
22001
16
22
29
5
February
pullback
5
4
3
2
1
0
-1
-2
-3
24.5
24.0
23.5
23.0
22.5
22.0
21.5
21.0
20.5
20.0
19.5
19.0
18.5
18.0
17.5
17.0
16.5
16.0
15.5
15.0
14.5
14.0
13.5
13.0
Knowing when to sell is not an easy task.  A buy can be unemotional, but once a deci-
sion has been made to buy, there is a reluctance to admit being wrong, and a desire to
take a profit to prove being right.  That leads to less objective decisions.   I have found,
in my own trading, that I have to force myself to sell “too soon”.  When I own a stock
and  it  has  moved  with  me,  I  get  to  like  it.    That  allows  me  to  make  excuses  for  it.
Abandoning a winner is like kissing off a friend.  There is a tendency to give a winner
more leeway than a loser.  But that is a mistake.  Just because a stock has gone up ten
points after you bought it should not serve as a reason for allowing it to back off five of
those  points  without  selling  it.    I  have  had  to  learn  to  grit  my  teeth  and  abandon  my
friends as soon as they disappoint me.
ArmsInsider.com
TRADING WITH EQUIVOLUME
29
SELLING SHORT
An aggressive trader should be as willing to go short as to go long.  There are two sides
to  the  market,  and  they  might  as  well  both  be  used.    It  is  often  argued  that  the  short
side is more dangerous than the long side because there is no limit to losses.  True, but a
trader  should  never  stay  around  long  enough  to  find  that  out.   As  soon  as  a  position
starts to act wrong, the short should be covered.  
In a way the short side is safer than the long side for a trader.  That is because most up
moves take twice as long as do down moves.  Therefore, if you are long, the position
goes with you slowly but against you rapidly.  Conversely, if you are short, the position
goes with you rapidly but against you slowly.  You are likely to have more time to cor-rect mistakes.
In  shorting  a  stock  using  the  Equivolume  methodology,  the  principles  are  similar  but
inverted.    In  buying  a  stock  we  wanted  to  see  a  decline,  followed  by  a  base  building
period, and then a sign of strength.  If we are going to sell a stock short we want to see
an  advance,  then  a  sideways  consolidation,  and  then  a  sign  of  weakness.      Just  as  we
did not want to buy just because a stock appeared to be through going down, we do not
want to be short sellers just because it appears to have stopped going up.  Remember
that every trend has a better chance of continuing than it does of reversing.  If we sell it
because  it  appears  to  be  through  going  up  we  are  statistically  fighting  the  odds.    It  is
about a two to one chance that the consolidation will be followed by a resumption of
the  advance  rather  than  a  break  to  the  downside.    So,  before  selling  we  have  to  have
information that tells us the trend has reversed.
A sign of a top, such as a large oversquare box, is a very good reason to take a profit on
a long position, but not a reason to sell short.  The stock could languish for a long time
in the sideways area, so the money would be inactive. 
ArmsInsider.com
30
TRADING WITH EQUIVOLUME
Ease of Movement (0.2208), Ease of Movement (0.1412)
JLG INDUSTRIES (12.000, 11.813, 11.813)
breakdown
support
oversquare low
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
15.5
15.0
14.5
14.0
13.5
13.0
12.5
12.0
11.5
11.0
10.5
10.0
9.5
9.0
6November
13
20
27
4
11
18
26
December
22001
8
16
22
29
5
February
On the chart above we are looking at a good example of a successful short position.  In
the early part of the chart we see the last part of an advance.  The start of the top build-
ing process is not easily noticed.  But then it makes a second top at the same level and
backs off to the support zone.  But there is still no reason to be selling this stock until we
get the power box to the downside. That is a definite breakdown, and a strong sugges-
tion the stock will go lower.  We might wait for a light volume rally to the breakdown
level, but in this case, it never occurs.  The subsequent drop is rapid and large, and cul-
minates with an oversquare Equivolume entry.  That is definitely a signal to cover the
short  position  and  take  the  profit.    It  is  not  a  signal  to  go  long.    Perhaps  you  end  up,
later,  buying  at  a  higher  price,  but  by  then  you  have  built  a  base  and  had  a  sign  of
strength.  
