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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Volume: Summary

This article discusses various aspects of volume, such as whether increasing volume can power a stock higher after an upward breakout or how it affects the stock after a downward breakout.

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Volume: Addendum

NOTE: An updated study that is more accurate shows that the increase in performance is meager for upward breakouts after above average breakout volume, but throwbacks, and failures increase substantially. For downward breakouts, those with lower volume outperform. Again, pullbacks and failures increase substantially after an above average breakout.

The following study I believe is flawed because it depends on chart patterns such as broadening tops and bottoms for which the breakout date can be disputed. See the other study for details.

Volume: Summary

A rising volume trend leading to the breakout from a chart pattern is better than a falling one, but probably not enough that you will see a difference in your trading results. Large breakout day volume suggests a more powerful move after the breakout, for both upward and downward breakouts, but the rate of throwbacks and pullbacks increase.

Here are the detailed findings. The important ones are in bold.

  • The difference between rising and falling volume in the 3 months before a breakout from a chart pattern means a performance difference of 2 percentage points for upward and downward breakouts. A volume pattern of falling then rising leading to an upward breakout results in the best performance. For downward breakouts, rising volume leads to under performance (a smaller drop). See Monthly Results.
  • In the three weeks before a breakout, rising volume for upward breakouts outperforms the other variations, but the difference between best and worst is just 3 percentage points. Downward breakouts show the worst performance if volume trends down then up, but the difference between best and worst is just 1 percentage point. See Weekly Results.
  • Three days before a breakout, the best performance comes from a rising then falling volume trend for upward breakouts. The results for downward breakouts are mixed. For upward breakouts, the performance difference is 2 percentage points, and for downward breakouts, it's 1 percentage point. See Daily Results.
  • Upward breakouts: Huge increases or decreases in volume over the two weeks before the breakout can lead to better post-breakout performance. See Upward Breakouts.
  • Downward breakouts: As volume decreases over the 2 weeks before the breakout, so does the potential loss. Dramatically increasing volume tends to lessen the loss, but not to a large degree. See Downward Breakouts.
  • For upward breakouts, avoid downward volume trends because they have the most failures regardless of the period measured (days, weeks, or months). The fewest failures have a rising volume trend. Selecting chart patterns with a rising volume trend over the 3 weeks leading to the breakout could cut failures by 31%, on average. See Success and Failure.
  • As breakout day volume increases, so does the percentage gain (upward breakouts) or loss (downward breakouts). See Breakout Day Volume.
  • For upward breakouts, as breakout day volume increases, the number of stocks failing to rise at least 10% after the breakout drops. For downward breakouts, failures increase as breakout day volume increases, but peaks when volume is half the prior week's average. After that, failures decrease as breakout volume increases.Breakout Failures.
  • Throwbacks and pullbacks occur more frequently after above average volume breakouts. See Throwbacks and Pullbacks.
  • For upward breakouts, throwbacks occur 74% of the time if the breakout is on above average volume. For downward breakouts, the pullback rate is 68%. See Trading Tactics.
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Volume: Background

I read in an article that higher volume is good for a stock. No justification was given, no research analysis provided. Was this just a writer's opinion based on something he read somewhere? He was not the first to state it as fact, but if it was true, then it could help my trading, so I decided to take a look.

This is not my first excursion into volume analysis. I discovered volume shapes and explored volume trends, and breakout day volume.

Volume: Methodology

Picture of Gap (GES) on the daily scale.

I used several databases of known good chart patterns. That means, I cataloged each chart pattern and measured its performance. I found 15,444 chart patterns on the daily charts in 1,093 stocks. The earliest pattern started in July 2, 1991 (but included at least 3 months of data before the start date) and the data ended on March 16, 2010.

Each chart pattern has a breakout -- a buy signal -- if you will. Often it's when price exits an area of consolidation. The figure on the right shows a breakout from an ascending triangle chart pattern. When price closes above the top of the pattern, it stages a breakout and confirms a buy signal.

I measured volume preceding the breakout using several time periods.

  • 3 trading days immediately before the breakout;
  • 3 weeks before the breakout, and
  • 3 months before the breakout.

