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The relationship of the Day Range (i.e. the difference between the Day’s High and the Day’s Low price levels) and the Daily Volume, is a great indication of the strength of the move and the likelihood of reversal. By incorporating the volume into the price bar, the equivolume method makes this easy and highly visual. Examine the different equivolume bars in the illustration below :
Bar A – This is an average day. Both volume (width) and range (height) are moderate. Seeing bars like A in the direction of the trend, shows that the trend is still healthy.
Bar B – Volume is modest, but the move is huge. The price advances without much resistance. A breakout day that looks like B is very suspect: The Bulls are not going “all in” and the Bears are not panicking to cover their shorts.
Bar C - This is what a breakout day or a trend resumption should look like. This is what I call a “Big Box”. The price can easily advance 3-10% on a day like that. Volume is huge (often equaling the combined volume of the several preceding days or even week.) For one reason or another, the market now believes the stock should be worth much more than yesterday’s price, the Bears realize this too as they are buying higher to close their short bets.
Bar D – The volume is enormous, but the price advance is only modest. We call this shape an “over square box”. Buyers and sellers are very evenly matched. Seeing a bar like D after a long trend, warns that resistance is finally reached. The trend is ending (at least temporarily.)
Bar E – This is a quiet day. The price moves little on just a few transactions. It is encouraging to see days like E in a direction opposite the trend (such as a pullback.) It means the reversal lacks conviction.