The chart below gives us another good example of a short sale.  This stock, Microsoft,
had a fast advance in October, which then turned into a sideways consolidation.  The
pullback in early November established a support level for us to keep an eye on.  That
support was broken with a big trading range, although the volume was not particularly
heavy.  But the next day it gapped lower, and both volume and range expanded, pro-
ducing a power box to the downside.  It certainly confirmed the sign of weakness wehad  seen  the  day  before.   After  a  further  slump  over  the  next  week  it  rallied,  but  on
poor volume, suggesting the decline had further to go.  The decline did resume, with
another  gap  down  and  another  power  box  to  the  downside.    The  stock  fell  from  first
sell  signal  to  its  low  point,  about  30%,  in  just  about  a  month.    Notice  also  the  next
ArmsInsider.com
TRADING WITH EQUIVOLUME
31
power  box  to  the  upside.    It  penetrates  resistance  and  takes  the  stock  right  up  to  the
level it had been in prior to the short sale.
Ease of Movement (0.04509), Ease of Movement (0.04598)
MICROSOFT (63.56, 64.63, 63.13, 64.50)
break of support
support
light vol
power down 
resumption
power up
0.10
0.05
0.00
-0.05
-0.10
75
70
65
60
55
50
45
40
8
5
11
18
25
September
9
2October
16
23
30
6November
13
20
27
4
11
18
26
December
22001
8
16
22
29
5February
12
In  the  long-term  scheme,  the  market  has  gone  up  more  than  it  has  gone  down.
Recently it went through a seventeen year long bull market.  That means investors have
been  better  off  owning  stocks  than  they  would  have  been  shorting  them.    But  traders
are dealing with shorter-term moves.  For them, a long-term bull market is of little con-
sequence.  There are waves within the tides that allow profits in both directions.  Unless
one is trading a tax-sheltered account that does not allow it, a trader should be as will-
ing to go short as to go long.  To not do so is to ignore half the opportunities that pres-
ent themselves. 
ArmsInsider.com
32
TRADING WITH EQUIVOLUME
SUPPORT AND RESISTANCE
A basic observation of all technical analysis, be it Equivolume or an older method, is the
reoccurrence  of  price  levels.   As  a  stock  moves  higher  it  will  encounter  levels  that
repeatedly turn it back. Often, after that resistance level is surmounted, the same level
serves  as  support  on  declines.    It  happens  enough  so  that  we  must  pay  attention  to
those levels.  If a long position moves higher, as expected, and reaches an old resistance
level it has to be watched very carefully. Here Equivolume can often be extremely help-
ful,  since  we  want  to  know  more  than  just  where  the  price  is;  we  want  to  know  how
much  difficulty  it  is  having  in  moving.      The  box  shapes  are  often  a  clue.    Square
Equivolume entries at the old level are enough of a warning to justify taking profits.  
Ease of Movement (0.02282), Ease of Movement (0.04518)
FORD MOTOR (28.02, 28.74, 27.63, 28.33)
resistance
resistance
support
support
30
6
April
13
20
27
4May
11
18
26 1
8
15
22 29
13 20 27
June
July
310August
17
24
31
8September
14
21
28
5October
12
19
26
29November
23
0.05
0.00
-0.05
-0.10
-0.15
36.035.535.034.534.033.533.032.532.031.531.030.530.029.529.028.528.027.527.026.526.025.525.024.524.023.523.022.522.021.5
On  the  chart  above  we  see  quite  typical  action.   Across  the  center  of  the  chart  I  have
inserted a horizontal line.  Early in the period shown it served as resistance to upside
progress.    Later  the  stock  moved  up  through  that  level,  and  subsequent  declines
stopped at the same level.  So the old level of resistance had become a new level of sup-
port.  After the stock moved back down below that line, it again acted as resistance on
the right side of the chart.  In addition, we see that there is a lower level of support thathas  tended  to  hold  the  stock  up  repeatedly.    It  was  penetrated  at  the  right  side  of  the
chart, but briefly, and in a manner we should have recognized as being climactic.  
