Relationship between volume (Effort) and price movement (Res...

Relationship between volume (Effort) and price movement (Result) to understand market behaviour

Effort: This is the trading volume, which shows the level of buying or selling activity.
Result: This is the price movement that happens because of that trading activity.

Interpretations

1. Effort Equal to Result:
High volume leading to a significant price move suggests the market is moving naturally in the trend’s direction.

2. Effort Greater Than Result:
High volume with little price movement may indicate a potential reversal, as buying or selling pressure is being absorbed.

3. Effort Less Than Result:
Large price movement on low volume might suggest the move is weak and could reverse.

•Absorption:
– During trends, high volume with little price movement can indicate that big players are preparing for a move in the opposite direction.

•Climactic Action:
– A sharp price move on very high volume can signal the end of a trend.

•Testing:
– After a strong move, a small price change on low volume might confirm the trend’s strength.