Trend Clusters and Market Anatomy 2

High volume on an upward bar followed by a downward bar

The rising bar is accompanied by a high volume. At this moment, most traders are inspired by growth, opening long positions. But if there is a downward candle with a widespread behind the rising bar and closes below its minimum, this indicates that bearish sentiment prevails in the market. So, further growth will either go into lateral movement, or a reversal will occur.

On the chart, the pattern we are considering is highlighted by an oval area. The last rising bar is accompanied by a high volume, due to which we can mistakenly hope for further growth. However, the next bar – downward – has a widespread and closes just below the minimum of its predecessor. In addition, it is also accompanied by a high volume, which indicates a bearish mood in the market.

Up trust

An up-trust, within the framework of VSA trading, is a bar that closes at the maximum with a wide spread up, accompanied by a low or high volume. Typically, such patterns appear after the market rises, at its peak, when there are all signs of its overbought in the presence of weakness. Immediately after the up-trust, a trend reversal most often occurs.

Market makers like to arrange up-trusts since such a technique promises them considerable profits. During intensive growth, many weak holders get involved in trading. The maximum price is maintained for as long as possible so that as many players as possible open long positions. The subsequent sharp price reversal forces them to catch stops or close their positions in the wake of a panic. It is worth noting that a sharp rise usually occurs in the wake of good news and at the same time in the presence of signs of market weakness.

On the four-hour chart, there is an up-trust, accompanied by a low volume. The bar has a widespread and closes near the minimum. This means that at the moment, large players at maximum closed their positions and ceased to support the movement further up. In the following days, a bearish movement was observed in the market.

This time on the chart we see an up-trust, accompanied by a high volume (the bar is marked by an oval area). If this volume was due to the active activity of large players, then the price would hardly roll back in the vicinity of its own minimum within one candle. Rapid rollback of prices usually occurs when sales prevail over purchases, which means that moving up in the foreseeable future is impossible.

Culmination of sales

The culmination of VSA sales is a top-down bar or a group of previous bars with an ultra-wide spread followed by a high volume. At the same time, closure occurs in the vicinity of the maximum. This type of activity signals the strength of the market and the upcoming transition to the bull phase.

On the chart, we see a downward candle with a widespread, which for clarity is marked by an oval area. If the accompanying high volume was due to strong sales, then the candle would close in the vicinity of the minimum, as the imbalance between supply and demand prompted a further fall in prices. In our case, sales were successfully absorbed by major players, after which prerequisites for a bullish movement arose.

The slow culmination of sales, reverse up-trust or professional support

This type of activity is also presented on the chart in the form of a descending bar with a widespread, which updates the current low at a high volume or falls to the previous local minimum. A more reliable sign of a reverse up-trust is the opening with a gap down, and the next day with a gap up, however, even a descending bar after this event, accompanied by a low volume, especially when closing in the vicinity of the maximum, is a sign of market strength.

In a professional environment, at such moments, the offer is absorbed by bulk purchases, which, in most cases, stop the bearish movement.

On the four-hour BTCUSD chart, we clearly see a downward candle with a widespread, which closes at high volume in the vicinity of its maximum. This is a clear signal of the presence of professional support that has absorbed all sales. Beyond the oval area marked by a candle, we see a slight reaction of the market to the supply deficit in the form of a bullish bar, after which the price continued to fall for a while, with a minimum volume. As I said above, this indicates the strength of the market, which later manifested itself in the form of sustainable growth.

How does the distribution phase go?

In a stable bull market, sooner or later a point is reached at which even the most desperate traders begin to realize that they are missing all the movement. At this moment, they succumb to the psychology of the crowd and begin mass purchases, being fully confident that the bull trend is sustainable. It is clear that confidence in weak holders is additionally supported by good news.

Bulk purchases are an ideal time for strong holders seeking to profitably sell assets acquired at low prices without a significant reduction in price. This operation in the VSA model is called the distribution phase. It can take place quite rapidly, accompanied by the culmination of purchases or more slowly if there is a risk of frightening off weak holders. In the latter case, the schedule takes the form of a mushroom cap, and the duration of the phase can reach several weeks.

Smooth sales are usually accompanied by frequent up-trusts of low intensity when at high volumes the price undergoes significant changes several times a day. This behavior is explained by the fact that when the price falls, large holders sharply reduce the intensity of sales, and after the market sentiment becomes bull again, they increase.

At the same time, the volume on rising bars can be both high and low. The high volume shows that sales more than cover demand. It is more characteristic of the beginning of the distribution phase. A low volume shows a shortage of demand and is characteristic of the end of the distribution phase.

The graph shows an example of smooth sales. As you can see, throughout the distribution phase, prices do not obey a clear direction, as if someone was hindering their excessive rise and then decline. Perform a volume analysis. It can be seen that as soon as the price rises down, the number of operations decreases. And after the value of the asset reaches an acceptable level, activity increases again.

Moreover, at the beginning of the distribution phase, when mass demand is easily blocked by professional sales, volumes are higher than at the stage of its completion. After the distribution of assets in favor of weak holders is completed, the market feels an imbalance in supply and demand, which provokes a bearish price movement.

That’s all for the Forex cluster analysis and VSA analysis method. In the next article, I will talk in detail about the principles of forming a bear market. Subscribe to my blog so you don’t miss anything!

Good luck to everyone and good profits!

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