medium · Volume Spread Analysis effort-vs-result-spread
A 'two-bar reversal' at a market top shows a wide up-bar on ultra-high volume followed by a wide down-bar closing below the first bar's low.
Why is the first bar's volume interpreted as bearish?
- The immediate downward result shows that the first bar's effort contained more selling than buying.
- Two-bar reversals are only valid on weekly charts and are noise on daily charts.
- Retail traders were buying the first bar while professionals were buying the second.
- The ultra-high volume indicates that the market has run out of fuel to fall further.
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