Use Relative Measured Volatility (RMV) To Reveal Tight Price Action

Using RMV to find tight price action Deepvue

Many top performing traders often discuss the importance of identifying tight price action as part of their entry tactics.

Tight price action, paired with decreased volume, is a sign that buying and selling have reached an equilibrium. During this equilibrium, the stock becomes coiled, ready to expand quickly to the upside or downside.

During a Market Leader's run, areas with tightness of price are evidence of institutional accumulation, and create potential buy points to jump on a trend.

When TSLA broke out of a two year base in 2013, it advanced over 400% in roughly 6 months.

Symbol: TSLA
Company:
Tesla Inc
Year: 2013

Sometimes when a move is missed it may be difficult to feel confident on entering a position when traditional thinking suggests don't chase extended stocks.

But what about the truly elite stocks that set up more tradable ranges as it continues its advance?

Traditional training would advise to not chase an extended stock and wait for an ideal setup to emerge.

The RMV on the other hand uncovered several opportunities to enter the stock in a tight range.

RMV Definition

Relative-Measured-Volatility-Infographic

The Relative Measured Volatility (RMV) indicator was designed by Deepvue to help traders quickly identify tight price action on their charts.

RMV is a Deepvue proprietary oscillator that measures how volatile a stock's current price action is compared to it's recent movements.

The RMV Indicator allows you to objectively determine if a stock is coiling relative to its recent price action.

The RMV oscillator:

  • Compares current price action versus previous price movements
  • When price tightens, we see a value less than 15; the tighter the price action, the closer to 0 we get.
  • When price volatility expands, the value increases to a maximum of 100.
  • The direction of the line tells you if the stock is tightening or expanding.

This clear visual allows you to quickly identify any tight areas.

Take a look at the same TSLA breakout with the RMV Indicator at the bottom of the chart.

Symbol: TSLA
Company:
Tesla Inc
Year: 2013

The RMV Indicator revealed additional buy points as price tightened after its traditional base breakout. Note how the oscillator dipped into the shaded area as price consolidated relative to its recent move.

After missing a breakout or a gap up, there will always be another opportunity presented to find a way into a stock. The RMV visually unveils new opportunities when price tightens after a move.

Trading against a tight price area allows traders to make sure they are able to control any downside risk.

If price breaks above the tight area you may see an increase of accumulation.

If price breaks below the tight area you may see an increase of distribution.

Best Practices

RMV is best used in accordance with a natural base building price cycle.

Look for tightness of price at the bottom of a base, up the right side, and during the first pullback after a traditional base breakout.

Symbol: PTON
Company:
Peleton Interactive
Year: 2020

After PTON bottomed in 2020, the stock moved almost 700% in 7 months. When trading a volatile stock it is extremely important to manage risk effectively.

Instead of buying a stock extended past a breakout, wait for an optimal area. PTON offered multiple tradable pivot points that allowed you to control risk against tight price action.

The RMV indicator dips below 15 when price is tight. Notice how the RMV is close to zero at other ideal buy areas.

Symbol: ANF
Company:
Abercrombie & Fitch Co
Year: 2023

After ANF gapped up on earnings it continued to move up an additional 350% in 10 months.

Note how price continued upward in a tight formation while the RMV remained low. Buying as price drifts upward like this can be risky as you may get stopped out.

A more ideal buy area developed in August when price tightly moved sideways.

After a gap up, price may trade in a tight range with RMV displaying a low value, but a clear pivot hasn't developed yet. Remember to use this as a tool to help identify tight areas, but continue using traditional entry tactics.

As ANF stair stepped higher, the RMV Indicator continued to unveil tightness in price. If you thought you missed the move and took this stock off your radar you potentially missed one of the biggest leaders of this time.

Symbol: NIO
Company:
Nio Inc – ADR
Year: 2020

NIO's astounding 10 month 3,000% move off its 2020 low saw many tight consolidation areas in which you could have built a position. As NIO continued its uptrend, take note of the tight price areas.

When RMV dipped below 15, the price action set up a clear pivot. Buying through a tight range allows you easily determine when the trade fails to hold that level.

Buying stocks in an uptrend may be intimidating as you are buying after a traditional base breakout. The RMV helps traders visually reveal tight trading ranges.

Shorting With Relative Measured Volatility (RMV)

The RMV Indicator can also help find potential areas to short against. Just like trading on the long side, when you short a stock look for tight price areas to help identify clear pivots while providing clear risk.

Symbol: UPST
Company:
Nio Inc – ADR
Year: 2021-2022

After UPST had an impressive IPO Advance, it eventually topped, and began its 97% decline. When the market turned the ideal trade was to begin shorting stocks, (or staying out of the market depending on the type of trader you are).

The RMV Indicator clearly highlights tight price action that traders could have shorted against during the entire downtrend.

Adding RMV To Your Charts

Simply type “DV” in the indicator search to find all proprietary indicators.

RMV Settings: Look Back Period

The RMV indicator also allows users to specify how far back to measure past volatility in price action.

By default the look back period is 15 bars. Change this value to align with your trading style. Some traders might want to highlight quick coils while other traders may only want to highlight more standout tightening.

  • Day Traders: 5 period look back is great way to show tightness in IPO bases or shortly after Earnings Gaps.
  • Swing Traders: 15 Period Look back
  • Longer term traders: 50 period look back
Deepvue Relative Measured Volatility Lookback

The measurement of volatility is relative to the lookback period.

Screening With RMV

As with any indicator available in Deepvue, you can use RMV data points as part of your screening process. This simple screen will help you focus on the strongest stocks that are showing tightness in price action.

Deepvue Screener Filters RMV
Use Relative Measured Volatility (RMV) To Reveal Tight Price Action 12

Key Takeaway

Tight price action signals a balance between buyers and sellers. Before large price moves begin, price will consolidate sideways while attracting more buyers or sellers.

Identifying tight areas may offer a clear entry while providing an area to minimize loss.

Use the RMV to help focus in on finding stocks that are tightening quickly!

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