medium · Volume Spread Analysis effort-vs-result-spread
After a 'Selling Climax', a stock trades sideways. It produces a 'Test' bar that closes on its high with very low volume. The next bar is a wide-spread down-bar that closes below the 'Test' low on high volume.
What does this 'Negative Response' indicate?
- The 'Test' was actually 'No Supply', which means the down-bar is irrelevant noise.
- The 'Test' failed, revealing that supply is still swamping the market and the 'Selling Climax' lows may be breached.
- This is a 'Shake-out' after a 'Test', which is common before a major mark-up.
- The high volume on the down-bar is 'Absorption Volume', meaning professionals are buying the failure.
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