Ease of movement (EMV) momentum indicator shows the link between the rate of change in the price of an asset and its volume. It is best to use it for the daily chart and longer timeframes. Just as its name implies, the bigger the magnitude of the indicator, the easier the price movement – the larger the trend.
- The Ease Of Movement indicator gives a clue on how easily price can move up or down.
- It is a volume-weighted momentum indicator.
The EMV has an uncanny ability to detect price inefficiencies in the absence of market volume. It often appears as a curved line, which bounces above and below zero. Whenever the EMV is above zero, it conveys the price is increasing with relative ease. Conversely, when the EMV is below zero, the security is decreasing; thus, the name of the indicator: Ease of Movement.
A bigger positive value means price moving upward on disproportionately less volume. On the other hand, a bigger negative value shows price going down on disproportionately less volume. Accordingly, traders can use this indicator to get a sense of how much volume is needed to lead to price movement. An indicator value of more than zero shows that traders are buying the asset. Conversely, a value of less than zero generally shows that traders are selling the asset.
What is the Ease of Movement indicator?
The Ease of Movement indicator is a volume-based indicator which measures the relationship between price and volume and display that relationship as an oscillator that fluctuates between positive and negative values. The ease of movement indicator fluctuates above and below a zero Line. This helps quantify how easy the price moves.
A basic understanding is that prices grow with relative ease when the indicator is in positive territory. Prices decrease with relative ease when the EOM is negative.
What does the indicator tell traders?
The price is rising on low volume when the ease of movement makes output values greater than zero, while falling negative values mean that the price is declining on low volume.
Some professional traders prefer to include a moving average to the EMV line and use it as a trigger line to create trading signals. Traders may also look for divergences and convergences between this indicator and price as an indication of upcoming reversals.
The EMV indicator can be seen as being similar to a volume-weighted momentum line because the calculations of the EMV lead to a line similar to a momentum indicator. Comparing the momentum indicator and the EMV could offer vital information about the influence of volume on price.
A lot of traders can improve their chances of success by using the EMV together with other forms of technical analysis, including both technical indicators and chart patterns. For instance, a trader may see a bullish reversal chart pattern, see that the EMV is improving, and purchase the stock after it breaks-out from a particular price point, rather than exclusively depending on the indicator.
How to use the Ease of Movement indicator?
Opening a position
This indicator is not a standalone trading tool. One of the most common indicators to combine with the EMV is volume. Since the EMV comes from volume activity, volume is a valuable tool in validating trading signals.
Volumes increase as the price is breaking out. This bullish price action together with strong trading volume gives a good opportunity to establish a long position.
The EMV starts making lower highs with each subsequent rally and starts to draw closer to the zero line at the end of a bullish signal. Also, volumes continue to drop with each trading period.
Traders can use this as a chance to exit long positions and get short once there is a bearish cross of the EMV below zero with increased volume. Traders open their short position and can ride the wave back down for another round of healthy gains.
Closing a position
Every trader will know when to enter a trade with this indicator, but does it provide accurate exit signals? The answer is yes and no.
As mentioned earlier, the EMV is not a standalone trading indicator. At the same time, the volumes indicator is good for confirming signals, but not for telling us when to enter or leave a position.
What to do with the Ease of Movement?
Traders are left with two options. The first one is to remain with the volume and EMV indicator to keep things easy. A second option will be to join another trading indicator for better accuracy.
Option 1 – Keep everything simple
In each decision making process, always consider the option to do nothing. This would simply call for you to leave positions when the EMV indicator breaks the zero line contrary to the primary trend.
Option 2 – Use a moving average
Using moving averages is a classic method for leaving positions. Close the position when the price closes opposite to the side of the moving average. It is very necessary to note that your risk appetite will determine the number of periods you use when configuring your moving average.
Biggest mistakes to avoid with the EOM indicator
The Ease of Movement is best used as a complimentary indicator. It generally follows price quite closely because the price distance moved from the previous period to the most recent period is what determines the direction. Where it really excels however, is confirming patterns or signals coming from more predictive indicators. Traders should not typically use EOM as a stand-alone indicator.
As previously stated, this indicator plots a line which fluctuates between positive and negative values. Simply put, when the values are positive, price is advancing. When numbers are negative, prices are declining. Traders need to remember that price distance moved determines whether the ease of movement momentum indicator line is positive or negative. When it comes to analyzing this indicator, keep two points in mind.
Pros & Cons of the Ease of Movement indicator
One benefit of using this indicator is that it gives us a bonus validation entering and exiting trades. It is called a triple threat whenever EMV signals are reinforced by more market volume and a moving average signal.
Ease of Movement joins price direction with volume to make a volume-based momentum oscillator. Since it is closely tied with price changes, EMV tends to track the price of the underlying security quite closely. For the most part, EMV is used to confirm signals obtained from the price chart or other indicators. Chartists looking for a smoother EMV line can lengthen the look-back period.
The ease of movement indicator allows to track price as it relates to volume. A more positive value means a stronger uptrend, as shown by a larger positive change in price as it relates to volume. In the same way, a larger negative value shows a stronger downtrend, as indicated by price fall in an amount greater than the rise in volume.
Traders might be biased toward trading in that particular direction if they discover that price is moving in one direction easily, that is, each unit of volume carries price further in one direction relative to another. If the indicator is above zero, traders might see it as a bullish signal. It could be interpreted as a bearish signal if the indicator is less than zero.
Just as it is with other indicators, this indicator shouldn’t be used in isolation; traders should use it to confirm other indicator tools or as part of a broader system where multiple indicators line up at once.