CHARTING
Turn It Up!
Does Volume Matter?
by Thomas N. Bulkowski
If a chart pattern breaks out on high volume, is it a blessing or
a curse?
Recently, I was reading some reviews on
Amazon.com for a book on technical analysis, and one reader comment that
stuck in my mind was that the author didn't discuss volume. Maybe it's
because volume isn't important, I thought. In my daily routine, I rarely
look at volume unless I'm considering a trade. Otherwise, it doesn't even
appear on my screen. But how important is volume? Does a high-volume breakout
really suggest a better-performing pattern? Does a receding volume trend
over the lifetime of the pattern suggest better post-breakout performance?
I decided to find answers to these questions.
Measuring breakout volume
How do you measure volume? An exceptionally high daily volume in a sparsely
traded stock might be less than an hour's worth in an actively traded stock.
So stock-to-stock comparisons would be worthless. To measure volume, I
chose the volume average for each stock.
I computed the average volume for the three months before the breakout
and assigned two categories to the breakout volume: above-average volume
(more than twice the average) or low volume (average or below average).
Then I looked at chart patterns and mapped the volume with performance.
Figure 1 shows the results.
Figure 1: VOLUME AND PERFORMANCE. Heavy breakout volume
usually propels a stock higher.
...Continued in the June issue of Technical Analysis of
STOCKS & COMMODITIES
Excerpted from an article originally published in the June 2004 issue
of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2004, Technical Analysis, Inc.
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