Average Daily Volume Indicator (ADVI)
Developed by LogiCapital Corporation (CallWriter.com’s owner), the ADVI provides both average daily volume (ADV) and a volume momentum indicator for the underlying stock.
Two Components: The ADVI accomplishes two things in one indicator:
1. Provides the 65-day average daily volume (expressed in 000's). EX: an ADV of 2,926 = average daily volume of 2,926,000 shares Comment: Covered call writers are well advised to avoid stocks with an ADV less than 1,000,000 shares and try to concentrate their writes in stocks with ADV of 2,000,000 shares or greater. 2. Provides a graphic indicator of current volume momentum (ADVI) Comment: While the average volume is important, volume spikes often provide early warning of reversals, which is the purpose of the ADVI. EX: A stock with a negative MADI (another proprietary CallWriter indicator) but with a strongly positive ADVI might nonetheless be a good candidate for a covered call - or naked put or long call - if the ADVI is signalling a price reversal and new advance. The ADVI volume momentum indicator has been carefully constructed to give members an instant indication of whether the last week's volume is close to the daily average (gray), higher than normal (green) or lower than normal (red), together with the strength of the momentum. The ADVI compares the average weighted volume for the previous five days of trading against the unweighted 65-day volume average.
The ADVI 5-day weighted volume momentum indicator is composed of the five trading days immediately before the current trading day. Each day is weighted differently, and the total volume thus obtained is divided by 15 to get the weighted volume, which is then compared against the 65-day volume average.
The ADVI consists of a column of 5 stacked bars, and the more of them that show a color, the stronger the momentum is.
Gray color indicates that the 5-day weighted volume is within ± 5% of the 65-day volume average When the ADVI momentum indicator is red or green, it indicates that volume for the previous five-day period is significantly higher or lower than the 65-day volume average, as noted below:
> +150% < -75% +100 to +150% - 66 to - 75% + 60 to + 99% - 41 to - 65% + 31 to + 60% - 26 to - 40% + 6 to + 30% - 6 to - 25% ADVI examples:
Interpretation: Interpretation: 5-day momentum 5-day momentum is 31% to 60% is 41% to 65% higher than average lower than average The momentum weighting for the 5-day reference period is shown in the graphic below:
5th day prior 4th day prior 3rd day prior 2nd day prior Previous day Tips on using ADVI:
When four or five green bars are showing, the stock is experiencing a volume surge. This could presage a reversal in the stock, and traders should be careful about entering a trade. When one to three green bars are showing, it could indicate either that volume is beginning to surge, or has recently surged and is tapering off.
When one or two red bars are showing, it indicates that recent volume recently dried up, and may well indicate that volume has already spiked and that a price reversal may already be occurring. Three to five red bars indicate a major volume failure in the preceding week.
It is helpful to overlay a 4-day moving average over the volume histogram (not over the price chart) in order to get a sense of the volume trend. A strong bump in volume frequently indicates a reversal of the short-term trend, oft times days ahead of the MACD indicator. The ADVI can thus provide a visual hint of reversals about to occur. As always, read the ADVI and any volume moving average being used along with other indicators.
