 the  trading  range  became
very tight while the volume became heavy.  That produced the square and oversquare
boxes.  The reason for this happening is simple.  After an advance, there are still buyerstrying to push the price higher.  But they are encountering well-entrenched sellers who
are  willing  to  give  them  all  the  stock  they  want  at  a  given  price.   As  the  buyers  push
upward and the sellers resist, heavy volume is created, but the price acts as though it
has  encountered  a  brick  wall.    It  is  usually  a  clear  sign  of  a  top,  and  a  warning  that
ArmsInsider.com
TRADING WITH EQUIVOLUME
15
prices  are  likely  to  head  lower.    In  trading  stocks  we  will  usually  believe  such  a  sign,
and be willing to take the profit.  Obviously, there are exceptions, but it holds true often
enough for us to heed the warning.
Often  a  stock  will  make  a  double  or  a  triple  top  before  heading  lower.    For  a  longer-
term  investor  that  is  a  signal  to  get  out,  but  as  traders,  we  are  not  likely  to  wait  that
long.    Typically  a  triple  top  shows  up  as  a  big  square  entry  on  the  first  top,  and  then
diminishing volume on the subsequent tests of that top.  A trader is well advised to get
out on the first big square, and take the profit.  If it goes higher later, instead of forming
a double or triple top, who cares.
Ease of Movement (-0.2311), Ease of Movement (-0.2714)
ALLSTATE (34.88, 35.13, 33.88, 34.75)
double top
breakout buy signal
0.4
0.3
0.2
0.1
0.0
-0.1-0.2
-0.3
-0.4
-0.5
-0.6-0.7
45.545.044.544.0
43.543.042.542.041.5
41.040.5
40.039.5
39.038.538.0
37.537.0
36.536.0
35.535.034.5
34.033.5
33.0
30
6November
13
20
27
4
11
18
26
December
22001
8
16
22
29
Februa
On the chart above, we might have been buyers when the stock broke out above resist-
ance.  Just a few days later, at much higher prices, we started to see signs of resistance.
That was the time to take the profit.  Later it did go back up to that level, and formed a
wide  double  top.    That  then  led  to  a  very  big  decline.    But,  as  traders,  we  would  not
have waited around for all of that.  The stock told us very early that it was running into
resistance and should be sold. 
Unfortunately  they  do  not  always  act  exactly  as  we  expect.    Sometimes  the  topping
action will be far less obvious. 
ArmsInsider.com
16
TRADING WITH EQUIVOLUME
Ease of Movement (0.4951), Ease of Movement (-1.841)
AMERADA HESS (67.13, 67.38, 66.25, 66.94)
not an obvious top
breakout levels
downside volume
4.03.53.02.52.01.51.00.50.0-0.5-1.0-1.5
-2.0
77
76
75
74
73
72
71
70
69
68
67
66
65
64
63
62
61
60
59
58
57
30
6
13
20
27
4
11
18
26
November
December
22001
8
16
22
29
Februa
The breakout was obvious in the stock above, and the subsequent move was very grati-
fying.  But, when it reached the top it did not tell us so.  The range did contract, but the
volume  was  not  excessive.    Only  a  couple  of  days  later  did  it  become  apparent  that
there  was  trouble.    The  clue  was  the  heavy  downside  volume  with  a  wide  trading
range.  The ascending trend was broken, and it looked as though the stock was headed
lower.  On tops that are not typical, we need to watch for other clues.
Lows tend to be different than highs.  They are more emotional.  Fearful selling often
results in climactic action, in which volume becomes very heavy and the trading range,
unlike a top, is wide.  Therefore we are more likely to see very large Equivolume boxes
on bottoms, but they are less likely to be square or oversquare.  The typical bottom con-
sists of a big box that washes out the sellers, followed by an immediate rally, and then a
lighter volume pullback that tests the old support.  
