medium · Volume Spread Analysis background-trend-context
A stock has been moving sideways in a range for several weeks. Bar 1 is a down-bar that probes below the prior three lows but recovers to close near its high on volume lower than the previous two bars. Bar 2 is a narrow-spread up-bar on even lower volume.
What should the trader do next?
- Short the market immediately, since Bar 2 is read as a clear sign of weakness.
- Place a buy-stop order right at the high printed by Bar 1.
- Wait for a wide-spread up-bar on increased volume to confirm strength.
- Buy immediately on the closing price of Bar 1 without further confirmation.
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