Page 30 - A Complete Guide to Volume Price Analysis: Read the book then read the market

Examples Of Anomalies

Fig 4.12 Wide Spread Candle, Low Volume

In Fig 4.12 we have our first anomaly which can be explained as follows. It is clear we have a wide spread up candle, and if we follow Wyckoff's
third rule then this result, should be matched by an equal amount of effort. What we have instead is a big result, from little effort. This is an anomaly.
After all for a wide spread up candle, we would expect to see a high volume bar, but here we have a low volume bar. Immediately the alarm bells
start ringing, since something is not right here.

One question to ask is why do we have low volume when we should expect to see high volume. Is this a trap up move by the markets, or the market
makers? Quite possibly, and this is where you can begin to see the power of such simple analysis. In one price bar, we can immediately see that
something is wrong. There is an anomaly, because if this were a genuine move higher, then the buyers would be supporting the move higher with a
high volume bar. Instead there is a low volume bar.

If we were in a long position in the market and this appeared, we would immediately start to question what is happening. For example, why has this
anomaly appeared? Is it an early warning of a possible trap? This is a pattern which often occurs at the start of trading in equity markets. What is
happening here is that the market makers are trying to 'feel out' the sentiment in the market. The above could be from a one minute chart for
example. The market opens, then the price is pushed higher to test interest in the market from the buyers. If there is little or no buying interest, as
here, then the price will be marked back down, with further price testing.

Remember from earlier in the book, that the futures index markets will have already been trading overnight on Globex, giving the market makers a
clear idea of bullish or bearish sentiment. All that is needed is to test out the price level at which to pitch the price for the opening few minutes. Not
only is this done for the main index, but also for each individual stock. It is extraordinary how easy this is to see, and is instantly visible with volume.

This is why I cannot understand the attraction of price action trading. Without volume a PAT trader would have no idea. All they would see is a wide
spread up candle and assume the market was bullish.

This is very easy to prove and all we need to do is to watch a couple of charts from the opening bell. Choose the main index, and a couple of
stocks. The anomaly will appear time and time again. The market makers are testing the levels of buying and selling interest, before setting the
tone for the session, with an eye on any news releases due in the morning, which can always be used to further manipulate the markets, and never
allowing ‘a serious crisis go to waste’ (Rahm Emanuel). After all, if they were buying into the market, then this would be reflected in a high volume
bar.

The volume bar is signalling that the market is NOT joining in this price action, and there is a reason. In this case it's the market makers in equities
testing the levels of buying and selling, and therefore not committing into the move, until they are sure buyers will come into the market at this price