ArmsInsider.com
TRADING WITH EQUIVOLUME
33
Ease of Movement (0.6998), Ease of Movement (0.3602)
sell signal
FOSTER WHEELER (9.000, 9.250, 8.700, 8.850)
resistance
support
resistance
support
resistance
support
0.5
0.0
-0.5
15.0
14.5
14.0
13.5
13.0
12.5
12.0
11.5
11.0
10.5
10.0
9.5
9.0
8.5
8.0
7.5
10
17
24
7
14
28
1June
12
19
26
6July
29August
16
30 7
20September
27
11
October
25 1
15November
22
6
13
20
27
December
10
18 24
32000
Here is a stock that gave a very easily seen sell signal  There was a strong support level
that  was  broken  with  increasing  volume  and  a  widening  range;  a  power  box  to  the
downside.   After  that  it  had  a  long  decline  that  consisted  of  a  number  of  stair-steps
down.    Notice  how  it  would  find  support  at  a  level,  then  rally  from  that  level  to  the
prior support level that had become a resistance level. Each drop was on increasing vol-
ume, and each rally was on decreasing volume, saying that the decline had further to
go.  Way  to  the  right  of  the  chart,  though,  volume  became  very  heavy,  and  the  range
tightened up, thereby producing square Equivolume entries.  It was an easily discern-
able signal that it was time to take profits on the short position.
Support and resistance levels should not be used as indications to put on new long or
short  positions.    They  can,  though,  help  to  determine  when  to  take  profits.    The  one
exception is that a stock that has a breakout will often move back to the breakout level.
If one decides to wait for pullbacks before buying, or light volume rallies before short-
ing, then a return to the old support or resistance level is to be expected, and is a confir-
mation that it is time to put on the position.   But it is not the primary reason for putting
on the position; the power box out of a consolidation is the primary signal.
ArmsInsider.com
34
TRADING WITH EQUIVOLUME
Ease of Movement (0.4104), Ease of Movement (0.2549)
GANNETT (63.00, 63.98, 62.60, 63.98)
breakout
resistance
resistance
pullback
support
support
9
26
3July
10
17
24
31
7August
14
21 28
5
11September
18
25
2October
9
16
23
30
6
13
20
27
4
11
18
26 2
November
December
2001
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
70
69
68
67
66
65
64
63
62
61
60
59
58
57
56
55
54
53
52
51
50
49
48
47
Here is one more example, now on the upside.  Notice how it came back down after the
breakout, and held right at the old resistance level, before going higher.
ArmsInsider.com
TRADING WITH EQUIVOLUME
35
TRENDLINES AND CHANNELS
So far we have been looking at horizontal lines that define the tops and bottoms of side-
ways  consolidation  areas.  But  as  prices  move  up  and  down  they  are  also  often  con-
tained within sloping lines.  We tend to draw a pair of parallel lines, enclosing the price
trend.  However, the more important line is the line across tops in a decline and the line
across  bottoms  in  an  advance.    They  show  the  levels  where  we  have  to  become  con-
cerned.  If we are short, we do not want to stay with the position if it moves out of its
down channel to the upside.  If we are long a stock, we want to cover the position if it
breaks the lower ascending trendline, indicating a loss of momentum.  In addition, of
course,  we  will  want  to  look  at  the  type  of  Equivolume  box  involved  in  the  reversal.
Heavy volume and a big range is a much more bothersome signal than a light volumesmall penetration.
