Average Dollars Traded Liquidity Indicator
Many traders measure liquidity as the number of shares traded each day. However, since a trader generally knows his anticipated position size expressed in dollars, it is more convenient to express liquidity in terms of the number of dollars of stock traded daily. In this way, the trader avoids having to calculate the number of shares to represent his position size when assessing if liquidity is adequate. The liquidy indicator does the calculation for you, and saves the trader some work.
Usually adequate liquidity can be defined as some fixed multiple of the trader's position size, in dollars. Since each stock has a different price, in order to determine what percentage of the daily trade in a stock your intended position size will be, the price of the stock has to be multiplied by the number of shares to obtain the total number of dollars traded each day.
For example, suppose the anticipated position size is $5,000 and a trader feels adequate liquidity is considered present when a stock trades at least 100 times the anticipated position size. A stock with adequate liquidity will then have at least $5,000 x 100 = $500,000 dollars traded each day.
The formula for Total Dollars Traded Daily is:
Total $ Traded Daily = Price x Shares Traded Daily
The Avg$Traded indicator shown below plots the Average Dollars Traded for the stock WRLS using a short moving average (10 days) in white, and a longer moving average (50 days) in cyan. The results are expressed in millions of dollars to reduce the number of zeros displayed.
Fig. 1. Average Dollars Traded Indicator for Charts
An input parameter of this indicator allows the trader to specify the minimum liquidity in terms of millions of dollars traded daily. In this example, a minimum liquidity of $500,000 has been specified. It can be seen that this low volume stock currently has a 10 day Average Dollars Traded of 0.39 million = $390,000, which is below the desired minimum. The indicator dropped below the specified minimum of $500,000 average dollars traded approximately 7 days ago, as indicated by the change in color of the 10 day moving average plot from white to red.
Avg$Traded Input Parameters
Length1 and Length2 is the short and long period lengths for averaging the daily volume. Min$ is the minimum average dollars traded daily that define the minimum acceptable liquidity. Color1 and Color 2 are the colors of the short and long period average daily volume plots. RatioColor is the color of the ratio of the short to long moving average of dollars traded. This is valuable in identifying sudden increases in the short term dollars traded relative to the long term. DollarsTradedColor is the color of the histagram dollars traded per bar. RatioAlertValue is the ratio of short to long average trading dollars that will trigger an alert and cause the plotted $Ratio variable to turn to the color RatioAlertColor. Low$Color is the color the plot changes to when liquidity drops below the minimum acceptable liquidity, Min$. RatioAlertValue is the ratio of the short average volume to the long average volume that causes the background color of the displayed ratio to become highlighted in the color specified by RadioAlertColor. This alerts to trader to stocks displaying LengthColor is the color used to display the number of days in the short and long average dollars traded per day. This color allows the trader to easily distinguish the input values from the output values of the indicator. |
 |
Average Dollars Traded Indicator for Radarscreen (Avg$Traded.RS)
While the above indicator, Avg$Traded, has been designed for charts and the scanner, a second version of the indicator, Avg$Traded.RS, has been specifcally designed for Radarscreen and is shown to the right. Note that in this version, the input parameters Length1 and Length2 defining the length of the fast and slow moving average dollars traded daily are displayed in the indicator as a reminder to the user what input settings are being used. The 10 day fast moving average, Avg$1, and the 50 day slow moving average, Avg$2, of the dollars traded daily are both reported. When the Average Dollars Traded falls below some user specified value (in this case, $500,000) the value is highlighted with a red background, making stocks with inadequate liquidity easy to identify. In addition, the $ Ratio of the fast to slow average is also reported. This aids in identifying stocks that have had a recent increase in trading activity in the past few days. When this ratio is greater than some number specified by the user (default = 2), the ratio becomes highlighted with a yellow background, making the stocks with high recent activity easy to identify.
|
 |
Avg$Traded.RS Input Parameters
Length1 and Length2 is the short and long period lengths for averaging the daily volume. Min$ is the minimum average dollars traded daily that define the minimum acceptable liquidity. Color1 and Color 2 are the colors of the short and long period average daily volume plots. Low$Color is the color the plot changes to when liquidity drops below the minimum acceptable liquidity, Min$. RatioAlert is the ratio of the short average volume to the long average volume that causes the background color of the displayed ratio to become highlighted in the color specified by RadioAlertColor. This alerts to trader to stocks displaying LengthColor is the color used to display the number of days in the short and long average dollars traded per day. It allows the trader to easily distinguish the input values from the output values of the indicator.
|
 |
Scanning the Universe of Stocks for Liquidity
Indicator Avg$Traded can be used in a scan to find all the liquid stocks (NYSE, AMEX, NASDAQ) and ETF's (ARCX) in the universe of stocks. The scan format setup below includes approximately 7304 symbols in the scan.
Fig. 3. Formatting Liquidity Scan Symbol Universe
To perform a liquidity scan on the entire universe of stocks, the following scan criteria are setup using the Avg$Traded indicator:
Fig 4. Formatting Liquidity Scan Criteria
In the above scan criteria, stocks under the price of $0.50 are eliminated. The remainder must have at least an average of $500,000 in trades per day to be included in the scan results. From an initial list of 7304 symbols, the above scan produces 4383 stocks that pass the liquidity requirement.
The above scan can now be preserved for use as input to several other scans. To ensure the results are automatically saved, the scan formatting Results tab section is setup as follows:
Fig. 5. Formatting Scan Results Section
This scan can be run about once per week. Its main use is to serve as input to other scans more computationally demanding scans that are run more frequently than weekly to find suitable stocks to trade. By prescreening stocks to find only adequately liquid stocks, the more complicated scans run much faster and can be updated more frequently, including intraday if desired.
MarkSanDiego
Downloads
Initial posted version: 01/30/11
Latest Update: 01/30/11
*.ELD files are compiled for TS 9.0
All ELD and code text files packaged here:
Users of earlier versions of Tradestation may compile the code
from the text files included in the above *.zip file.
The code may be visualized here:
Avg$Traded Indicator for Charts and Scanner
Avg$Traded.RS Indicator for Radarscreen