I show the daily measure as D on the chart, weekly as W, and monthly as M. All of the locations are approximate. All measures stop the day before the breakout. The daily measure uses end-of-day data, the weekly uses an average for the week, and the monthly measure uses an average for the month. I used an average to smooth out those weeks and months not having the same number of days, caused by holidays or periods in which the markets were closed (9/11 comes to mind).

Using three periods gives two up or down measures. For example, if volume is 400, 700, and 500 shares for the three weeks preceding the breakout, the trend is up for the 400 to 700 share weeks and down when it drops from 700 to 500. When I refer to Up Up, it means the difference between the two oldest weeks followed by the two most recent weeks.

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I used the following chart patterns in the test (32 varieties).

  • Broadening tops and bottoms
  • Right-angled ascending and descending broadening tops
  • Ascending and descending broadening wedges
  • Bump and run reversal, tops and bottoms
  • Cup with handle
  • Diamond tops and bottoms
  • Double tops and bottoms (all varieties of Adam and Eve)
  • Rising and falling wedges
  • Head-and-shoulders tops and bottom, both simple and complex
  • Rectangle tops and bottoms
  • Ascending, descending and symmetrical triangles, and
  • Triple tops and bottoms

For all tests, I measured the rise or fall from the closing price the day before the breakout to the ultimate high or ultimate low. The ultimate high is for upward breakouts, and it is the highest peak before price drops at least 20%. The 20% value is arbitrary, but is commonly used to determine bull or bear markets. It represents a trend change. The ultimate low is the lowest valley before price climbs by at least 20%. The trades using the ultimate high or ultimate low should be considered perfect trades, unlikely to be duplicated on a consistent basis. Nevertheless, they do provide a consistent standard of measure over something like a stop loss exit or moving average crossover. In those situations, you're testing the exit mechanism and not the stock's best performance.

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Volume: Monthly Results

As I mentioned, I looked at average volume for each month preceding the breakout from chart patterns.

Breakout
Direction
3=>2
Down
2=>1
Down
3=>2
Down
2=>1
Up
3=>2
Up
2=>1
Up
3=>2
Up
2=>1
Down
Up
Samples
32%
2,090
34%
2,306
32%
1,320
32%
2,942
Down
Samples
20%
1,833
20%
1,679
18%
854
20%
2,371

The heading 3=>2 means the trend between month 3 compared to month 2 (2 being closer to the breakout than 3) and 2=>1 is the same only it applies to months 2 and 1, respectively. Month 1 ends the day before the breakout.

The results are easy to understand. The best performance (34%) after an upward breakout comes when the average volume drops from months 3 to 2 and rises from months 2 to 1. The worst performance (32%) is everything else. Now look at the percentages. The difference between the best performer, 34%, and the worst, 32%, is tiny.

The number below the percentage is the number of chart patterns found (samples) in the test.

For downward breakouts, a rising volume trend over 3 months means the stock won't drop as far, 18% versus 20% for everything else.

In this test, I consider the results to be a tie. In other words, a 2 percentage point difference doesn't mean much.

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Volume: Weekly Results

Below are the results for the three weeks before the breakout. Week 1 ends the day before the breakout.

Breakout
Direction
3=>2
Down
2=>1
Down
3=>2
Down
2=>1
Up
3=>2
Up
2=>1
Up
3=>2
Up
2=>1
Down
Up
Samples
31%
1,775
33%
2,902
34%
1,505
33%
2,498
Down
Samples
20%
1,545
19%
2,191
20%
1,068
20%
1,960

The best performing is 34% when volume trends upward in the three weeks before the breakout. The worst performance comes when volume trends downward over the three weeks, with a gain of 31%. Here the difference between best and worst is wider: three percentage points.

For downward breakouts, the best performing (largest decline) is a drop of 20% (three categories tie) and the worst is down and up (meaning volume trends downward from week 3 to 2 and upward after that), for an average drop of 19%. The difference between best and worst is just one percentage point.

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Volume: Daily Results

Below are the daily results. The measures do not use averages (as was used for the weekly and monthly results, above), but the actual volume in the three days before the breakout.

Breakout
Direction
3=>2
Down
2=>1
Down
3=>2
Down
2=>1
Up
3=>2
Up
2=>1
Up
3=>2
Up
2=>1
Down
Up
Samples
32%
1,393
32%
2,859
33%
1,898
34%
2,530
Down
Samples
20%
1,159
20%
2,305
19%
1,370
19%
1,930

The performance difference between best (34%) and worst (32%) is another big yawn. The best performance comes when price trends upward then downward over the three days before an upward breakout. For downward breakouts, the results are mixed. The common elements are a lower volume between days 3 and 2 results in slightly better post-breakout performance. A rising volume over the same period hurts performance. The performance difference between best and worst is just one percentage point for downward breakouts.

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Volume: Quick Reference...

More Volume Results

Just saying that increasing volume leading to a breakout results in better performance does not tell the full story. For all measures discussed so far, the maximum performance difference is just 3 percentage points -- hardly the stuff that movies are made of.

Let's look at volume using a percentage change. That's what I tackle next.

Volume: Upward Breakouts

In this test, I used the average weekly volume for the two weeks before an upward breakout and computed the percentage change between those two. The left table shows decreases in volume and the right table shows increases. Failures are a count of how often price rises by less than 10% after the breakout. Sample counts less than 30 may lead to inaccurate results.

Volume Change
From To
GainSamplesFailuresSamples
-100%-90%66%40%0
-90%-80%48%160%0
-80%-70%38%6913%9
-70%-60%22%12724%31
-60%-50%40%26512%32
-50%-40%35%46816%74
-40%-30%34%66319%126
-30%-20%31%82621%176
-20%-10%32%93021%195
-10%0%28%90522%198

Volume Change
From To
GainSamplesFailuresSamples
0%25%31%179418%328
25%50%32%99919%189
50%75%41%54915%81
75%100%34%33716%55
100%125%38%22711%26
125%150%34%14117%24
150%175%31%7011%8
175%200%56%7612%9
200%225%31%3716%6
225%250%42%333%1
250%275%42%375%2
275%300%42%234%1
300%5000%42%8411%9

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For example, using the table on the left, if the average volume decreases between 90% and 100%, the four stocks fitting that category gained an average of 66% with no failures. Another example from lower in the table: -40% to -30%. If volume drops between 30% and 40%, the 663 stocks in that category gained an average of 34% with 19% of them failing to rise at least 10%.

Here's an example from the right table (100% to 125% -- notice the change in scale). The 227 samples falling between 100% and 125% of the prior week's volume gained an average of 38% with 11% of them failing to rise at least 10% after the breakout.

Picture of a the volume changes.

The figure on the right shows the stocks's average gain (upward breakouts, black line) or loss (downward breakouts, pink line) as volume changes. For upward breakouts, the chart presents visually the "Gain" columns from the above two tables.

The trend is easiest to see in the black line. As volume changes (horizontal axis) from a decrease of between 90% and 100% to between 10% and 0%, the gain (vertical axis) drops from 66% to 28%.

Put another way, large decreases in volume from two weeks before the breakout to one week before result in large average gains after the breakout. Generally, the larger the volume decrease, the larger the gain.

For increasing volume, which appears as the black line moves from 0% to higher volume, the gain tends to increase as volume increases. The change is not as dramatic as it is for decreasing volume.

The results show that dramatic increases or decreases in volume over the two weeks before the breakout can lead to better post-breakout performance.

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Volume: Downward Breakouts

This test shows the results when volume changes for downward breakouts. The table on the left shows decreasing volume and the table on the right shows increasing volume.

Volume Change
From To
LossSamplesFailuresSamples
-100%-90%4%475%3
-90%-80%15%2330%7
-80%-70%19%5721%12
-70%-60%15%12329%36
-60%-50%20%22828%64
-50%-40%19%35727%96
-40%-30%21%51327%138
-30%-20%20%71329%209
-20%-10%18%76129%224
-10%0%22%72630%221

Volume Change
From To
LossSamplesFailuresSamples
0%25%20%137129%393
25%50%18%78328%217
50%75%19%41227%112
75%100%21%22928%64
100%125%19%15428%43
125%150%20%8328%23
150%175%13%5732%18
175%200%20%4819%9
200%225%18%2339%9
225%250%15%1729%5
250%275%24%138%1
275%300%15%1050%5
300%5000%17%5924%14

For example, using the left table, for those stocks showing a decrease in volume of between 90% and 80% during the 2 weeks before the breakout, the average loss was 15% in 23 samples with 30% of them failing to decline at least 10%.

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From the right table, when volume increased between 25% and 50% over the prior week (week 1 versus week 2), the 783 samples lost an average of 18% with 28% of them failing to drop at least 10%.

Picture of a the volume changes.

The chart shows the relationship between volume changes in a manner that's easy to understand. It's the same chart as for upward breakouts. The pink line (Losses) is for downward breakouts.

The pink line shows an upward trend in stock losses as the change in volume moves from a large drop (-100%) to a smaller one. In other words, the line begins at a 4% loss for those stocks seeing volume drop between 90% and 100%. The middle of the line (0% volume increase) shows a 22% average loss from stocks having almost no volume change from week to week. As the chart shows, the loss holds steady between 15% and 22% over most of its length.

Based on the chart, one can conclude that as volume decreases over the 2 weeks before the breakout, so does the potential loss.

For increasing volume trends from week to week (volume over 0%), the average loss drops, too. That is, the pink line slopes downward. It starts at 20% for volume changes of 0% to 25% and then eases lower to 17% for huge volume changes (300% to 5,000%).

If you exclude samples below 30, then the average loss hovers hear 20%. Dramatically increasing volume tends to lessen the loss, but not to a large degree.

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Volume: Success and Failure

What can we discover about success and failure rates? Failure is just another way of asking about minimum price moves that chart patterns make. If a stock rises just 5% after the breakout, can you make money trading that? Probably not when you factor in slippage, SEC fees, and commissions, added to a perfect trade to capture that 5%. Is the break even point 10%? Let's say that it is. Price has to climb at least 10% after the breakout or I consider it a failure.

On the winning side, how much would you like to make, as a minimum, to consider it a boffo trade? Let's say 25%. If a stock climbs by 25% or more then it's a winner.

Can the volume trend before the breakout decide winners and failures? Let's find out.

Breakout Direction
and Duration
3=>2
Down
Fail
2=>1
Down
Win
 3=>2
Down
Fail
2=>1
Up
Win
 3=>2
Up
Fail
2=>1
Up
Win
 3=>2
Up
Fail
2=>1
Down
Win
Up: 3 Days20%51% 18%53% 17%53% 18%53%
Up: 3 Weeks21%51% 17%54% 16%54% 19%52%
Up: 3 Months20%50% 16%55% 16%53% 20%52%
Down: 3 Days28%29% 28%29% 28%30% 30%29%
Down: 3 Weeks30%29% 29%29% 26%30% 28%29%
Down: 3 Months26%29% 29%28% 30%28% 29%30%

I separated the above table into upward breakouts (Up:) and downward breakouts (Down:). Within each pair of boxes is a count of failures and winners, expressed as a percentage of those qualifying for the up or down volume trend combination.

For example, using the 3 days before an upward breakout to determine a Down Down volume pattern, I found that 274 out of 1,393 samples (20%) failed to show post-breakout rises of at least 10%. However, over half -- 51% -- showed gains over 25%. Here's another example, using the next pair of boxes. For upward breakouts, 18% failed to climb at least 10% and 53% climbed at least 25% after the breakout when the three days volume trend went from down to up.

For downward breakouts, read the table in a similar way. For example, using the Day row for downward breakouts: 28% failed to drop at least 10% and 29% dropped more than 25%.

What can we conclude from the numbers? For upward breakouts, avoid downward volume trends (Down Down). Those have the most failures regardless of the period measured (days, weeks, or months). The fewest failures have a rising volume trend (Up Up). The difference between the highest failure rate, 21%, and the lowest, 16%, is large enough that it caught my attention. The difference between the two is 31%. If you select chart patterns with a rising volume trend over the 3 weeks before the breakout, on average, you will have 31% fewer losers than if you select stocks on the weekly measure with a falling (Down Down) volume trend. That's a significant finding.

