Ease of Movement
The example below shows the Nasdaq 100 ETF (QQQ) with the 1-period EMV in the lower indicator window. I am using EquiVolume bars because these show only the high-low range for the given period. The blue arrows show two small EMV values, one slightly positive and the other slightly negative. Volume on both days was above average, but the high-low range was modest or even small. This means prices had difficulty moving even though volume was relatively high.
The red arrow shows an EMV value near -3, which is very negative. This is because volume was low and the high-low range was large. This implies that prices declined with relative ease and there was little or no buying pressure. The green arrow shows an EMV value near +3. Again, volume was low and the high-low range was large. This means prices advanced with relative ease and there was little or no selling pressure. The chart below shows Jabil Circuit (JBL) with the 14-period Ease of Movement indicator. This is just a 14-period simple moving average of each period's EMV value.
Confirming Other Signals
Ease of Movement is best used to confirm other indicators or chart analysis. In other words, it is not a standalone indicator. Keep in mind that the “Distance Moved” portion of the formula is the positive/negative driver. EMV is generally positive when the midpoint rises and negative when the midpoint falls. This means EMV will generally rise and fall along with the price of the underlying security. The amount of this rise or fall depends on the Box ratio. Chartists can use EMV to confirm a breakout on the price chart or a bullish indicator signal. Conversely, a move into negative territory can be used to confirm a breakdown on the price chart or a bearish indicator signal.
The example above shows Mosaic (MOS) with a bearish breakdown in early April and a bullish breakout in mid-June. Prior to the bearish breakdown, EMV deteriorated for two months and dipped into negative territory in March. With the stock rising and EMV declining in January-February, the advance was becoming more laborious (difficult). MOS broke support with a decline in early April and EMV confirmed with another dip into negative territory. After negative readings for most of April and May, EMV improved from late May to early June with a move into positive territory. The stock also formed a small inverse head-and-shoulders and broke resistance at 50.
The second example shows Valero Energy (VLO) with EMV signals confirmed by RSI and the price chart. After advancing from January to mid-March, VLO reversed course and broke support at the end of March. Notice that EMV broke its late February low and moved deep into negative territory at the end of March. Additionally, RSI broke to its lowest level since early January. The second reversal occurred when VLO broke resistance in mid-July. EMV began to improve before this breakout and was firmly positive at the time of the breakout. RSI also confirmed with a break above its April high and a move above 55.
Ease of Movement (EMV) combines price direction with volume to create a volume-based momentum oscillator. Because 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 derived from the price chart or other indicators. Chartists looking for a smoother EMV line can lengthen the look-back period.