Volume on breakout

In some trading books and articles you can read that a high trading volume on a breakout of a trendline increases the odds. In other words, the high volume confirms the set-up. But is it really true?

I decided to test the double bottom chart pattern for three cases: (i) no requirement on the breakout volume; (ii) on the breakout day the volume was greater than 1.0 times the average volume of the past 14 days; (iii) on the breakout day the volume was greater than 1.5 time the average volume of the past 14 days.

The results for the stocks from S&P 500 index appear in the table below:

No requirement Factor > 1.0 Factor > 1.5
Profit factor 1.62 1.56 1.37
Max. drawdown -6.93% -5.67% -4.10%
Number of trades 943 561 121
Percent profitable 66.60% 66.49% 66.94%
Average trade 1.64% 1.48% 1.20%
Ratio win/loss 0.81 0.78 0.65
Average time in market 33 days 33 days 33 days

The results are surprising: the high volume on the breakout day will not improve your trading. Well, the only parameter that improves is the maximum drawdown but not significantly.

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