Ask Colin

How is the horizontal axis scale for volume determined for an equivolume chart?

Hand drawn charts

Richard Arms Jr., who invented the method, described the method for determining the scale on hand-drawn charts this way: A more precise way of arriving at a volume scale entails the averaging of volume for a reasonable period preceding the beginning of the chart and using two thirds of that number as the scale. We found that in the 30 days of trading preceding the period on Table 2-1, the stock averaged almost 150,000 shares of trading per day. Two thirds of 150,000 being 100,000, we used 100,000 shares as our volume increment. This means that we plotted our chart by assigning one column on the chart to every 100,000 shares or any part thereof.

Clearly, this is precise, yet not very precise at all. This is because a day of exactly 100,000 shares would be one column wide on the grid paper, but so would a day of only 50,000 shares and a day of 100,100 shares would be two columns wide. So, what he is saying is that, in the example he gave, any volume up to 100,000 shares is one column wide, any volume from 100,001 to 200,000 shares is two columns and so on. This is totally clear from his ongoing explanation of the example after the above quotation.

Clearly, the method described saves an enormous amount of time, compared to anything more precise.

Computer drawn charts

While the above sort of rule is necessary in practice to draw charts by hand, the computer allows us to draw the chart afresh in a micro-second. So, we do not have to make these compromises. However, unless you force the scale manually, most charting software will maximise the boxes so that their total volume is exactly the width of the chart. If you only have two boxes, they will be the full width of the chart, but so will the chart of the exact same stock if you have 100 days of data. Accordingly, care needs to be taken that the computer is not distorting the chart by trying to fit too much or too little data to the screen in a particular case. Getting it right involves a level of developed judgement and experience.

What most charting software will do is take the data you ask it to chart, sum the volume for all the data and then calculate the scale for the horizontal axis. It will thus be different for each stock and for each sample of data for any stock.

Keyword: