Method workshop · Charting
Volume, Breadth and Multiple Timeframes
Three common additions to a price chart. Each answers a specific question. Each also becomes noise if you use it to answer questions it can't.
Volume: how much conviction was behind the move
Volume is the number of shares traded in a period. A price move on unusually heavy volume suggests many participants acted, often because of news. The same move on light volume tells you less.
Useful for: spotting when something really changed, such as a results day gap on very high volume.
Becomes noise when: you read every volume bar as a message. Index rebalancing days, options expiry and end-of-quarter flows create big volume with no information about the business. Small companies can show odd volume from a single large order.
Breadth: how many shares are joining in
Breadth measures how widely a market move is shared, for example how many shares in an index are rising versus falling, or how many sit above their long-term average.
Useful for: telling whether an index rise is broad or carried by a few large companies. On the ASX, a handful of banks and miners can move the index while most shares go nowhere.
Becomes noise when: used as a timing signal. Narrow markets can stay narrow for a long time. Breadth describes conditions; it doesn't date turning points.
Multiple timeframes: the same share at different zoom levels
Looking at monthly, weekly and daily charts of the same share can show a short-term fall happening inside a long-term uptrend, or the reverse.
Useful for: making sure your timeframe matches your method. A long-term investor should make decisions on weekly or monthly charts. A short-term trader may use the longer chart only for context.
Becomes noise when: you keep switching timeframes until one agrees with what you already want to do. That's confirmation bias with extra steps.
The general rule
Decide which question each tool answers before you look at it, and which timeframe your decisions are made on. Adding more indicators rarely improves a plan. It usually adds more reasons to break it.
What to do with this
Write your primary decision timeframe (daily, weekly or monthly) at the top of your trade or review plan. List at most two extra tools and the one question each is allowed to answer.