hard · Volume Price Analysis Validation vs. Anomaly (Spread & Volume)
Following a prolonged downtrend, a stock prints an extremely wide-spread down candle on volume 4x the average, closing at the session low with almost no lower wick. Two days later, a narrow-spread candle forms on volume roughly half the prior climactic bar, drifting sideways just below the climax low.
How should the second candle be read against the climactic bar that preceded it?
- It validates continuation of the downtrend, since the second candle still closes beneath the climax low.
- It is a successful test confirming the climax, as shrinking volume near the low shows selling has dried up.
- It is an anomaly, because a close at the low on record volume should have produced immediate strong upside, not drift.
- It signals a fresh selling climax is forming, since price is still probing below the prior extreme.
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