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 "EquiVolume Period". 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), check the "EquiVolume" checkbox and choose the "EquiVolume 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.
The EquiVolume application is mainly used for plotting EquiVolume charts. However, you can still plot classic non-EquiVolume plots by unchecking the "EquiVolume" checkbox option in the chart main menu.
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: EquiVolume mode switch (check to turn on, uncheck to turn off)
- E: EquiVolume period(determines the width of the EquiVolume chart bars, valid only when EquiVolume checkbox is checked)
- F: Price chart overlay (Bollinger Bands® or none)
- G: Bollinger Bands® period
- H: Bollinger Bands® width
- I: Number of bars displayed on screen
- J: Chart width size (small, medium or large)
- K: Logarithmic (linear or log)
- L: Indicator panel toggler
- M: Chart submit button (draws the selected options)
- N: Price chart (currently in EquiVolume mode)
- O: Indicator chart (normalized volume)
- P: Indicator legend (name/color of indicator)
- Q: Tracker cross hair
- R: Tracker floating labels
EquiVolume Indicator List:
- S: Indicator panel
- T: Indicator checkbox (draws indicator only if checked)
- U: Indicator label
- V: 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. You may specify the number of periods in the average; 50 is the default.
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; 50 is the default. 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 (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.
Momentum is the point change of price over a specified time period and may be the most elemental indicator in the technician's tool chest. Futures traders are said to prefer MTM over Rate of Change, which depicts the percent change, as it models their profit and loss better. The second period is for an exponential moving average of MTM. 12 is the default period for MTM and 10 is the default period for the smoothing, though you may want to try three.
Rate of Change
Rate of Change is the percent difference of price over a specified period. Stock traders are said to prefer ROC over Momentum as it is directly comparable from issue to issue and time to time. 12 is the default period for ROC.
%BandWidth (Percent BandWidth) uses the formula for Stochastics to normalize BandWidth as a function of its n-day look-back period. 125-periods is the default, but you may choose your own look-back period. 1.0 equals the highest BandWidth in the past n periods, while 0.0 equals the lowest BandWidth in the past n periods. If you use 125 as the look-back period, then 0.0 = The Squeeze and 1.0 = The Bulge. The interpretations are similar to BandWidth, but some find the normalized, or closed presentation more intuitive. %BandWidth, along with %b, are two primary building blocks for Bollinger Band trading systems.
BBTrend takes advantage of the ways in which Bollinger Bands of different lengths interact to determine whether the market is trending or not. Amongst commonly used technical indicators, Average Directional Movement Index (ADX) and Choppiness Index serve similar purposes.
You can select the two time periods, short and long. 20 and 50 are the defaults, but 10 and 30 or 40 may be more attractive for shorter-term traders.
Unlike the traditional trend indicators, BBTrend combines directional information with the trend information. Readings below zero are indicative of negative trends and readings above zero indicate positive trends. The farther the reading away from zero the stronger the trend.
On Balance Volume
On-Balance Volume (OBV) is one of the oldest and best known of all the volume indicators. OBV was popularized by Joe Granville and is a good trend indicator. OBV adds volume to a running sum when price advances and subtracts volume from the running sum when price declines. It is meant to model the basic forces of supply and demand that drive the market. An exponential smoothing is available.
Price-Volume Trend (PVT) is David Markstein's variation on On-Balance Volume (OBV) in which the percentage changes from period to period are used to parse volume. An exponential smoothing is available.
Accumulation-Distribution (AD) was created by Larry Williams to track buying pressure (accumulation) and selling pressure (distribution). AD compares the range between the open and close to the range of the day. It is a concept very closely related to Japanese candlestick charts. An exponential smoothing is available.
Accumulation-Distribution % (AD%) is the closed form of Accumulation-Distribution(AD). AD% is calculated by taking the n-period sum of AD and dividing by the n-period sum of volume; the result is a normalized AD that is now comparable from issue to issue. 20 is the default period.
Intraday Intensity (II) was developed by the economist David Bostian. This indicator uses the position of the close in relation to the high and low to parse volume. It is meant to track the activities of institutional traders; large blocks move the market in the direction of their order flow -- increasingly so toward the close. An exponential smoothing is available. (In some programs this indicator is known as Money Flow.)
