The following Equivolume chart shows Phillip Morris' prices.
Note the price consolidation from June to September with resistance around $51.50. The
strong move above $51.50 in October produced a power box validating the breakout.
The following is a Candlevolume chart of the British Pound.
You can see that this hybrid chart is similar to a candlestick chart, but the width of the
bars vary based on volume
Equivolume departs from other charting methods with its
emphasis on volume as an
equal partner with price. Instead of being displayed as an
"afterthought" on the lower
margin of a chart, volume is combined with price in a
two-dimensional box. The top
line of the box is the high for the period and the bottom
line is the low for the period.
The width of the box is the unique feature of Equivolume
charting; it represents the
volume of trading for the period.
The width of the box is controlled by a normalized volume
value. The volume for an
individual box is normalized by dividing the actual volume
for the period by the total of
all volume displayed on the chart. Therefore, the width of
each Equivolume box is
based on a percentage of total volume, with the total of
all percentages equaling 100.
Equivolume charts represent an important departure from all
methods, in that time becomes less important than volume in
analyzing price moves.
It suggests that each movement is a function of the number
of shares or contracts
changing hands rather than the amount of time elapsed.
Perhaps the Equivolume
charting method is best summed up by the developer himself
as follows: "If the
market wore a wristwatch, it would be divided into shares,
The shape of each Equivolume box provides a picture of the
supply and demand for
the security during a specific trading period. Short and
wide boxes (i.e., small change
in price combined with heavy volume) tend to be seen at
turning points, while tall and
narrow boxes (i.e., large change combined with low volume)
are more likely to be
seen during continuing moves.
Especially important are boxes which penetrate old support
or resistance levels,
since it takes "power" to create a reliable penetration. A
"power box" is one in which
both height and width increase substantially. Lack of box
width, due to light volume,
puts the validity of a breakout in question.
The more volume in a top or bottom consolidation, the
larger the ensuing move is
likely to be. Volume is directly observable on an
Equivolume chart by noting the overall
width of the consolidation.