Ease of Movement (0.1701), Ease of Movement (0.07269)
GAP (32.00, 32.90, 31.70, 32.64)
0.350.300.250.200.150.100.05-0.00-0.05-0.10-0.15-0.20-0.25-0.30-0.35
40
39
38
37
36
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
31
7
August
14
21
28
5
11
18 25
September
29October
16
23
30
6
13 20
5
18
26 2
8
16
22
29
November
December
2001
5February
12
The  above  chart  shows  both  a  down  channel  and  an  up  channel.    In  addition,  we  see
here  another  example  of  volume  emphasis. All  the  way  down,  volume  increases  on
drops and decreases on rallies.  All the way up, volume tends to pick up on rallies and
drop off on pullbacks.  Particularly interesting is the Equivolume box at the transitionpoint.  It is a typical power box to the upside.  It penetrates the descending trendline,
making it clear that it is time to cover short positions.  But that box is not a signal to go
long.  It is only saying that the decline seems to have halted; it is not saying the stock is
headed higher.  
ArmsInsider.com
36
TRADING WITH EQUIVOLUME
The  buy  signal  is  seen  a  couple  of  weeks  later  when  another  power  box  penetrates
resistance after a base building period.  In this case it means buying at higher level, but
it is buying when there has been a sign of strength.  
AMER ELEC PWR (43.94, 44.17, 43.45, 43.93)
50.550.049.549.048.548.047.547.046.546.045.545.044.544.043.543.042.542.041.541.040.540.039.539.038.538.037.537.036.536.035.535.034.534.033.533.032.532.031.531.030.530.029.529.028.528.027.527.026.526.025.525.024.524.0
Nov
Dec
2000
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2001
Feb
More often, though, there are trends within trends within trends.  On the above chart
we are looking at a longer time frame than previous examples, in order to see the vari-
ous trendlines that can be inserted.  The major trend is outlined with the two red lines.
Inside  that,  we  have  a  number  of  large  price  swings,  each  designated  with  a  pair  of
green lines.  Within those trends are a number of minor trends.  I have shown a few of
them with blue lines.  For our trading purposes we will be trying to play the moves of
the intermediate type.  The very small moves, you will notice, are usually counter to the
trend we are trading.  They are the pullbacks during an advance and the rallies during
a decline.  They are very valuable, though, as an indication of the limits of the trend we
are  trading.  Moreover,  they  tend  to  confirm  that  the  position  we  are  holding  is  still
valid.  For example, during an up move, where we are long, we like to see the pullback
made with lighter volume, and usually getting even smaller as the correction progress-
es.  Those pullbacks are the profit taking that needs to be absorbed on the way up.  It is
healthy and expected.  If, however, the volume gets heavy on a pullback, it is a warningthat the sellers are getting the upper hand.  If the trendline is penetrated it says the sell-
ers are too aggressive.  We like light volume pullbacks that stay within the trend.
ArmsInsider.com
TRADING WITH EQUIVOLUME
37
GAPS
Often a stock will have a gap in its trading pattern; an area of prices where no trading
has  occurred.    It  happens  when  a  stock  opens  sharply  higher  or  lower  than  the  prior
day’s  trading  range,  and  never  moves  back  into  that  area.    Classic  technical  analysis
classifies  them  as  one  of  four  types,  depending  upon  where  they  occur.    They  can  be
trading  range  gaps,  breakaway  gaps,  runaway  gaps  or  exhaustion  gaps.    Using
Equivolume we find that the volume makes it far easier to see what kind of gap we are
dealing with, and therefore, what we are likely to see for price movement after the gap.  
A trading range gap usually consists of two boxes of about the same size and shape on
both sides of the gap, and usually is not accompanied by the penetration of an impor-tant support or resistance level.  It is a gap of little meaning.
A Breakaway gap is usually quite dramatic.  The stock moves up or down out of a side-
ways area, with so much power that it leaves a gap behind.  It is a power box, as we
have seen earlier, but even more so.  In a breakaway gap we see both volume and price
range expand across the gap.  That means, a small Equivolume box followed by a large
Equivolume box, and one that is quite tall for its width.  A breakaway gap is a strong
signal to buy or sell, depending upon its direction.
A Runaway gap is seen when a stock is rising or dropping so fast that it leaves holes in
the trading along the way.  It is a sign of a very emotional move, and usually implies
that the move has further to go.  It is identified by two boxes, both large, and both tall
for their width.  It is like two power boxes separated by a gap.  