BBAccumulation combines three volume indicators, Accumulation-Distribution (AD), Intraday Intensity (II) and On Balance Volume (OBV) in a Bollinger Band framework. First the indicators are normalized with %b, then they are combined. OBV examines the periodic change, II examines the closing location in the periodic range and AD examines the relationship between the open and close to the periodic range. When normalized so they are comparable, taken together they give an excellent picture of the supply demand characteristics of a security.
Interday Accumulation (IA) is a version of Accumulation-Distribution (AD) 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 AD. An exponential smoothing is available.
Interday Accumulation %
Interday Accumulation % (IA%) is the closed form of Interday Accumulation (IA). IA% is calculated by taking the n- period sum of IA and dividing by the n-period sum of volume; the result is a normalized IA that is comparable from issue to issue. 20 is the default period.
Sponsored Volume %
Sponsored Volume % (SV%) is the closed form of Sponsored Volume (SV). SV% is calculated by taking the n-period sum of SV and dividing by the n- period sum of volume; the result is a normalized SV that is now comparable from issue to issue. 21 is the default period.
Money Flow Index (MFI)
Money Flow Index (MFI) compares volume on up periods to volume on down periods in a manner similar to Relative Strength Index. The typical price, (high + low + close) / 3, is used to separate up periods from down. The periods are averaged and a ratio of up to down is taken. You may specify the number of periods used in the calculation. 14 is the default period.
VWMACD was created by Buff Domeier and uses the same calculation as MACD, but volume-weighted averages are used instead of exponential averages. The periods used are 12, 26, 9 (signal). Treat exactly as you would MACD.
Volume Price Confirmation Indicator
VPCI is Buff Dormeier's effort to codify the old technical analysis concept of price-volume confirmation in a technical indicator. VPCI won the Dow Award in 2007. You can read the paper complete with examples of usage here. http://tinyurl.com/8clzjhq
There are four price/volume confirmation possibilities that this indicator encompasses:
Rising price and volume, strong demand, bullish.
Falling price and volume, weak supply, bullish.
Rising price and falling volume, weak demand, bearish.
Falling price and rising volume, strong supply, bearish.
Vertical Horizontal Filter
Tushar Chande's trend analysis tool compares the distance traveled within a range to the range itself. In a perfectly trending market the distance traveled and the range will be the same. The formula is range / distance. As it takes ever more travel to cover the range, the value of VHF falls. A 14-day period is the default.
The Range Indicator
Published by Jack L. Weinberg in the June 1995 issue of Technical Analysis of Stocks & Commodities, The Range Indicator (TRI) compares high minus low (the range) with close versus close (the change). Look for trends to start from low levels of TRI when range and change are in gear and for trends to end from high levels of TRI when range and change are out of gear.
Directional Movement Index
Created by Wells Wilder, these indicators parse the price structure into the positive and negative components, DMI+ and DMI-, which many use for buy and sell signals. However, the most interesting feature is a derivative of the DMI indices called Average Directional Movement Index, ADX. ADX indicates whether the data is trending or not. Values above 18 indicate trending markets while values below 18 are associated with trading-range markets. The direction of the line is also important, rising equals increasing trend strength and falling, decreasing. You may select the look-back period. 14- and 18-day calculation periods are quite common.
Choppiness Index, developed by E.W. Dreiss, uses chaos principles to measure "choppiness" or directionality of the market, whether prices are trending, or if we are in a consolidation period. The core idea is to compare the combined length of all the bars in a range (the ink) with the periodic range. Low values (below 38) indicate trending markets (up or down) and high values (above 62) indicate significant consolidations in price.
Aroon was developed by Tushar Chande and is designed to identify direction and magnitude of a trend. Aroon consists of 3 lines: Aroon Up, line above 70 indicates an up trend; Aroon Down, line above 70 indicates a down trend and Aroon Oscillator, line near zero indicates a consolidation phase (no trend). The idea is to count the number of days since the high of the range (this is the up line) and the low of the range (this is the down line), another simple concept that can produce surprisingly deep market insight.
