medium · Volume Spread Analysis effort-vs-result-spread
A professional operator observes 'Stopping Volume' on a daily chart. On the following day, the market gaps down but recovers to close on the high on low volume.
How does this 'negative response to a negative open' serve as a trigger?
- The low volume indicates that the market-makers are trapping shorts before the mark-down begins.
- It serves as a successful test of the supply introduced during the stopping volume phase.
- It confirms that the stopping volume was insufficient and more selling is coming.
- The gap-down identifies a lack of demand, suggesting the rally will be short-lived.
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