medium · Volume Spread Analysis effort-vs-result-spread
The broad market index produces a 'successful test' on low volume after a month-long decline. Stock X showed relative strength during the decline but currently shows an up-bar with ultra-high volume and a very narrow spread.
Should the trader initiate a long position?
- Yes, because the index's successful test confirms the start of a market-wide mark-up phase.
- No, because the narrow spread on ultra-high volume indicates professional selling (supply) entering the stock.
- No, because relative strength is only valid if the individual stock also performs a test at the same time as the index.
- Yes, because the ultra-high volume represents 'effort to rise' which will eventually lead to a breakout.
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