medium · Volume Spread Analysis effort-vs-result-spread
A stock attempting to break out of a consolidation zone produces an up-bar with a wide spread and high volume, closing on the high. The following bar is a down-bar with a narrow spread and volume lower than the previous two bars.
What does the second bar indicate?
- There is a lack of selling pressure, confirming the breakout is likely valid.
- This is an upthrust that traps eager buyers who chased the strength of the previous bar.
- The breakout has clearly failed, and a sharp downside reversal now looks imminent.
- The market is now quietly entering a distribution phase at these highs.
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