Chande Momentum Oscillator
CMO is Tushar Chande's attempt to capture "pure momentum". The idea is to separately sum up and down momentum over a given period and compare them with a normalized ratio. You may specify the look-back period; 14 is the default.
Relative Momentum Index
This is Roger Altman's momentum variation on Welles Wilder's Relative Strength Index, RSI. Instead of accumulating +/- price changes, RMI accumulates +/-changes in momentum. Over 70 is considered overbought and under 30 is oversold. The first parameter is the days for calculating momentum, the default is 4. The second parameter is the time frame, the default is 14. (NOTE: RMI = RSI when time frame is the same and RMI momentum set to 1.)
See RSI. Plotting 50-day, 2.1 standard deviation Bollinger Bands on RSI allows the analyst to dispense with fixed levels and focus on indicator action. The upper band serves the same role as RSI 70 (overbought) and the lower band serves the same role as RSI 30 (oversold). Here we go one step further and create a Normalized RSI by plotting %b of RSI using 50-day Bollinger Bands. The formula is:
Normalized RSI = (RSI - LowerBB(RSI)) / (upperBB(RSI) - lowerBB(RSI))
So now 0.0 serves as oversold and 1.0 serves as overbought.
Stochastic RSI is the result of a marriage of two indicators, Stochastics and the Relative Strength Index. Interpretation is simpler and clearer than for RSI alone. The general rules are the same as for RSI, Stochastics or any other over-bought / over-sold index. Divergence analysis is particularity useful. Mathematically Stochastic RSI is an n-period Stochastic of an m-period RSI. The defaults for n and m are usually 14. Please see Normalized RSI for our version of this approach in which RSI is normalized with Bollinger Bands. Stochastic RSI was written by Tushar Chande.
Qstick is a moving average of the bodies of Japanese candlesticks, the relationship between the open and the close. Qstick is negative when the closes have been less than the opens on average and positive when the closes have been greater than the opens an average. Thus it is a look at the internal trend of the price structure. 5-10 day periods are most common. Qstick is distantly related to Accumulation- Distribution.
Stochastic Impulse is a BBands.com exclusive indicator. It is a variation on BBImpulse that depicts the changes in Stochastics rather than the changes in %b. Another way of saying this is that BBImpulse measures impulse strength in relation to the Bollinger Bands and Stochastic Impulse measures impulse strength in relation to range. (See BBImpulse.)
Deviation from Average
Deviation from Average is the most basic overbought/oversold tool. It expresses how far prices have deviated from the mean as measured by an n-period average. The actual value is the percent deviation from the average. A 50-period average is the default, though 10- and 20-period averages are commonly used as well.
Commodity Channel Index
CCI is an overbought/oversold tool that uses volatility as its gauge and an old scaling convention derived from its commodity-futures-market heritage. 20 periods is the default. See BBIndex for a modern version of this indicator.
Wynia Volume Profile
This indicator was developed by Fred Wynia and uses a zig zag function to filter price and then compares the volume in up swings versus down swings. The indicator value is the ratio of the volume in the up swings to the volume in the down swings or vice versa. This indicator is useful for detecting rallies or declines that haven't sufficient backing to continue.
The Departure Chart is one of the oldest technical studies. It measures the difference between two moving averages of price, one short and one long. Its primary use is as a trend identification tool, but it may be employed to identify overbought and oversold conditions as well. 10 and 20 are the default periods.
This is a variation on Stochastics that some prefer. %R depicts where you are in the range of the past n-days without smoothing. Note that the scale is inverted from that for Stochastics. A 10- or 20-day period is a good starting place for stocks.
BBImpulse is derived from %b. Its value is the periodic change of %b, so if %b was 0.45 this period and 0.20 last period the present value of BBImpulse is 0.25. We present two reference levels on the chart, an alert level and an impulse level. Generally the market moves in the direction of the latest alerts and/or impulses except towards the end of a move where one can take advantage of exhaustion/reversal signals from this indicator. Ian Woodward employs BBImpulse for his Kahuna signals using key levels of 0.24 and 0.40. (See the description for the indicator Stochastic Impulse.)
Click here to start using the EquiVolume charts.