medium · Volume Spread Analysis background-trend-context
A practitioner observes an index that has been falling for several weeks. On Tuesday, a bar appears with a wide spread down and ultra-high volume, closing in the middle of its range. On Wednesday, the market produces a narrow spread up-bar on very low volume. Thursday's bar closes lower than Tuesday's low.
What does the 'negative response' on Thursday reveal about Tuesday's high volume?
- The lack of upward response and subsequent break of the low confirms that Tuesday's volume was genuine selling rather than stopping volume.
- The move on Thursday is a 'spring' designed to catch the final sellers before a major reversal.
- Tuesday's volume was a selling climax that successfully cleared all weak holders from the market.
- Wednesday's low volume on an up-bar was a sign of 'no demand', confirming that professionals were buying aggressively on Tuesday.
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