Close Location Value (CLV)

What Is Close Location Value (CLV)?

Close location value (CLV) is a metric utilized in technical analysis to assess where the closing price of a security falls relative to its day's high and low prices.

Close location value values range from +1.0 to -1.0; a higher positive value indicates the closing price is nearer to the day's high price and a greater negative value indicates that the closing price is nearer to the day's low price.

What Does Close Location Value (CLV) Tell You?

Close location value (CLV) is a technical analysis tool that measures the location of the price in relation to the high-low range. It moves in the range from -1 to +1, or, if multiplied by 100, in the range from -100% to +100%.

Close location value (CLV) readings close to 1 (or 100%) indicate that the closing price is near its high and would be considered a bullish sign. CLV readings close to -1 (or -100%) reveal that the closing price is near its low and might be considered a bearish sign. CLV readings that are close to zero are considered neutral.

Example of How to Use Close Location Value (CLV)

On its own, the close location value (CLV) is not considered to be very important by most traders. This indicator is primarily used as a variable in other technical equations.

The CLV features prominently, for example, in the calculation for the accumulation/distribution (A/D) line (also called the accumulation/distribution indicator [A/D] ):

Accumulation/Distribution = CLV × Period’s Volume \begin{aligned} &\text{Accumulation/Distribution} = \text{CLV} \times \text{Period's Volume} \\ \end{aligned} Accumulation/Distribution=CLV×Period’s Volume

When not part of another equation, the close location value (CLV) can also be used to confirm or reject possible divergences. Keep in mind: It is advisable for any traders using this strategy to use an intermediate or long-time period for their CLV (because this allows enough of a historical perspective to prevent overreacting to every fluctuation).

The Difference Between Close Location Value (CLV) and the Accumulation/Distribution Indicator (A/D)

In general, the goal of technical analysis is to predict future price movements; this is accomplished by studying the activity of price and volume in a given security.

The accumulation/distribution indicator (A/D) is one of many different volume indicators. Volume indicators are mathematical formulas that are visually represented in some of the most commonly used charting platforms. Volume is often viewed as an indicator of liquidity because stocks or markets with the most volume are the most liquid and considered the best for short-term trading. (In other words, there are many buyers and sellers ready to trade at various prices.)

The accumulation/distribution indicator (A/D) uses volume and price to assess whether a stock is being accumulated or distributed and seeks to identify divergences between the stock price and the volume flow. 

Close location value (CLV) indicates an asset's closing price relative to its intraday high and low. Close location value (CLV) is used in the calculation for the accumulation/distribution (A/D) line.

Limitations of Using Close Location Value (CLV)

One reason why the close location value (CLV) is not considered useful on its own is that it is extremely sensitive to random spikes or drops in prices. This heightened volatility renders it almost useless in many circumstances. (As a reliable high-low relationship metric, stochastics are often preferred — instead of close location value (CLV) — because they are less choppy and rely on a different formula to determine price location in the high-low range.

The Formula for Close Location Value (CLV) Is

CLV = ( Close − Low ) − ( High − Close ) High − Low \begin{aligned} &\text{CLV} = \frac { ( \text{Close} - \text{Low} ) - ( \text{High} - \text{Close} ) }{ \text{High} - \text{Low} } \\ \end{aligned} CLV=High−Low(Close−Low)−(High−Close)

How Do You Identify Accumulation and Distribution?

In technical analysis, the accumulation/distribution (A/D) is an indicator that creates a relationship between changes in price and volume. The more volume that accompanies a price move, for example, the more significant (it can be assumed) that price move is. Analysts use accumulation/distribution (A/D) to confirm changes in prices by comparing the volume associated with prices.

When analyzing volume patterns, accumulation is (essentially) buying, and distribution is (essentially) selling. If there is a high level of demand for a stock, it is being accumulated. Distribution refers to when a stock shows more supply than demand in the form of distribution.

How Do You Read an Accumulation/Distribution Line?

The purpose of an accumulation/distribution (A/D) line is to help assess price trends and potentially spot forthcoming reversals.

If the price of a security is in a downtrend while the A/D line is in an uptrend, for example, the indicator shows there may be buying pressure; the security’s price may reverse to the upside. Conversely, if the price of a security is in an uptrend while the A/D line is in a downtrend, then the indicator shows there may be selling pressure (or higher distribution). This warns that the price may be due for a decline.

In general, a rising accumulation/distribution (A/D) line helps confirm a rising price trend, while a falling A/D line helps confirm a price downtrend.

What Is Accumulation in Technical Analysis?

Traders often use volume as a way to assess the significance of changes in a security's price. Volume refers to the number of shares traded during a particular time period.

When analyzing volume patterns, accumulation is (basically) when a share is being bought, and distribution is (basically) when a specific share is being sold.