ArmsInsider.com
TRADING WITH EQUIVOLUME
17
Ease of Movement (0.00938), Ease of Movement (0.02319)
AT&T (24.63, 24.75, 23.81, 24.06)
16
23
30
6November
13
20
27
4
11
18
26
December
22001
8
16
22
29
Febru
washout low
test
0.04
0.03
0.02
0.01
-0.00
-0.01
-0.02
-0.03
-0.04
-0.05
-0.06
29.529.028.528.027.527.026.526.025.525.024.524.023.523.022.522.021.521.020.520.019.519.018.518.017.517.016.516.015.5
On the above chart we see that the stock had been in a long decline.  Finally it gapped
down  on  huge  volume  and  seemed  to  get  rid  of  the  last  of  the  sellers.    That  was  fol-
lowed by a weak rally, then a return to the low, before a believable rally could get under
way.  
Often, though, we will see lows that look more like tops, in which we have a series of
heavy  volume  days  with  a  very  tight  trading  range.    Instead  of  a  panic  sell  off,  the
decline ends with a gradual shifting from weakness to strength.  When that happens a
rounded bottom develops, which we often call a saucer bottom.  This sort of low can be
very  profitable.    It  forms  a  wide  base,  and  therefore  is  likely  to  lead  to  a  substantial
advance.    The  chart  that  follows  pictures  a  typical  saucer  bottom.    Notice  also  the
impressive upside volume as it emerges from the saucer. 
ArmsInsider.com
18
TRADING WITH EQUIVOLUME
Ease of Movement (0.00309), Ease of Movement (0.01360)
RAZORFISH (2.406, 2.125, 2.313)
saucer bottom
0.05
-0.00
-0.05
-0.10
-0.15
-0.20
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
16
23
30
6November
13
20
27
4
11
18
26
December
8
22001
16
22
29
Febru
That upside volume out of the base would be a strong signal to cover short positions,
and even to go long.
ArmsInsider.com
TRADING WITH EQUIVOLUME
19
BUYING THE BREAKOUTS
The classic technical picture that I particularly like to use for trading, is a stock that has
had a long decline, given signs of a bottom, built a substantial base and has then sent a
signal of strength.  All of these earmarks are exhibited in both price movement and vol-
ume  characteristics.    On  the  stock  chart  that  follows  we  are  looking  at  a  quite  typical
formation of this sort.
Ease of Movement (0.2380), Ease of Movement (0.1668)
KULICKE & SOFFA (16.563, 16.625, 15.688, 16.000)
square tops
breakout
resistance
23
30
6
13
20
27
4
11
18
26
November
December
22001
8
16
22
29
Febru
square bottom
0.4
0.3
0.2
0.1
0.0
-0.1
-0.2
-0.3
17.0
16.5
16.0
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
8.5
I have made a number of notations on the chart.  The first is the square top that we saw
as it tried to rally after a long decline.  The heavy volume and lack of progress suggest-
ed  that  it  was  encountering  formidable  overhead  supply,  and  could  not  get  through.
Then it went down to a level where we saw the same sort of square entries, but now on
the  downside.    The  next  rally  was  more  encouraging  because,  for  the  first  time  in
months, volume was coming in as the stock went up instead of becoming heavier as the
stock went down.  But when it got back to the old resistance it again stalled, and made
another series of square tops.  The sellers were still there, and would not let it through
the barrier.  It pulled back again, but not so far, and the volume was lighter.  We were
still in a base area, but it was becoming more encouraging.  Then, on the next rally itbroke out!  Notice the Equivolume box it made on the breakout: a tall box showing that
it was moving well, but heavy volume showing power.  The stock appeared to be on its
way.  
ArmsInsider.com
20
TRADING WITH EQUIVOLUME
The breakout box is what I like to call a “power box”.  A tall thin box that lacks volume
as the resistance is penetrated is suspect.  There does not seem to be enough conviction
behind the move.  A short and wide box through resistance is equally suspect, because
it is obvious that there are many big sellers just above the old resistance level. But a tall
box  that  also  has  width  indicates  a  very  strong  situation.    There  are  many  aggressive
buyers,  and  the  sellers  are  toppling  before  them.    That  is  the  sort  of  breakout  box  we
saw in the stock above, and those are the situations we should be searching for.  
Lets look at another power box breakout and the results.  
