medium · Volume Spread Analysis climaxes-tests-springs-upthrusts
If a market produces a 'test'—dipping down and closing on the highs on low volume—but the price fails to rise in the next 2 to 3 bars, how should this be interpreted?
- The market is quietly building a larger base ahead of a bigger rally later.
- The test was successful, so a trader should simply be patient and wait a bit longer for the mark-up to begin.
- The low volume on the test was actually a disguised sign of 'no demand' in the market.
- This is a 'negative response to a positive signal' and is itself a sign of weakness.
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