Top and Bottoms: Price and Volume IndicationsHi, 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.
