The Tycoon Report

Understanding Volume - the Key to Unlocking Profits - Part 3

In our previous articles, we have discussed normal volume, abnormal volume and volume spikes. This week we are going to discuss particular volume patterns that identify potential tops or bottoms. Volume and price patterns to look for in identifying potential tops or bottoms are:

Narrow Range Bar

A narrow ranging bar with high volume is an indication of weakness in the market trend. The reasoning is quite simple. In an uptrend, a bar with high volume should expand the range of the bar. If there is high volume, without an expansion of price, then it is a warning that there is weakness in the overall trend.

Upthrust

An upthrust is normally seen at the top of a bull market markets and, when combined with high volume, indicate a potential reversal. An upthrust occurs when, in an uptrend, there is a wide ranging bar that closes at either the middle or low of the price bar. If volume is ultra high, look for a reversal.

Buying Climax

After a substantial upward price movement (bull market move), a wide ranging bar that closes at the high (making a new high) with high volume indicates a buying climax. Remember, volume should increase at the beginning of a trend and then subsides.

Selling Climax

A wide spread down, with high volume, and the price bar closes at the high of the bar is known as a selling climax. Normally with a wide spread bar down, with sellers dominating the market, the price bar would close at the low of the price bar. When the price closes at the high of the price bar, then sellers have diminished and buyers are entering long positions.

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