In the 1930s Edwin S. Quinn's Investographs, Inc. published an investment service called Trendographs. It was a unique service then and the concept is still timely today. The key to his approach was to take time off the x-axis of a graph and replace it with volume. So rather than the steady procession of static-width bars across the chart as a function of time, bars of varying width portray both price progress and the supply/demand forces as trading progresses.
In his 1941 book, "New Methods for Profit in the Stock Market", Garfield Drew included a section on Quinn's Trendographs and a write-up on a couple of indicators Quinn derived from his work, the Moving Volume Curve and the Investment Activity Index. Drew's book is where I discovered the volume as a delineator concept. (The 1955 edition is widely available.)
In the 1980s Richard Arms reinvented the wheel calling the resulting graphs EquiVolume, a name that has stuck and the name we now accept. Mr. Arms devoted a lot of effort to EquiVolume resulting in two books on the subject, "Volume Cycles in the Stock Market", 1994, and "Profits in Volume: EquiVolume Charting", 1999.
In undertaking our effort in this area we went back to the source, Edwin S. Quinn, via a 1939 copy of his Trendographs investment service. Trendographs was a stock-chart service covering 60 stocks and two Dow Jones averages with charts clipped into a small leather ring binder. Regular updates were sent and there was room on each chart to make interim updates. Most quantitative measures were made relative to the market and/or the industry group. In that regard Mr. Quinn's work has more than stood the test of time. Mr. Quinn included a neat plastic lookup card to calculate the relative values for the updates.
We simplified the process a bit and use volume as a percent of its 50-day moving average to delineate the width of the bars, with the indicators anchored to the central vertical axis of each bar. The analytical process is the same as normal technical chart analysis, with the added dimension of activity delineating the price structure.
I have been fascinated with this concept for a long time, but was never really happy with the presentations that were offered. Combining Bollinger Bars, our color-coded combination of Western bars and Japanese candlesticks, Bollinger Bands and a series of powerful technical indicators makes for an extremely powerful way to chart the market.
I hope that you enjoy our EquiVolume charting package as much as I do.
EquiVolume charts are drawn with variable-width bars where bars with higher ratios of volume to average volume are drawn wider than bars with lower ratios. In other words, the bar width is determined by normalized volume. A bar with normalized volume of 2.5 is five times wider than a bar with a normalized volume of 0.5. The period used in calculating normalized volume used to determine the width of the bars is chosen by the user in the input field labeled "AvgVol". 50 periods is the default and choosing a period of one for that value will plot a traditional equal-width bar chart.
To plot an EquiVolume chart, first enter the ticker symbol. Indices are not allowed since they do not have volume which is an essential component in the bar width calculation. Choose the bar sample rate (daily, weekly or monthly) and choose the average-volume period used to determining the bar widths. Click the "Draw" button and the EquiVolume chart is plotted. EquiVolume charts are always plotted using Bollinger Bars.
Additional options include the ability to add a Bollinger Band overlay, the choice of number of bars displayed, the pixel width of the chart and arithmetic or logarithmic scaling of the price chart.
An indicator panel is provided with a dozen popular technical indicators that can be plotted with the price chart. Click the "Indicators" toggle button to display the indicator menu. Check the checkbox next to the indicator name to select it and fill in the indicator parameters. Submit the chart by clicking the "draw" button and the selected indicators will be plotted.
You also have the ability to popup the EquiVolume chart in a separate window by clicking the "Popup" button on the top right corner of the application.
An interesting feature that was inspired by the main EquityTrader chart application is the stock randomizer toggle -- the question mark button next to the ticker field. When toggled on the randomizer button is green, or red when off. When enabled, this function plots a random stock every minute using the selected chart settings.
All chart and indicator settings will be remembered from session to session. For subscribers, it is preferable that they be logged in to their EquityTrader account so that their settings will be stored in our database and remembered permanently across all platforms any time they log in. Otherwise, the settings will only be remembered by the browser being used to plot the charts.
- A: Ticker input field
- B: Randomizer toggler, when turned on, will plot a random ticker every 1 minute(red when off, green when on)
- C: Sample rate (daily, weekly or monthly)
- D: Average volume period (determines the width of the EquiVolume chart bars)
- E: Price chart overlay (Bollinger Bands® or none)
- F: Bollinger Bands® period
- G: Bollinger Bands® width
- H: Number of bars displayed on screen
- I: Chart width size (small, medium or large)
- J: Logarithmic (linear or log)
- K: Indicator panel toggler
- L: Chart submit button (draws the selected options)
- M: Equivolume price chart
- N: Indicator Chart (normalized volume)
- O: Indicator legend (name/color of indicator)
EquiVolume Indicator List:
- P: Indicator panel
- Q: Indicator checkbox (draws indicator only if checked)
- R: Indicator label
- S: Indicator parameters
- %b, Percent b™
%b (Percent b) was one of the first two indicators derived from Bollinger Bands. It employs a variation on the formula for Stochastics. %b depicts the location of the most recent close within the Bollinger Bands. At 1.0, the close is at the upper band, at 0.0 the close is at the lower band and at 0.5 the close is at the middle band. A %b reading of 1.1 means that you are above the upper band by 10% of the width of the bands.
