hard · Volume Spread Analysis supply-demand-smart-money
In the middle of an extended trading range, a down-bar shows a wide spread and closes near its low on volume that is only slightly above average, not exceptional. The next bar opens lower still but reverses to close strongly in the upper third of its range on volume roughly triple the prior bar's.
How should the modest volume on the first bar affect a trader's confidence in the reversal signaled by the second bar?
- It should increase confidence, because a weak first bar makes any subsequent reversal automatically more statistically reliable than usual
- It should have no bearing, since only the second bar's own volume and close determine the strength of any reversal signal here
- It should temper confidence somewhat, since without a true climactic capitulation, this may be only a routine range swing, not a real turn
- It should eliminate the reversal signal entirely, since any close near the low on less-than-record volume invalidates all later price action
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