Ease of Movement (-0.02231), Ease of Movement (-0.1061)
REPUBLIC SVCS (15.938, 15.813, 15.813)
square highs
power box
washout low
breakout level
0.5
0.4
0.3
0.2
0.1
-0.0
-0.1
-0.2
-0.3
-0.4
-0.5
18.0
17.5
17.0
16.5
16.0
15.5
15.0
14.5
14.0
13.5
13.0
12.5
12.0
11.5
11.0
10.5
31
7
14
21
August
5September
18
25
2October
9
16
23
30
6November
13
20
4
11
18
26
December
22001
8
16
22
After a long decline the stock gapped down, and a day later it traded very heavy vol-
ume  in  a  fairly  wide  trading  range.    That  had  the  look  of  a  bottom  starting  to  form.
Next  it  rallied  on  very  light  trading  before  dropping  back  to  the  old  support  area  on
enormous volume, creating an oversquare day.  After two more days in the same bot-
toming area it moved sharply higher.  It was a tall box with good volume, suggesting
the stock had made a legitimate turn.  Moreover, it went through the level where it had
been turned back on the prior rally, making it look like a breakout from a base.  In the
next  few  weeks  the  stock  went  up  about  35%  before  encountering  heavy  resistance.Finally, we see the square Equivolume entries on the highs.  That was a strong hint that
the advance was ending.
ArmsInsider.com
TRADING WITH EQUIVOLUME
21
Below is a final example of power boxes to the upside.  Also notice the typical square
entries on both the highs and the lows for each cycle.
Ease of Movement (0.02741), Ease of Movement (0.1444)
AMER WIRELESS (24.44, 23.38, 23.94)
square tops
2October
9
16
23
30
6November
13
20
27
4
11
18
26
December
22001
8
16
22
29
Febr
square lows
power boxes
0.350.300.250.200.150.100.05-0.00-0.05-0.10-0.15-0.20-0.25-0.30-0.35-0.40
25.5
25.0
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
ArmsInsider.com
22
TRADING WITH EQUIVOLUME
BUYING CONTINUATION PATTERNS
The  other  favorite  signal  for  buying  is  a  continuation  of  an  earlier  breakout.   As  with
the breakout, we want to see heavy upside volume through an old level of resistance.
Moreover, we want to be sure that the stock has the right volume characteristics.  That
is,  it  needs  to  be  receiving  heavier  volume  on  advances  than  on  declines.    Thirdly,  it
needs to have the potential to move a good deal further.  The stock must have enough
of a base to suggest the advance is not likely over yet and that the objective is at a high-
er level.   Determination of objectives, and the cyclical nature of stock that is implicit in
the volume-to-volume relationship is covered more fully in the book “Volume Cycles in
the Stock Market”.  For this discussion, understand that the width of the base is usually
very nearly the same as the width of the ensuing advance.  Similarly, the width of a topis about the same as the width of the decline that follows.
Ease of Movement (1.597), Ease of Movement (0.7672)
AMETEK (26.375, 27.063, 26.250, 26.938)
buy signal
!
resistance
base
continuation buy signal
objective
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5-1.0
-1.5
-2.0
28.0
27.5
27.0
26.5
26.0
25.5
25.0
24.5
24.0
23.5
23.0
22.5
22.0
21.5
21.0
20.5
20.0
19.5
6
11September
18 25
2October
16
23
30
6
13
20
27
November
4December
11
18
26
22001
8
16
22
29
Feb
This stock built a very wide base lasting about three months.  I have shown that base as
the distance between the two vertical lines.  It gave a buy signal as it came out of that
base.  Volume was much heavier as it penetrated the resistance.  After moving sideways
and  then  higher,  it  again  had  an  upside  power  box  a  month  later.    I  show  that  as  thecontinuation buy signal.  The two vertical lines show the width of the base.  Remember,
since this is an Equivolume chart we are really measuring an amount of volume not an 
ArmsInsider.com
TRADING WITH EQUIVOLUME
23
amount of time.  I have measured sideways a distance equal to the base, and marked it
as the objective.  Since the second indication to buy came well short of that objective, it
was a believable signal.  Notice that the high came in just about where it had been fore-
cast.  