An exhaustion gap is a sign a move is ending.  It is characterized by a tall thin box fol-
lowed, after the gap, by a short wide box.  It shows us that a very powerful move has
suddenly encountered a barricade to further movement.  It is like the oversquare boxes
we were looking at earlier, but preceded by a gap.  It is usually a strong sign to close
out a position.
ArmsInsider.com
38
TRADING WITH EQUIVOLUME
READ RITE (10.19, 9.688, 10.00)
trading range
exhaustion ?
exhaustion
runaway
7
31Aug
14
21
28
5Sep
11
18
25
2Oct
9
16
23
30
6
13 20
Nov
5Dec
11
26
8
16
22
2001
29
5Feb
12
breakaway
breakaway
13.0
12.5
12.0
11.5
11.0
10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
On  the  chart  above  we  see  a  number  of  gaps.    They  have  been  labeled  to  show  what
kind of gaps the box shapes say they are.
Some  stocks  form  many  gaps,  and  others  form  very  few.    But  whenever  a  gap  is
encountered it should be considered and categorized.  Gaps are a strong indication of
where the price is going to go.
ArmsInsider.com
TRADING WITH EQUIVOLUME
39
CONCLUSIONS
An  aggressive  trader  needs  to  use  every  bit  of  information  available,  and  must  make
unemotional decisions based on that information. But the deluge of fundamental infor-
mation  in  the  marketplace  is  overwhelming.    Moreover,  there  is  no  way  that  a  trader
can see every piece of information that may influence the price of the stocks he is trad-
ing. And  even  if  he  could  see  all  the  information,  he  would  still  be  lacking  the  most
important  ingredient,  which  is  the  psychological  effect  of  that  news.    It  is  useless  to
know the news and not know how it is going to influence the thinking of all the mil-
lions of people who are reacting to that information.   What is needed is a machine that
will assimilate every known piece of information, ascertain the psychological response
to that information, and apply it to the price of a stock.
Luckily that machine exists.  It is the market itself.  Every tiny bit of information that
could  influence  and  engender  an  emotional  response  does  so.    People  buy  and  sell
stocks  in  answer  to  those  emotional  responses.    Those  responses  are  reflected  in  just
two final pieces of information, the price and the volume.  All a trader needs to do, is
observe  the  way  in  which  price  and  volume  are  exhibiting  themselves  in  the  market-
place  in  order  to  know  exactly  how  the  world  is  evaluating  all  of  the  information
known, or even suspected, concerning that stock.
Equivolume  charting  does  not  look  at  any  new  information;  it  just  looks  at  the  same
information  in  a  more  easily  interpreted  format.    It  allows  us  to  more  easily  ascertain
how prices are changing, rather than just seeing that they are changing.  It shows the
internal dynamics of a stock.  Volume is treated as an equal partner to price, rather than
an afterthought at the bottom of the page.
None of the methods we have covered are foolproof.  There are always going to be loss-
es as well as gains.  The objective is to have more good trades, and larger profits on the
good trades, than losses on the bad ones.    To do so calls for discipline and objectivity.
That  means  not  only  reveling  in  the  successes,  but  accepting  the  failures  and  moving
on.  It also means having the strength to quickly move out of a position as soon as the
evidence says it is time to do so.  It means no stock can be your friend or your enemy.  Itis just a stranger who can take you where you need to go.  When you get there you pay
the  fare  and  get  off.  The  stranger  who  is  doing  the  driving  does  not  care  where  you
want to go.  You have to know where he is headed.
ArmsInsider.com
TRADING WITH EQUIVOLUME
40
Successful trading is not based on luck.  It is based on knowledge and ability.  I like the
words of a song recorded by Kenny Rogers that say:
You’ve got to know when to hold them,
Know when to fold them,
Know when to walk away,
Know when to run.
You never count your money
When you’re sitting at the table
There’ll be time enough for counting
When the dealing’s done.
ArmsInsider.com
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