Stocks & Commodities V. 23:8 (36-39): Volume Shapes And Chart Patterns by Thomas N. Bulkowski
Do volume shapes predict postbreakout performance from chart patterns?
In the second edition of my Encyclopedia Of
Chart Patterns, I introduced a concept that I call volume shapes. I reviewed 38,500 chart patterns and catalogued each according to one of five volume shapes: flat, receding, rising, U, and dome, and then
measured performance after the breakout. Here, I will examine the various volume shapes and some of the chart patterns, and discuss performance.
Flatliners: Figure 1 shows an example of a symmetrical triangle with a flat volume trend. A symmetrical triangle
is a chart pattern that sports price action bounded by two converging trendlines. One trendline slopes downward and the other upward. Look for price to
touch each trendline at least twice (two individual peaks and two valleys), with prices crossing the pattern plenty of times. You should not see an abundance of white space between the trendlines — that’s key. A breakout occurs when price closes outside of the trendline boundary.
Flat volume is just what it sounds like. Look for a horizontal volume trend but allow the mountain range to
appear irregular. You’ll see some peaks and valleys, but the overall trend will appear flat.