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Hello guys,
I have a litte trouble understanding volume demand bars after a selloff. I have attached a chart from yesterdays action. The rectangle box shows couple sell volume spikes.
My questions is this: How do you watch for demand bars after that spike? In the first rectangle the volume spike is created by a doji. The next price bar closes above the high of the doji... this occurs on lower volume. How do you intrepret this? To me it seems like supply is cut off but price continues to drop.
The same thing occurs in the second rectangle box. Volume spike is created on a down bar but the next bar closes above the low of the previous bar.
Any advice would be appreciated. Thanks |
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Soul,
A couple things to think about. First at the time of the volume spike what was the trend? This is very important. If the trend was up then what we would be looking for is different than if the trend was down.
Next, are we around a known support/resistance area. These areas are usually respected by Smart Money. If we are and the trend is down, then we would expect to see demand enter the market, but not necessarily a change in trend.
After the large volume spike that closes on or near its high, we know that there must of been some Professional buying going on. Price does indeed move up. But as the trend is down we might expect to see a narrow range bar with volume less than the previous two that closes up from the previous bar, with the next bar down-No Demand.
Once you see the spike bar, You begin to look for either No Demand , No Supply, Tests , or Up Thrusts.