What Is an Equivolume?
Equivolume charts meld price and volume information into every data point and visually depict it as rectangular bars for the period in question.
- Equivolume charts meld price and volume information into every data point and visually depict it as rectangular bars for the period in question.
- The height of each bar represents the high and low for each period and the width represents the volume for each period relative to the total volume traded over the specified time period being analyzed.
- A criticism of equivolume charts is that they do not show a security's open and close prices.
Understanding an Equivolume
Equivolume is a technical chart that shows daily price ranges of a security, such as a stock, and its trading volumes and plots them together as one piece of data. It is a tool in a technical analyst's tool box that aids in their analysis of a security's viability as an investment. The height of each bar represents the high and low for each period and the width represents the volume for each period relative to the total volume traded over the specified time period being analyzed.
This type of chart is very similar to candlesticks, except that volume is incorporated into the data point rather than added as an indicator on the side. The visual aid for volume combined with the high/low might be more useful for the technical analyst studying the chart. For instance, generally speaking, a wide bar is deemed to be more significant than a thin bar because large volume usually precedes a significant price move. Breakouts, or breakdowns, of a security's price action are often accompanied by higher trading volumes, and wider-than-average bars that appear on an equivolume chart can provide a trader with a signal to take action.
No single technical chart is foolproof, of course, so a trader who uses an equivolume chart should turn to other tools to help guide their trading. Also, an equivolume chart, unlike a candlestick chart, does not display open and close data points of the security. The high and low points of a security on a bar is critical information, but additional trend data that a technical analyst may want to see are where a security's price opens and closes. A security that closes below its opening price for a day, whatever the height of the bar, yields a different clue to an analyst than the reverse situation in which a stock closes above its opening price. Taken over many periods, open/close data points can delineate a trend that may be unclear in just an equivolume chart alone.