Knowing that XYZ stock was up 5-1/4 points, ABC dropped 3 points and AAA was unchanged is

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1 Article Text Copyright (c) Technical Analysis Inc. 1 Stocks & Commodities V. 7:12 ( ): Arms Equivolume Charting System by James S. Gould Vendor: Richard W. Arms, Arms Equivolume Corp., P.O. Box 53566, Albuquerque, NM 87153, (505) Arms Equivolume Charting System by Dr. James S. Gould Hardware: IBM AT, PS/2 compatible, 1200 or 2400 baud modem, EGA/VGA controller and monitor, Epson FX80 or compatible printer, math coprocessor recommended. Data source: Track Data. Price: $365 (100-stock individual investor version), $565 (500-stock professional version) Knowing that XYZ stock was up 5-1/4 points, ABC dropped 3 points and AAA was unchanged is about as useful as knowing the late sports scores were 12-to-8 and 9-to-5. The information gives little clue as to what happened, how it happened and what might happen the next time around. Similarly, conventional stock and commodity charting that disregards trading volume is about as helpful for in-depth technical analysis as a synopsis of stock market events or sports scores on the late-night TV news. Equivolume charting incorporates both price and volume to provide a more complete assessment of each day's supply/demand balance. An Equivolume chart expands the price bars of a conventional bar chart horizontally by the amount of volume in the trading day (Figure 1). The result is a series of boxes undulating across the chart. (For an exemplary use of Equivolume charting, see "Trading T-bonds with Equivolume," Stocks & Commodities, September 1989.) Richard Arms developed Equivolume charting and his software contains some pleasant surprises: The program is easy to install. A hard drive is recommended. The 56-page manual is easy to read and walks you through examples of all program features, including a review of Equivolume charting techniques and interpretations. The manual explains conceptually how its indicators are calculated, but gives no examples. Graphics on both screen and printer are crisply detailed and clearly labeled. The program is designed for customized flexibility. You specify system parameters such as the compression factor to consolidate trading days, moving averages based on volume rather than time and searches for all stocks having user-specified box shapes, slopes and/or ease of movement indicator

2 Article Text Copyright (c) Technical Analysis Inc. 2 Stocks & Commodities V. 7:12 ( ): Arms Equivolume Charting System by Dr. James S. Gould characteristics. The database can be electronically updated daily through Track Data (with two months of free daily updates) and it's just a matter of time before CSI and other major on-line data suppliers can hook into the program's internal communications routine. The program creates and updates files on stocks that are not in its standard library of 100 or 500 stocks. Once created, the files can be updated manually or electronically. The program incorporates ideas that Arms has not written about previously volume-adjusted moving averages and the ease of movement indicator that is a linear progression of price-volume history. Both are unique to this program and useful for anticipating price movements and planning trading strategies. I could think of only one limitation, namely, the program is not designed for commodities. While commodity files can be created and manually updated, the price format is two digits and eighths, not compatible with most commodity prices. This program is a gold mine for technical market students and serious traders. Equivolume charting could be used by itself or combined with others to finetune a trader's market tactics and trading decisions. Ordinary use Customizing an Equivolume chart so I can evaluate past market action and decide what to do with my open position is a matter of a few keystrokes. After I load the Arms program and enter the letter E, the main menu appears (Figure 2). Press the F3 key and the charting menu appears (Figure 3) with a list of function keys: F1 allows me to select any of the 100 or 500 stocks in the program's library or my custom created stock files. In this example, I entered "IBM." F2 specifies the search for past price patterns, based on boxes exceeding a certain size. This feature is great to quickly scan the entire library looking for stocks having unusual trading activity during the previous trading day. I instructed the program to review the trading of the previous 30 volume-days and alert me if yesterday's box size was twice as large as those of previous trading days. F3 lets me search the library for stocks with the best/worst ease of movement indications. F4 searches for all stocks having a specified moving average slope during a particular time period. I wanted to be alerted if the slope of yesterday's trendline fell with the range of zero to 0.1. F5 tells the computer to consolidate trading days. I entered "3" to instruct the program to consolidate trading days so each volume-day plot represents three trading days. This option is great for identifying market patterns taking longer than a trading day to form. F6 calculates moving averages based on volume, which is unique to this program. The divergence between a short- and long-term moving average can identify trading opportunities. I instructed the program to compute two moving averages one of 13 volume-days duration the other of 55 days. F7 prints a hard copy of the results. F8 creates a pause in scanning the stock library, a feature I did not activate to create my customized IBM chart (Figure 4).

3 Stocks & Commodities V. 7:12 ( ): Arms Equivolume Charting System by Dr. James S. Gould Changing specifications and producing another chart is easy. With the stroke of a key, I can construct similar charts for any stocks in my library or scan the library for all stocks deserving closer attention because they have a particular box size or ease of movement characteristics. Equivolume charting is a great way to see clearly volume's impact on pricing and the nature of market movement. An added fillip are the proprietary indicators Arms has developed and added to the package. At $365 for the 100-stock private investor version, this package is priced comparably with the only other volume-oriented program that I know of, CompuCast, and is much more clearly explained, easy to operate and has a more robust concept behind it. Dr. James S. Gould is a professor of marketing at Pace University, White Plains, NY. Reference Arms, Richard, "Volume Cycles in the Stock Market," New York: Dow Jones Irwin (312) FIGURE 1: An Equivolume chart expands the price bars of a conventional bar chart horizontally by the amount of volume in the trading day. Figures Copyright (c) Technical Analysis Inc. 3

4 Stocks & Commodities V. 7:12 ( ): Arms Equivolume Charting System by Dr. James S. Gould FIGURE 2: Function keys direct the trader to data management and chart customization modules. FIGURE 3: The charting menu allows a trader to search for stocks by their box size, moving average slope and ease of movement, plus calculate a unique volume-based moving average. Figures Copyright (c) Technical Analysis Inc. 4

5 Figures Copyright (c) Technical Analysis Inc. 5 Stocks & Commodities V. 7:12 ( ): Arms Equivolume Charting System by Dr. James S. Gould FIGURE 4: The customized chart specified in Figure 3 prints with clear detail.