Winners come from a rising volume trend: See Down Up and Up Up. Those two pairs of columns have the higher percentage winners, but it's just a 4 percentage point difference between the best (54%) and the worst (50%).

For downward breakouts, most failures occur when volume trends from up to down, but the numbers are close enough that it does not make much difference (30% versus 28% and 29%). For winners, a rising volume trend (Up Up) works well with two of three measures reporting loss counts averaging 30%. That means 30% of the samples I looked at declined at least 25%.

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Breakout Day Volume

I compared breakout day volume to its average, then mapped the corresponding rise to the ultimate high or the drop to the ultimate low.

The average volume uses the 5-trading days leading to, but not including, the day of breakout. In the case of a holiday or market closure, fewer days were included. Values less than 100% mean the breakout day's volume was less than the week's average. The following table shows the results for upward (left table) and downward (right) breakouts.

Up Breakouts: Breakout Day Volume vs Average Volume
Up BkoutsGainSamplesThrowsThrow %Failures
0%10%36%12433%25%
10%20%34%382053%29%
20%30%24%562748%21%
30%40%28%1156254%23%
40%50%28%1487047%19%
50%60%31%25413453%24%
60%70%31%33718856%22%
70%80%30%42124257%24%
80%90%28%45324554%23%
90%100%27%57031455%23%
Up BkoutsGainSamplesThrowsThrow %Failures
100%150%31%2413142059%21%
150%200%34%147386259%17%
200%250%34%83350461%15%
250%300%40%51130760%14%
300%350%40%28216659%11%
350%400%42%20612058%7%
400%450%34%1678752%8%
450%500%40%1226049%6%
500%550%37%784862%8%
550%600%42%723954%10%
600%650%59%452044%7%
650%700%40%401845%8%
Up BkoutsGainSamplesThrowsThrow %Failures
Down Breakouts: Breakout Day Volume vs Average Volume
Down BkoutsLossSamplesPullsPull %Failures
0%10%17%13538%15%
10%20%19%422560%24%
20%30%17%662436%27%
30%40%21%1257056%29%
40%50%22%1649759%40%
50%60%16%25115361%41%
60%70%17%34318654%31%
70%80%18%37821557%35%
80%90%20%41525762%31%
90%100%17%41827466%35%
Down BkoutsLossSamplesPullsPull %Failures
100%150%19%1807111161%30%
150%200%21%108065060%28%
200%250%21%59137563%27%
250%300%20%32219962%20%
300%350%23%20411456%18%
350%400%21%1227965%18%
400%450%25%804759%9%
450%500%23%744257%18%
500%550%21%552953%16%
550%600%26%442761%14%
600%650%23%442045%4%
650%700%24%231461%4%
Down BkoutsLossSamplesPullsPull %Failures
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Yes, the table is huge and I apologize for that, but the numbers are important. In a moment, I'll show you charts of the results.

Let's take a few examples to make the numbers clear, beginning with the left table. When volume on the day of an upward breakout increased between 650% and 700% (bottom of the left table) over the 5-day average, the 40 chart patterns showed gains to the ultimate high averaging 40%. There were 18 throwbacks (Throws) that occurred, representing 45% of possible candidates. Eight percent of the chart patterns had prices that failed to rise at least 10% after the breakout.

Here's another example from the 90% to 100% row. When breakout volume was between 90% and 100% of the 5-day average, the stock gained 27% with 55% throwing back and 23% failing to make a 10% rise. Rows from 0% to 100% show breakout volume less than or equal to the 5-day average. For all rows after 100%, breakout day volume is higher than the average.

The right table reads the same way. Breakout day volume below 100% is less than the average. Pulls are pullbacks. Results for samples below 30 should be considered unreliable.

Picture of a  volume versus gain or loss.

What does it all mean? The above figure tells the story. The black line represents upward breakouts. As breakout day volume begins well below average, the gain drops but turns upward at the 20% volume mark (horizontal axis). It rises in an arc, approaching the vertical red line. That line separates below average from above average volume. As breakout day volume increases, so does the percentage gain (left scale).

