Page 34 - A Complete Guide to Volume Price Analysis: Read the book then read the market

moving higher in the trend, then according to Wyckoff's third law, we should expect to see rising volume as well. And this is the case.

The point is this. Effort vs result, applies not only to the individual candles we looked at earlier, but also to the trends which start to build once we put
the candles together. In other words we have two levels of validation (or anomaly).

The first level is based on the price/volume relationship on the candle itself. The second level is based on the collective price/volume relationship of
a group of candles, which then start to define the trend. It is in the latter where Wyckoff's second law of ‘cause and effect’ can be applied. Here the
extent of the effect (price changes in trend) will be related to the size of the cause (the volume and period over which it is applied - the time
element).

In this simple example, we have a very neat picture. The price action on each candle has been validated with the associated volume, and the overall
price action has been validated by the overall volume action. This can all be summed as rising prices = rising volume. If the market is rising, and we
see rising volume associated with the move, then this is a valid move higher, supported by market sentiment and the specialists. In other words, the
specialists and insiders are joining in the move, and we see this reflected in the volume.

Fig 4.15 Multiple Bar Validation In Down Trend

I now want to examine the opposite, and look at an example where we have a market which is falling as shown in Fig 4.15.

In this case the market is moving lower, and perhaps this is where some of the confusion starts for new VPA students. As humans, we are all
familiar with gravity and the concept that it takes effort for something to move higher. The rocket into space, a ball thrown into the air, all require
effort to overcome the force of gravity. As traders, these examples of gravity are fine in principle when the market is moving higher, as in our first
example. Where these examples using gravity fail, is when we look at markets which are falling, because here too we need rising effort (volume) for
the market to fall.

The market requires effort to both rise AND fall, and it is easier to think of in these terms.

If the specialists are joining in the move, whether higher or lower, then this will be reflected in the volume bars. If they are joining a move higher, then
the volume will be rising, and equally if they are joining a move lower, then the volume bars will ALSO be rising in the same way.

This is Wyckoff's third rule again – effort vs result, and whether the price action is higher or lower, then this rule applies.

Looking at the four candles in the example in Fig 4.15, the first down candle opens and closes with a narrow spread. The associated volume is
small, and therefore validates the price action. The next bar opens and closes with a wider spread, but with higher volume than on the previous
candle, so once again the price action is valid.