easy · Volume Spread Analysis effort-vs-result-spread
An index has been rising, but today the news is fantastic and the market gaps up at the open to a new high. During the day, the price range is small, volume is ultra-high, and it closes near the low of the gap.
How should a trader interpret this for risk management?
- The gap-up is irrelevant as long as the trend lines are not broken.
- This is a 'Strong Gap-up' showing that the market-makers are bullish and expect much higher prices.
- The ultra-high volume confirms 'Absorption' of sellers and is a strong buy signal.
- This is a 'Weak Gap-up' and a trap; professional operators are distributing into the retail buying frenzy.
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