Exhaustion Moves and Volume
A decline in vertical volumes can provide valuable insights into one side’s lack of interest at current price levels. For example:
- after a price increase, lower volumes on a bullish candle may indicate that buyers are unwilling to pay a higher price for the stock;
- a decrease in volume on a bearish candle after a downtrend could indicate that selling pressure is fading.
For a more detailed explanation of how volume indicators interact with price movements, check out the article: VSA Signals – “No Demand” and “No Supply”.
Examples: A drop in AAPL’s trading volume (5) at the end of October 2024 indicates weak demand around the $233 level. The subsequent price decline, accompanied by rising volume, confirms this interpretation.
A decrease in AAPL’s trading volume (6) in early November 2024, following several days of price decline, suggests weakening selling pressure near the $222 level. The subsequent price rebound, supported by higher volume, reinforces this view.
Bullish and Bearish Signs
Let’s have a look at how the vertical volume indicator behaves during a price uptrend (for downtrends, the opposite patterns apply):
Bullish signs:
✓ Volume rising above average → suggests strong buying activity.
It is important that:
- the candle is not narrow;
- the candle closes near the high.
Bearish signs:
✓ Volume below average during price increases → signals weak demand and a lack of buyers. Candles may form Doji patterns, showing indecision.
✓ Excessively high volume on bullish candles → could indicate a FOMO effect, where traders rush in at the peak, which might lead to a reversal.
Bullish and bearish signals on the horizontal volume indicator can be simplified into basic logic:
- Bullish signal – the price breaks above and stays above high-volume levels (POC);
- Bearish signal – the price breaks below and stays below those levels.
Examples on the NVDA chart:
The price did not manage to break through the $134 level, which acted as resistance (3). This bearish signal could have led traders to open short positions during the day.
The price climbed above the high-volume levels from the previous day (4) and held there – a bullish signal.
Volume and Price Reversals
Volume indicators often provide crucial signals about potential trend reversals, pointing to changes in price dynamics. To learn more about how volume indicators and price movements are related during such moments, check out the article: “VSA Culmination Signals.”
Examples:
- August 29, AAPL – the end of the rally (1).
- September 16, AAPL – a relatively narrow candle with a close near the top and higher volume (2) suggests that after the bearish gap, sellers became fearful and rushed to sell, but significant buying interest stepped in and prevented the price from falling further. This is a bullish signal, and the price reversed upwards afterward.
- September 20, AAPL – this situation (3) mirrors the reversal seen in the previous candle (2), but with a false breakout of the high (1).
October 15, AAPL – a narrow candle with a bullish gap and a close near the bottom on high volume (4) shows that significant selling interest is selling the stock, using a demand spike (possibly triggered by “bullish” news) and preventing the price from rising beyond the opening level.
Volume and Breakouts vs. False Breakouts
A breakout happens when the price moves beyond its previous range. It can either be a genuine signal of a strong move and a potential entry point, or a false breakout, where the price quickly returns, creating traps for bulls and bears. False breakouts are more common and often lead to sharp reversals.
You can see examples of false breakouts on the NVDA chart.
At the start of the trading session, amidst increased volatility, the price briefly dipped below the previous day’s low (1), but then closed higher, signaling a bullish outlook.
A similar situation occurred later: after another surge in volatility, the price broke below a prior day’s low (2). The ATAS Magnifier tool (press “M” to activate) helps you closely examine this moment. The candle closed above the selling level around $135, indicating a potential bear trap, which in turn is a bullish signal.
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