V. 22:6 (18-22): 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 didnít discuss volume. Maybe itís because volume isnít important, I thought. In my daily routine, I rarely look at volume unless Iím considering a trade. Otherwise, it doesnít 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 hourís worth in an actively traded stock. So stock-to-stock comparisons would be worthless. To measure volume, I chose the volume average for
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.