medium · Volume Spread Analysis effort-vs-result-spread
A 'Two-Bar Reversal' (Bullish) is characterized by a wide-spread down-bar on high volume followed immediately by a wide-spread up-bar on high volume that closes above the first bar's high.
Why is this considered strong?
- The bars cancel each other out, making the net volume for the two-day period zero and rendering the signal insignificant.
- It indicates a 'failed upthrust' that has now trapped all the short sellers who entered on the first bar.
- The second bar confirms that the massive volume in the first bar was actually 'hidden' professional buying rather than selling.
- The high volume on both bars creates a 'neutral zone' where the market will likely trade sideways for several weeks.
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