Richard Wyckoff and his latter students studied the relationship between volume, high, low and close to determine who was winning the battle of supply and demand. Tom Williams wrote a book on the subject called 'Master the Markets' which is a study of volume spread analysis.
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Below is how to read the bullish action in Ultra Short 20 yr Treasury ETF TBT with our custom indictor RTTTrendPower.
See the red numbers on the chart, they are referencing the bar under or above the number.
1, 2, 3 : Rising price with rising volume, significant buying.
4, 5, 6 : Rising price with rising volume, this time volume more significant.
The volume is greater on the up swings than the down swings, therefore very strong accumulation. The buying has been careful not to push prices up too high, thus allowing when the price break out comes, the bull to hold more TBT shares in their portfolio to profit with. They are getting many bites of the apple.
The purple lines shows the TBT bulls are winning, the bears see the wave of buying coming at them and are getting nervous.
7, 8, 9, 10: Here both the bull are buying and the bears are short covering. The volume spike at 10, is extreme and over supply of shares hitting the market, a short term turn could follow.
11: No demand bar. Buying from the bulls and/or the short covering has dried up. This is a warning that prices called fall as demand as fallen off.
12: No supply. Selling continued from 11, but at 12 selling slowed to a crawl, as no more supply to sell. Yes it is also true that the next two days see US Treasury short and long bond sales. Market waiting for news.
13: This is day is very bullish, as the range is very narrow, yet the volume is the highest in seven trading sessions. This means buyers are buying and they are also holding back prices from advancing so they can lock in their buying at excellent prices. They know higher prices are very near.
14: The volume is near exact same level as 13, yet price moves up over 2%, this is a perfect mark up day. As it closed on its highs, one can expect higher prices over the next few days and/or weeks for the TBT.
The price action from 11 to 13 is a test of support, a test to see if the bulls are still interesting in buying more TBT to send prices higher, it is also to see if the drop in prices attracts heavy selling, as you can see the volume from the 7 to 11 is greater than 11 to 13, thus the bulls did not sell, nor did new sellers come into the market, so this is a clear win for the bulls. Once again higher prices can be expected until the selling over comes the buying, or supply over comes demand.
To learn more about Tom Williams VSA read 'Master the Markets'.
The TBT is a buy on the dips.