Equivolume - Equi Volume
December 28, 2008
Definition:
On conventional stock charts, the horizontal axis is represented by time where each period measures the same amount of time. In equivolume, the horizontal axis is represented by volume. For each price period (depicted by a bar or candlestick), the width of the body represents volume and the height of the body represents price.
Equivolume charts were developed by Richard Arms.
Interpretation:
To some traders, Equivolume is a more complete picture of supply and demand for since it incorporates volume within the price chart.
Periods that are long and thin (where price moves more freely relative to volume) can indicate that the price is moving within the given trend or without much opposition in the marketplace.
Periods that are square or nearly square (where the height of the price is close to the width of the volume) can indicate periods of consolidation.
Periods that are short and thick can indicate either an oversupply or overdemand of stock, and may be the bottom or top of a price movement.
Another interpretation for Equivolume can be for confirmation of price breakouts. If the price penetrates support or resistance with high volume (wider bar or candlestick) it can be interpreted as confirmation. If penetration occurs with low volume, it could indicate that the price change does not fundamentally change the supply and demand equation that is currently defining the trend.
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