Top and Bottoms: Price and Volume Indications

Hi, I personally look for following scenarios while identifying potential tops and bottoms and it works most of the times.

For tops:
High volume bars with very little progress on the upside
Exceptionally wide bars with very high volume

For bottoms:
High volume bars with little progress on the downside
Exceptionally wide bars with very high volume

This might sound confusing at first instance but it’s a very simple concept. Let us understand with the help of an example.

Adani transmission had a very sharp rally of 125% for approx. four months. But let’s see how this rally ended.

Notice very high volume indicating too much effort but the day had very little progress on the upside. Have you ever thought why this is so? Obviously due to sellers. Someone is stepping on it selling huge in a euphoric rally. This weakened the stocks.

Immediately after few days of this candle the stock made new high accompanied by a Doji. This is the first day in the entire 4month rally that it had a very high volume on a red day. Remember, we already had a weakness discussed above and this one was just a timely addition to this.

The stock lost buying interest after these two events. What may happen if buyers are not interested in a stock? Selling, right? Unfortunately, the reaction was very sharp and halted near a prior resistance level 3000, which is also a 50% retracement of the 4month rally.

Notice very high volume which I have labelled as stopping volume. Wide candles and huge volume again stopped the bearish rally. I won’t buy high volume down bars unless they are tested which it did with a lesser supply. It means that most sellers are out of this stock and not much selling left (at least for now).

The stock has since been trading in a range of 300-400 points. This strength (retests and hold) discussed above may hold the stock above 3000 for a push on the upside.

Do not consider this as a tip. This is just a concept that I wanted to share. Please apply your due diligence before hitting the buy button 😉

Thanks for reading
Now you know what do..hit 🚀🚀🚀 and enjoy trading.

Comment:

Another example of a top. In order to learn you can go through charts and look for the Price-volume pattern. I am sure you would find many following similar behavior.

Comment:

This is on the right edge of the chart. Exceptional volume at the highs. To me its alarming and call for a pause or retracement. Once you know the concept, its all on your planning. Whether you plan to cut the whole trade or a piece of it or you lock your gains by trailing.
This price-volume behavior might not always play immediately. Sometimes more new highs are made above the spike but weakness takes it down sooner or later.
Besides this pattern, your decisions should depend upon your time horizon and the phase of the market.
Ex. if the trend is in mature phase then an investor may like to exit after this pattern forms. But if its coming out of a base and then we see this pattern and its not new all time highs (or mature) then investor might hold but short term traders would still like to exit or re-catch a better price.
Just a perspective. Good luck 👍