Analyzing Volume & Price Ranges Using Equivolume Charting
by Wayne A. Thorp, CFA
Last October, this column touched briefly on the equivolume method of charting, which places price and volume on an equal footing. In response to prompting from readers, this column is devoted to a more in-depth discussion of this unique type of chart. [Go to the AAII Journal area of www.aaii.com for a link to the original article.]
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equivolume Charting
Technical analysis deals with two pieces of information—price and volume—in an effort to predict and measure future price movements. Traditionally, volume has been more of an afterthought, often placed at the bottom of the price chart. Price has garnered most of the attention, with an emphasis on the change in price.
Equivolume charting, however, places just as much emphasis on volume—if not more—as on price. Furthermore, instead of focusing on price changes, equivolume places more emphasis on price ranges.
Traditional charts, such as line, bar, and candlestick charts, use time on the horizontal axis. Equivolume charts, however, combine price and volume in a two-dimensional box, with the horizontal axis representing the relative trading volume. Equal distances on the horizontal axis for an equivolume chart translate into equal trading volume. The wider the rectangle, the greater the trading volume. Each box represents a trading period.
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