Downward breakouts use the right scale and those numbers represent losses. When breakout volume hits 50% of the average (pink line), it marks the low point. From there, the average loss increases from about 16% to as high as 26%. The results are similar to upward breakouts: As breakout volume increases, the post-breakout decline also increases.

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Volume: Breakout Failures

Picture of failure rates.

Above is a chart of failure rates. A failure for this test occurs when the stock fails to rise at least 10% after the breakout before suffering a trend change or dropping below the bottom of the chart pattern (above it for downward breakouts).

I took the numbers in the Failures column from the above tables and graphed them. The black line is for upward breakouts, and it shows that as breakout day volume increases, the number of stocks failing to rise at least 10% after the breakout -- drops. The line starts at 25% and finishes at 8%.

The pink line is for downward breakouts. Failures increase as volume increases, but peaks when breakout volume is half the average volume. After that, failures decrease as breakout day volume increases.

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Volume: Throwbacks and Pullbacks

Picture of failure rates.

Throwbacks occur after upward breakouts and pullbacks after downward ones. Read the associated links for more information.

I counted the number of throwbacks and pullbacks that occurred in all chart patterns in this test and found that throwbacks happened 57.0% of the time and pullbacks occurred 59.7% of the time.

The chart shows the throwback and pullback rates listed in the above tables for which there were at least 30 samples (but downward breakouts include a few low sample counts so that the same number of points appear).

Looking at the black line, more points appear above 57% to the right of the red line than to the left. That means throwbacks occur more often after above average breakout volume than below average. The table shows the count at 7 to 1 for above and below average volume, respectively.

For downward breakouts, the count is 7 to 3 with above average volume leading. The comparison is somewhat unfair since there are more points to the right of the red line than on the left. Nevertheless, the lopsided counts suggest that throwbacks and pullbacks occur more frequently after above average volume breakouts. To flip that around, throwbacks and pullbacks occur less often after a below average volume breakout.

A check of the spreadsheet confirms the findings. Throwbacks that occur after an above average volume breakout total 3,749 compared to just 1,306 throwbacks for below average breakout day volume. Pullback totals show the same trend: 2,803 to 1,308 for above and below average breakout day volume, respectively.

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Volume: Trading Tactics

Based on the results from the Success and Failure section, here's how to cut your losses from trading chart patterns by 30%.

Assume that tomorrow is the breakout day. Total the volume over the last 5 trading days (1 week) and compare that to the total of the 5 trading days before that. If the most recent 5 days has a lower volume than the prior 5, then do not buy the stock if it should breakout tomorrow. This is a week to week comparison since the most recent week's volume trend is more important than prior weeks and prior days. It's where you get the most "bang for the buck."

I looked at the percentage change of those with volume trending down into the breakout and found that volume decreased by an average of 20% and a median of 17% over the prior week. Stocks falling into that category had the highest failure rates (21%). Those with volume trending up leading to the breakout saw volume climb by an average of 49% and a median of 24% above the prior week.

If you compute the 5-day average for your two week's worth of volume and calculate the percentage change, consider avoiding trading the stock if volume rises less than 49%.

For breakout day volume, higher is better because above average breakout day volume suggests better post breakout performance with fewer failures. To make use of this finding, compare the breakout day's volume to the average of the 5 trading days before the breakout. If breakout day volume is above average, then you're set. This applies to both upward and downward breakouts.

If breakout day volume is above the 5-day average, then expect a throwback or pullback. For upward breakouts, throwbacks occur 74% of the time if the breakout happens with above average volume. For downward breakouts, the pullback rate is 68%. Thus, you can wait for a throwback to complete and then jump into a stock when it begins recovering. That lowers your risk of failure in case the stock continues dropping during a throwback.

-- Thomas Bulkowski

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See Also

  • Performance Does a rising volume trend within the chart pattern result in the best performance?
  • Volume shape What is the best performing volume shape?
  • Breakout volume. Does heavy breakout day volume mean better performance?
  • Volume shapes. Which chart patterns have what volume shape?
  • Volume trends. Which chart patterns show improving performance depending on volume's trend?
  • Breakout day volume. Shows a list of chart patterns sorted by breakout volume type. A must read! Tell your friends!

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