medium · Volume Price Analysis testing
A range-bound stock breaks above resistance on a wide up bar with ABOVE-average volume — superficially a validated breakout. But on the breakout bar the close is in the middle of the range, and the FOLLOWING bar is a down bar that re-enters the old range on volume HIGHER than the breakout bar itself. A naive trader buys the breakout.
Using Coulling's logic on whether the breakout's demand was real, what is the best read?
- The breakout is valid — the above-average volume on the wide up bar confirms real demand entering, and the pullback into the range is just a normal, healthy retest of broken resistance
- The higher-volume down bar that reclaims the range, combined with the breakout bar's mid-range close, shows the breakout was supplied into and is a likely false break (upthrust-style trap)
- The breakout failed only because the down bar's spread happened to be wide; had the spread instead been narrow, the breakout would have been confirmed regardless of volume
- The down bar is simply a healthy, low-volume test of the recent breakout, showing sellers have stepped aside, so the move higher should comfortably resume once this brief test bar fully completes
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