Page 45 - A Complete Guide to Volume Price Analysis: Read the book then read the market

Fig 5.12 is a schematic to explain this principle which is common sense when we think about it logically.

Fig 5.12 Low Volume Test – Good News!!

The phase of price action we are looking at here follows the accumulation phase, and prior to this, the insiders will have frightened everyone into
selling by moving prices down fast. Panic selling follows with high volumes in this area. The insiders then begin to shake the trees for the more
obstinate 'fruit' before they slowly begin to push the market out from this region and to start the gentle upwards trend, which will ultimately develop
into the distribution phase at the top of the bull trend.

At this point the insiders are moving the market back through an area of recent heavy selling, and the worst thing that could happen, is for this
selling pressure to return, bringing the campaign to a shuddering halt. The answer is to execute a test in the rising market which is shown in the
schematic in Fig 5.12.

The market is marked lower, possibly on the back of a minor item of bad news, to test to see if this is likely to flush out any remaining sellers. If the
volume remains low, this instantly tells the insiders that there are few sellers left, and that virtually all the selling has been absorbed in the
accumulation phase of the campaign. After all, if the sellers were still in the market in any number, then the candle would have closed lower on
above average volume. The volume is low, as the insiders move the candle back near the opening price with a 'good news' story, before continuing
higher, happy with this positive result.

These so called 'low volume' tests occur in all time frames and in all markets, and is a simple way for the insiders to gauge the balance of supply in
the market. They are, after all, trying to create demand here, but if there is an over supply in the market then this will bring the bull campaign to a
halt.

In this case the test was successful and confirms that any selling pressure has been removed. The precise formation of the candle is not critical, but
the body must be a narrow spread, with a deep lower wick. The colour of the body can be either bullish or bearish.

With the test now confirmed the insiders can move the market higher to the target distribution level, confident that all the old selling has now been
absorbed.

Fig 5.13 High Volume Test – Bad News !!

However, what if the test fails and instead of low volume appearing there is high volume, which is a problem. In starting to move the market away
from the accumulation area, and executing the first part of the test by marking prices lower, this has resulted in sellers returning in large numbers
and forcing the price lower.

Clearly on this occasion, the selling from the old trading range has not been absorbed in the accumulation phase, so any further attempt to take the
market higher may struggle or fail.

A failed test means only one thing. The insiders will have to take the market back lower once again, and quickly, to shake these sellers out. The