EquiVolume
Last updated
Last updated
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Developed by Richard W. Arms Jr., EquiVolume is a price plot incorporating volume into each period. EquiVolume charts look similar to candlestick charts, but the candlesticks are replaced with EquiVolume boxes that can be square or rectangular. Classical patterns, such as triangles, wedges, and double tops, still show up with the bonus of having volume built right into the pattern. Verifying volume for reversals, big moves, support/resistance breaks, and selling or buying culminations becomes easier.
An EquiVolume box consists of three components—price high, price low, and volume. The price high forms the upper boundary, the price low forms the lower boundary, and volume dictates the width. EquiVolume boxes are black when the close is above the prior close and red when the close is below the prior close.
When calculating EquiVolume, note that volume is normalized to show it as a percentage of the look-back period. For a four-month daily chart, each day's volume would be divided by the total volume for the look-back period (four months). As such, the width of each box represents the percentage of total volume for the look-back period. Big-volume days occupy more space on the x-axis (horizontal) than low-volume days.
Because of the varying widths, the date axis is usually not uniform on EquiVolume charts. Some weeks will extend longer because of wide candlesticks, while others will be shorter because of narrow candlesticks.
The chart below shows a high-low-close bar chart with volume and a normal x-axis.
The chart below shows this same period using EquiVolume boxes.
The wide boxes show relatively high-volume days, while the thin boxes show relatively low-volume days.
Volume is important for validating a move, particularly support or resistance breaks. A break on low volume is not as convincing as a break on high volume. The low volume shows tepid interest and weak buying or selling pressure. In contrast, high volume reflects elevated interest and strong buying or selling pressure.
The chart below shows Caterpillar (CAT) with two small breakouts followed by one big breakout. The stock formed a falling wedge into early July and broke the trend line with the widest EquiVolume box in over a month. A break above the late June high was followed by a gap and another wide EquiVolume box.
Buying pressure was slowly picking up steam. The final and biggest breakout occurred with another gap and moved above $38. This EquiVolume box is undoubtedly the widest in the last two months, so buying pressure was the strongest in two months. Volume confirmed these breakouts.
The chart below shows Intuit (INTU) breaking support with a wide EquiVolume box. This move showed strong selling pressure that broke the September lows.
High-volume moves can also signal the beginning of a trend. The chart below shows Alcoa (AA) trending lower from early January to early March 2009. The stock bottomed at just above $5 in March and then broke out with a wide EquiVolume box—by far the widest box in months. Strong buying pressure confirmed the reversal and foreshadowed a rally back to the January highs.
The Goldman Sachs (GS) chart below shows a reversal of an uptrend with three red EquiVolume boxes. The stock surged above $345 in late October but moved sharply lower with a long-red-wide EquiVolume box in early November. Two more long-red-wide EquiVolume boxes followed as the stock broke support at $210.
Together, these three EquiVolume boxes showed selling pressure intensifying. Goldman Sachs managed to bounce back above $235, but these EquiVolume boxes were narrower because of lower volume. Upside volume on the bounce was weaker than downside volume on the support break. Lacking conviction, this bounce failed and the stock moved to new reaction lows over the coming months.
EquiVolume boxes can be used to identify exceptionally high-volume periods that represent a volume climax. A typical selling climax involves a new price low, an intraday plunge, and a strong intraday recovery with good volume. An EquiVolume climax occurs with an exceptionally wide box. Often the box is wider than it is tall. This represents a period of relatively little price change with high volume, which shows indecision that can sometimes foreshadow a significant move.
The chart below shows Weatherford International (WFT) finding support at just above $9 from mid-January to early March. An exceptionally wide EquiVolume box was formed on February 25 to reinforce support and act as a volume climax. The subsequent breakouts at $11 and $13 opened the door to an extended advance.
The chart below shows Akamai Technologies (AKAM) had a big gap down and an exceptionally wide EquiVolume box that looks more like a square than a rectangle. This wide EquiVolume box represented a support level in the $16 to $17 area. AKAM firmed for a few days and then gapped higher with good volume.
After this short-term reversal and bounce, AKAM returned to the wide EquiVolume box and tested support here. Also, notice that a falling channel formed. The stock successfully tested support and broke channel resistance with a breakout. Admittedly, the breakout lacked a wide EquiVolume box for confirmation but held after a successful test at $10 in early October.
EquiVolume boxes put price action and volume together for easy visual analysis. EquiVolume boxes plot the high-low range for length and volume for width. Thin boxes show relatively low volume, while wide boxes show relatively high volume. Square or wide boxes reflect high volume with relatively little price movement. Chartists can easily spot traditional patterns, support/resistance breaks, and reversals, even with this added volume dimension.
SharpCharts users can find EquiVolume under Chart Attributes and Type. There is also a volume option directly underneath. Users can choose to have volume “off,” “separate,” or as an “overlay.” Volume can also be skipped (off) because it is reflected in the EquiVolume boxes.
EquiVolume is not available as an indicator for scans at StockCharts.com. However, the general idea behind EquiVolume boxes can be captured by scanning for certain price and volume relationships.
Click here for a live EquiVolume chart.
