Example 1: No Demand Bar
Scenario: A stock’s price is rising, but the volume is decreasing.
Interpretation: This suggests that there is a lack of buying interest from professional traders. The low volume indicates that the price rise is not supported by strong demand.
Prediction: The price is likely to reverse or consolidate soon because the upward movement lacks the support of significant buying pressure.
Example 2: No Supply Bar
Scenario: A stock’s price is falling, but the volume is low.
Interpretation: This indicates a lack of selling pressure from professional traders. The low volume suggests that the price drop is not driven by strong selling.
Prediction: The price is likely to stabilize or rebound because the downward movement is not supported by significant selling pressure.
Example 3: Stopping Volume
Scenario: A stock’s price has been falling, but suddenly there is a high volume bar with a narrow spread.
Interpretation: This suggests that professional traders are stepping in to buy the stock, absorbing the selling pressure. The high volume with a narrow spread indicates that the selling is being met with strong buying.
Prediction: The price is likely to stop falling and may start to rise as the selling pressure has been absorbed by professional traders.
Example 4: Effort vs. Result
Scenario: A stock’s price rises significantly on high volume, but the next day, the price barely moves despite high volume.
Interpretation: This indicates that the high volume did not result in a significant price movement, suggesting that professional traders might be distributing (selling) their positions.
Prediction: The price is likely to face resistance and may start to decline as the distribution phase completes.
Example 5: Climactic Action
Scenario: A stock’s price has been rising steadily, but suddenly there is a very high volume bar with a wide spread.
Interpretation: This could indicate a “climactic top,” where professional traders are selling into the buying frenzy. The high volume and wide spread suggest that the market is reaching an exhaustion point.
Prediction: The price is likely to reverse or enter a consolidation phase as the buying pressure diminishes.
Example 6: Test for Supply
Scenario: After a period of rising prices, a stock experiences a low volume down bar.
Interpretation: This is a “test for supply,” where professional traders are checking if there is any significant selling pressure left in the market. The low volume indicates that there is little selling pressure.
Prediction: If the next bar is an up bar, it confirms that the selling pressure is low, and the price is likely to continue rising.
Example 7: Shakeout
Scenario: A stock’s price suddenly drops sharply on high volume but quickly recovers.
Interpretation: This could be a “shakeout,” where professional traders are driving the price down to trigger stop-loss orders and accumulate shares at a lower price. The quick recovery indicates strong buying interest.
Prediction: The price is likely to rise as the shakeout has cleared out weak hands and allowed professional traders to accumulate shares.
Example 8: Absorption Volume
Scenario: A stock’s price is moving sideways with high volume.
Interpretation: This suggests “absorption volume,” where professional traders are absorbing the selling pressure without letting the price fall. The high volume indicates strong buying interest.
Prediction: The price is likely to break out to the upside once the selling pressure is fully absorbed.
Example 9: Hidden Buying
Scenario: A stock’s price is falling, but there are occasional high volume bars with narrow spreads.
Interpretation: This indicates “hidden buying,” where professional traders are quietly accumulating shares without causing a significant price increase. The narrow spreads suggest that the buying is being done carefully.
Prediction: The price is likely to stabilize and eventually rise as the accumulation phase completes.
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