-0.2 means that you are below the lower band by 20% of the width of the bands. To make analysis easier, we give you the opportunity to plot two smoothings of %b: %b1 and %b2. %b1 is a three period smoothing of %b and %b2 is a three period smoothing of %b1. These are similar to the smoothings used for Stochastics except that we use exponential averages.
%b is a useful tool for identifying divergences, diagnosing tops and bottoms, and pattern recognition. %b is also used extensively in trading system construction. It is perfect for detecting when a new high or low is a new absolute extreme, but not a new extreme relative to the Bollinger Bands.
BandWidth was one of the first two indicators derived from Bollinger Bands. BandWidth depicts how wide the Bollinger Bands are as a function of the middle band. The formula is (upperBB - lowerBB) / middleBB.
The most popular use of BandWidth is to identify The Squeeze, which is a 125-period low for the indicator, and is very helpful in diagnosing the beginning of trends. The opposite of The Squeeze, The Bulge, is useful in diagnosing the end of trends.
In addition to the BandWidth line, we draw two reference lines to give a sense of where the current BandWidth stands in relation to history. The upper line represents the highest BandWidth in the past 125 periods (The Bulge when touched). The lower line represents the lowest BandWidth in the past 125 periods (The Squeeze when touched).
BBPersist is simple, elegant counting application that counts highs above the upper Bollinger Band and lows below the lower Bollinger Band and nets them to create an indicator. BBPersist displays the balance between strength and weakness over time and is very helpful in diagnosing that difficult analytical problem, the walk up or down the bands.
BBIndex is a classic overbought/oversold indicator similar in application to the Commodity Channel Index (CCI). Indeed, it can be seen as a 'modern' version of CCI. Match the period to the trend that you are trading, 20 is the default, and use plus/minus 2.0 as the basic overbought/oversold reference levels with plus/minus 3.0 as extreme levels. BBIndex is also a superb divergence tool, and as such is helpful in identifying the beginnings and ends of trends.
This is a simple bar plot of the transaction volume recorded for each period plotted on the chart above. A moving average is included to help identify high and low volume periods. The period is the same as the average volume period chosen for the EquiVolume chart.
- Normalized Volume
Normalized volume is volume divided by an average. This plot has two main uses; it allows you to judge whether volume is high or low on a relative basis and it allows the comparison of volume levels from issue to issue. You may specify the number of periods in the average; which in this case is always the average volume period specified for the EquiVolume chart. The horizontal line at 100% is where volume for that period equals its n-period average. It may be helpful to think of volume as high when it is above 125% and low when it is below 80%.
- Sponsored Volume
Sponsored Volume (SV) is a version of Intraday Intensity (II) from Jim Alphier that uses true highs and lows instead of periodic highs and lows in its calculation. If you trade something that has frequent and/or large gaps, you may want to use this version of II.
- Intraday Intensity %
Intraday Intensity % (II%) is the closed form of Intraday Intensity (II). II% is calculated by taking the n-period sum of II and dividing by the n-period sum of volume; the result is a normalized II that is now comparable from issue to issue. 21 is the default period. (In some programs this indicator is known as Money Flow or Money Flow %.)
- Relative Strength Index
Welles Wilder's Relative Strength Index, RSI, is a classic technical-analysis tool that compares strength on up days to weakness on down days. The fixed values of 70 (overbought) and 30 (oversold) are most often used as signal levels. However, in a bullish environment 80 and 40 may be better suited and 60 and 20 are often used in bear markets. Many analysts use the swings of RSI through various levels to define bull and bear markets.
- Stochastics %K %D
This is George Lane's Stochastics, an indicator of the position of current price relative to the price range of the past n-periods.
%k = (last price - lowest(low, n) / (highest(high, n) - lowest(low,n)) * 100
%d = n-period sma of %k
The first input sets the look-back period for lowest low and highest high, the second input sets the length of the average(s). The fast Stochastic presents %k and an average of %k. The slow Stochastic presentation drops the raw calculation and adds a second smoothing.
Signal: %d line is generally used as the signal line.
Overbought/Oversold: Above 80 means the current price is near the top of its n-day high-low range and below 20 means it's near the bottom of the range. Values above 80 are considered overbought and values below 20 as oversold. Prices may persist at these levels, so pattern recognition is employed to identify trading opportunities.
Bullish Reversal - price is trending down, Stochastic is bottoming and turning up.
Bearish Reversal - price is trending up, Stochastic is peaking and turning down.
Gerald Appel created MACD, a departure chart with an additional average added that acts as a signal line. The MACD line itself is the difference between a short-period and a long-period exponential average. The signal line is a n-period exponential average of the MACD line. The default periods for the short, long and exponential average are 12, 26, and 9, respectively. MACD Histogram is the difference between the MACD line and the signal and is used as an early alert system for changes in trend.
- Comparative Relative Strength
Relative strength compares two price series over time by taking a ratio of one to the other. An RS line is most often used to compare the performance of a stock to the market or its industry group. A rising RS line indicates out-performance, while a falling RS line indicates under-performance. For example, IBM / SPY shows the performance of IBM versus the S&P 500 Index ETF.
Click here to start using the EquiVolume charts.