Quote Originally Posted by TraderD View Post
AFAICT, EV as a follower of large money can only be as good as they are. 2011 performance of large funds have been rather dismal (an understatement), so it's likely to expect EV to deteriorate in its predictive ability. Paul in a recent GGT post shows a bunch of examples where contrary to LEV divergence, price keeps going in the other direction, which begs the use of this technique with other indicator(s) as you've suggested, or at least a much more accurate understanding where EV does work.

Fully agree with MDD comment. Do you have a link to RPDD stat calculations?
EV detects an equilibrium and not a force. It statistically detects when money comes in/out. For a single stock, the movements of money will often be opposite to the price moves, because large players use available liquidity to buy/sell. However, when the price is in a trading range or at a turning point, EV will often show what is happening below the surface and what the next move will be. This is why I always use AB/LER as a combination.

The money flow is however more predictive when it is collected by sectors or industry group.

Also, large money does not necessarily mean that these are large funds. It could be some artificial FED liquidity injection. Therefore, I believe that your statement that EV's predictive ability will deteriorate might or might not be true. I however believe that EV still gives early warnings of what large money is doing. A few years ago, I noted that it could give up to one day advance warning. Today, because the level field is pretty high and everybody is running fast computers, the warning time is probably less than a day.

Anyway, I still prefer to know where the money is going than not to know it.


Pascal