medium · Volume Spread Analysis supply-demand-smart-money
A stock produces a wide-spread down-bar on high volume, closing on the low. Two bars later, the price recovers to the high of that down-bar on very low volume.
What does this 'effort versus result' scenario reveal?
- The low-volume recovery is a successful test of the down-bar's supply, signaling an imminent reversal to the upside.
- The recovery on low volume is 'no demand,' indicating that the previous selling effort was genuine and the trend remains bearish.
- The sequence is a shake-out, as the low volume on the recovery shows that professional buying has completely removed the supply.
- The high-volume down-bar was absorption volume, and the low volume on the recovery shows that all sellers are exhausted.
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