distance Moved = (High + Low) / 2 − (PH + PL) / 2
Box Ratio = Volume / (Scale × (High − Low))
1-Period EMV = Distance Moved / Box Ratio = ((High + Low) / 2 − (PH + PL) / 2) / (Volume / (Scale × (High − Low)))
Scale equals 1,000 to 1,000,000,000 depending on the average daily volume of the stock. The more heavily traded the stock, the higher the scale should be to keep the indicator value in single or double digits.
14-Period Ease of Movement = 14-Period Simple Moving Average of 1-Period EMV
Where PH = Prior High, PL = Prior Low
When the indicator creates output values above zero and rising, this suggests that the price is increasing on low volume, while falling negative values suggest that the price is dropping on low volume.
Special Considerations
Some analysts prefer to add a moving average to the EMV line and use it as a trigger line 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.
Since the EMV line is similar to a momentum or rate-of-change indicator, it can be viewed as a volume-weighted momentum line. Comparing the EMV and Momentum indicator may provide useful information about the influence of volume on price.
Most traders use EMV in conjunction with other technical analysis tools, including 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.
Ease of Movement Indicator Example
The following chart shows the EMV indicator applied to the SPDR S&P 500 ETF (NYSE ARCA: SPY) in late 2017 and early 2018.
In this example, the EMV indicator appears below the price chart as an oscillator.
A trader may have noticed that the indicator wasn’t rising as quickly as the price between January and February, suggesting that the rally could be losing momentum, potentially helping generate a timely sell signal when combined with other 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.
How to Read the Ease of Movement Indicator
The Ease of Movement indicator fluctuates around a zero-line.
When the indicator is above the line, prices are advancing with relative ease; the greater the value, the greater the ease.
Similarly, when the indicator is negative, prices are declining with relative ease depending on how negative the reading is.
What Does Ease of Movement Mean in Stocks?
Ease of movement refers to how much price change occurs per unit of trading volume. If less volume is able to move prices farther, there is greater ease of movement.
How Should the Ease of Movement Indicator Be Used?
Traders may want to enter positions when the ease of movement is high, as it could suggest buying into an ongoing rally or shorting into a selloff in progress. As with most technical indicators, the ease of movement should be used in conjunction with other tools.
Concluding Thoughts
The Ease of Movement indicator provides a valuable perspective on the relationship between price movement and volume.
While it can highlight periods of easy price movement, it’s best used with other technical analysis tools to improve trading decisions.
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