Page 67 - A Complete Guide to Volume Price Analysis: Read the book then read the market

insiders are joining the move higher and everything is as it should be.

If the volume is below average or low, this is a warning signal. The price is being marked higher, but with little effort. The warning bells are now
ringing. Many retail traders will be rushing to join the move higher or lower thinking this is a valid move by the market. But the volume reveals a very
different story. If we are in a position, we look to exit. If we are not in a position we stay out, and wait for the next signal to see when and where the
insiders are now taking this market.

Narrow Spread Candles

Price action – weak market sentiment

You may be wondering why we should be interested in a narrow spread candle, which tells us when market sentiment is weak. After all, shouldn’t
we simply be interested when the insiders are in the market, to which the answer is, yes, of course. Narrow spread candles can be found
everywhere and in quantity. But the reason we need to consider them is that, in general markets move higher slowly. Markets pause, consolidate
and reverse, often on narrow spread candles. Therefore, the interesting ones are NOT those validated by volume, but the anomalies.

Fig 6.15 Narrow Spread
Candles

A narrow spread candle should have low volume – again effort vs result. These are of little interest to us. However, the ones that are of great interest
are the anomalies, where we see above average, or high volume, on a narrow spread candle. This should instantly alert us, and we should ask
ourselves why.

The reason is very simple and can be seen in Fig 6.15. If we have an up candle with a narrow spread and relatively high volume, then the market is
showing some signs of weakness. As we know high volume should result in a wide spread candle, not a narrow spread. Effort vs result again. The
insiders are starting to struggle at this price level. The market is resistant to higher prices, and although it has moved a little wa Cd aagain. Thy
higher, is now proving resistant to any further progress, and the next candle could be a shooting star, which would then confirm this weakness
further.

Equally, if we see high volume on a down candle then the reverse applies. Here the insiders are starting to see signs of bullish sentiment enter the
market. The price is narrow, with buyers ( insiders) coming in, and supporting the market at this level. Again, this is the first sign of a potential
reversal from bearish to bullish. Subsequent candles may confirm this and we would now be waiting for a hammer, or possibly a long legged doji to
add further weight to the analysis.

The Hanging Man Candle