medium · Volume Spread Analysis effort-vs-result-spread
A stock in a downtrend produces a bar that dips below the previous low and recovers to close near the high. The volume is 0.45x the 20-day average, suggesting a 'Test'. However, over the next three bars, the price drifts sideways to slightly lower.
Based on the 'Negative Response' principle, what is the most likely conclusion?
- The volume on the 'Test' bar was too low to be significant, and the market requires a high-volume 'Shake-out' to reverse the trend.
- The 'Test' was successful, but the sideways movement is actually 'No Demand' showing that the market is now overbought.
- The lack of upward response indicates that professional operators are not yet ready to support the market, and weakness remains dominant.
- The low volume on the 'Test' bar confirms that all supply has been removed, and the sideways drift is merely a final 'Shake-out' before a massive rally.
Sign up free to see the explanation and track your rank →
More Volume Spread Analysis effort-vs-result-spread practice
- During a market decline, a stock produces a down-bar on a na… — What does this 'No Selling
- Which of the following describes 'Falling Pressure'?
- A stock has been trading in a range between $40 and $45 for… — How would a practitioner ca
- An index has been rising steadily for three weeks. Today, th… — How should this activity b
- An equity is in a steady uptrend. Today, it produces an up-b… — What is the most likely pr
- What is the most likely scenario?
- A stock is rising on wide spreads and high volume. Suddenly… — What principle describes th
- An equity averages a daily volume of 1,000,000 shares. Today… — How should this volume lev