Thereafter, price reverses at 1966, though there’s no way of knowing that it will, and volume does not provide a clue until price hits this level a second time, after lunch. Whether one closes his short and goes long here depends on how confident he is that support is to be found in this area. But the point of this is not to find trading opportunities per se; it is rather to gauge the relative strength of bulls and bears. So far, the bulls are in control as shown by the higher lows.
Price thereafter makes a higher high, again “overbought”, followed by a higher low. If one is going to trade this, volume does provide clues at turning points, but a central and perhaps more important concern is just how far bulls can push price. If it cannot reach the previous day’s midpoint, this suggests weakness. On the other hand, if it can get past the midpoint, this suggests strength, either of which carries implications for the following day’s trading. This second higher high at 1400 does push past the midpoint, suggesting strength. And it appears to make a higher low a half hour later.
However, price now drops below the demand line and is unable to push back through it for more than a couple of points for more than a few minutes. This represents a
change in the dynamic between bulls and bears which, again, is the point of plotting these lines and monitoring the relationship of price to them and to the support represented by the previous day’s low and the resistance represented by the midpoint of the previous day’s downmove. Again, one can trade this and, yes, one can make money with it. But, according to Wyckoff, the likelihood of doing so is enhanced by being sensitive to this push and pull between demand and supply and being able to place all of it in the right context. Otherwise, one is more likely to be making random trades, i.e., gambling.
Here, again, the supply line is drawn first, then a parallel line is plotted underneath to track demand.