medium · Volume Spread Analysis effort-vs-result-spread
A stock produces a wide-spread up-bar on volume that is 4.0 times the recent average, closing near the high. The very next bar is a wide-spread down-bar that closes below the low of the first bar.
How should this two-bar reversal be interpreted?
- This is a 'no demand' sequence indicating that the market is at equilibrium and unlikely to move.
- The ultra-high volume on the first bar was 'hidden selling' by professionals distributing into retail demand.
- The first bar represents a successful 'sign of strength' and the second bar is a 'shake-out' before a rally.
- The second bar is a 'test' of the first bar's high-volume activity.
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