Ease of Movement (0.3710), Ease of Movement (-0.09831)
GENUINE PARTS (25.63, 25.75, 24.88, 25.63)
buys
!
!objective!
9
2October
16
23
30
6
13
20
27
4
11
18
26
November
December
22001
8
16
22
29
Febr
base
runup
1.0
0.5
0.0
28.0
27.5
27.0
26.5
26.0
25.5
25.0
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
Here  is  another  example  of  multiple  opportunities  to  buy.    Each  time  the  stock  ran
through a resistance level volume expanded.  Each time it pulled back volume contract-
ed.    The  wide  base  justified  a  long  advance.    The  stock  finally  encountered  resistance
and went square, suggesting the move was over.  Obviously, the examples shown are
chosen  to  illustrate  the  principles.    Not  all  stocks  behave  so  well  all  of  the  time.
Therefore it is important to always have a stop order, or at least an idea as to what sort
of action would say that a bad decision had been made.  We will be looking at stop lev-
els a little later.
Every buy suggestion that appears on the website is derived by looking for either a new
breakout  or  a  continuation  pattern.    Within  the  time  frame  we  are  using,  they  are  the
only  formations  that  carry  big  odds  of  being  correct.    For  example,  in  a  longer-term
decline  there  are  often  countertrend  rallies,  but  they  are  usually  on  light  volume  andare short lived.  Since the longer-term trend is down, the risks are too large to be buying
such a formation.  As we said above, thinking a stock is through going down is not rea-
son enough to buy, either.  The stock could be through going down but not ready to go
up, meaning money might remain idle while waiting for the move to develop.  The rea-
ArmsInsider.com
24
TRADING WITH EQUIVOLUME
son for buying a stock is to participate in an upward move.  The best time to buy the
stock is when others have just started to.  Big buying evidences itself in heavy volume
and a wide trading range; a power box on the Equivolume chart.  We don’t ever want
to be contrarians.  We want to agree with others, but only very early in the move.  The
big  volume  move  is  usually  caused  by  professional  money  coming  in.    Later  in  the
advance the amateurs are buying.  We want to be on the side of the pros.
There is one variation on this strategy that we do use however.  In some markets, and in
some instances, a power box is followed by a light volume pullback.  That pullback is
likely to return the price to somewhere near the breakout level.  In a fast running stock,
or a greatly oversold market, we sometimes do not see many such pullbacks. At other
times they are quite common.  They can often give us the opportunity to buy at a some-what  better  level.    Depending  upon  the  stock  and  the  way  it  is  acting,  we  sometimes
will suggest waiting for a pullback to buy.  At other times, where it is less clear, we sug-
gest  taking  a  partial  position  on  the  breakout,  another  partial  on  the  pullback  and  a
third piece when the rally resumes.
On the chart that follows we see a case in which the breakout, while dynamic, was wor-
risome because it was so oversquare.  It said that the move was already encountering
resistance.  Therefore, one would be inclined to wait and see if it would pull back some
before  going  higher.    Particularly  important  is  to  be  sure  that  volume  dries  up  on  the
pullback.    It  says  that  the  sellers  are  running  out  of  energy.    The  resumption  of  the
advance should be accompanied by an increase in volume, as in the example.  The big
buyers are back in, and it looks as though they will run the stock higher.
ArmsInsider.com
TRADING WITH EQUIVOLUME
25
Ease of Movement (0.03092), Ease of Movement (0.2198)
GEOWORKS (5.125, 4.500, 4.594)
oversquare breakout
resistance
resumption
light volume pullback
0.5
0.0
-0.5
-1.0
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
2.0
1.5
1.0
0.5
29October
16
23
30
6
13
20
27
November
4
11
December
18
26
8
22001
16
22
29
Febr
Here  is  another  example,  in  which  wee  see  a  typical  lighter  volume  pullback  before
resuming the advance.
Ease of Movement (1.349), Ease of Movement (3.249)
INTL RECTIFIER (47.63, 42.63, 47.13)
power box
resumption
23
30
6November
13
20
27
4
11
18
26
December
22001
8
16
22
29
Febru
pullback
3.53.02.52.01.51.00.50.0-0.5-1.0-1.5-2.0-2.5-3.0
5453525150494847464544434241403938373635343332313029282726
ArmsInsider.com
26
TRADING WITH EQUIVOLUME
WHEN TO SELL
Before ever buying a stock it is desirable to decide where to get out.  There should be
two  events  in  mind,  the  selling  to  take  a  profit  and  the  selling  to  correct  a  mistake.
Then,  as  time  goes  by  and  the  position  starts  to  move,  it  is  necessary  to  continually
reevaluate those decisions, and adjust them.  Each position should be revisited at least
daily; to be sure the situation has not changed.  
Lets first look at when to get out if we are wrong; and being wrong on many positions
is inevitable.  The best looking situations sometimes don’t work out.  But staying with a
bad position can be disastrous.  As soon as it looks as though the stock is not going to
act  as  expected  the  position  should  be  closed  out.    That  means  either  having  a  stoporder  entered  that  will  take  out  the  position  automatically,  or  having  the  discipline  to
admit a mistake.  On the website, buy recommendations are accompanied by a suggest-
ed level for a stop order.
Ease of Movement (-0.1129), Ease of Movement (-0.00775)
ALTERA (28.88, 29.75, 26.88, 29.13)
A
C
washout
B
0.5
0.0
-0.5
70
65
60
55
50
45
40
35
30
25
20
3July
10
17
24
31
7
14
21
August
11
5September
18
25
2October
9
1
6
23
30
6November
13
20
27
On the stock pictured above it looked as though it was a very promising buy.  After a
long decline there was a heavy volume washout, with an oversquare entry.  After somebase  building  there  was  a  sign  of  strength  at  “A”  that  looked  like  a  time  to  buy.    The
pullback to “b” was on lighter volume, suggesting the position was valid.  But then the
next rally was bothersome. It lacked volume, and could not penetrate the earlier high.
At “C” volume became very large as it dropped. This was unexpected, and suggested
ArmsInsider.com
TRADING WITH EQUIVOLUME
27
the stock was not acting right.  A nimble trader might have thrown in the towel there.
If not, there should have been a stop order below the prior low at “B”.  It would have
been executed a few days later.  Either way, the stock had told us that it was not acting
as expected.  That, rather than a percentage rule, should be the criterion for covering a
position.    In  fact,  not  just  in  taking  a  loss,  but  also  in  any  covering  of  a  position,  it
should be based upon the observation that the move is no longer acting well.  After a
stock has moved up, and is showing a profit, it is still suggested that a stop be used as a
discipline for getting out if the stock starts to do the unexpected.  We saw in the section
on tops that a clue to the end of a move is an oversquare day.  That could be considered
to  be  another  case  of  “not  acting  right”.    Later  we  will  look  at  some  other  technical
analysis tools, such as gaps, support and resistance levels, flags, pennants, etc.  Each of
these  tools  is  designed  to  help  us  to  see  what  is  likely  and  normal  in  a  stock’s  move-ment.  They will help us to know when a stock is acting “wrong” and should be sold.
Even the work on objectives is meant to alert us to the unexpected.  If a stock acts as we
expect, we should stay with the position, but as soon as it acts wrong, it should be gone.
On the chart below we have a good example of the many features we have been talking
about.  Notice, though, how it acts after the strong advance out of the base.  It looks as
though it has penetrated another resistance area and is likely to move higher.  But then
it  backs  off  with  a  somewhat  square  entry  that  is  worrisome.    The  next  day  it  tries  to
resume the advance, but is unable to, even though volume is immense.  The result is a
very square Equivolume entry.  It is clear that something is changing.  The unexpected
has come to our attention.  It appears to be time to get out.  Besides, the width of the
advance is just about the same as the width of the base, so our objective has been satis-
fied.
ArmsInsider.com
28
TRADING WITH EQUIVOLUME
Ease of Movement (0.8845), Ease of Movement (2.057)
KENT ELECTRONICS (21.63, 21.06, 21.63)
continuation
square
breakout
resistance
6
13
20
27
4
11
18
26
November
December
8