Understanding volume spread analysis for trading.

If the price drops significantly below the neckline, this indicates a strong sentiment. Taking control of the high trading volume during a breakdown adds credibility to the pattern and increases the probability of a trend reversal. In a double-bottom pattern containing a flow of liquidity, we start with a downtrend continuation pattern and a bearish BOS, and the price reaches an almost equal low, creating a support level again.

Understanding volume spread analysis for trading.

I like to monitor liquidity flow at the second bottom, which can lead to trapping short traders and taking stops. The swing high between the lows forms the neckline.

What is the SMC strategy in Forex trading?

When the price reaches the first low point, pay attention to the volume. If the volume is high, this indicates strong selling interest, but if the volume is low, this may indicate that sellers are not convinced after the first low. There is usually a decline phase where the price declines during this period. It is common for lower volume to indicate reduced selling pressure during price formation. Second Low Point: Look at the volume to see if it is lower than it was during the formation of the first low point.

This may indicate decreasing interest in selling and a potential downtrend exhaustion. This decrease in volume acts as a warning sign indicating a possible trend reversal, and liquidity should be triggered. Ideally, the most critical phase of a double bottom pattern on low volume occurs when the price breaks above the neckline. Here, the volume provides the confirmation you need if the price rises above the neckline on a higher volume compared to the previous low point.

The importance of the double bottom pattern in Forex

This indicates a strong shift in sentiment, with buyers now in control. Let us briefly discuss how you can incorporate these patterns into your trading strategy. There are four main differences to consider. First, a neckline breakout enters a double-top pattern once the price breaks below the neckline and forms a new move.

A double bottom pattern confirms a trend reversal when the price breaks above the neckline and forms a higher high. It confirms a reversal and a possible change in the trend’s direction. The second aspect is pattern formation at the key. Identifying the critical supply or demand level is crucial if a pattern is forming. A double bottom in the demand zone or a double top pattern forms in the supply zone, enhancing the pattern’s importance.

Preferred entry in Forex trades

My favorite entry is a pullback to the recent supply or demand zone. Alternatively, when entering a trade immediately after a breakout, you may prefer to wait for a pullback to a lower time frame supply or demand zone, allowing you to enter the trade at a better price and not unthinkingly chase the breakout. 

Considering candlestick patterns at these critical levels, combining Japanese candlestick patterns with double-top or double-bottom patterns can provide a better trading experience.

An additional confirmation view of Japanese candlestick interactions at the moment of a neckline breakout or when pulling back into the supply or demand zone. An upper pattern that forms with a long weak candle at a resistance level can confirm a trend change from an uptrend to a downtrend or an engulfing candle after the price tests the neckline after a breakout, which is another good sign of a trend change pattern also known as a change of character occurs when the price breaks higher Or a significant decrease in swing for the first time, this indicates a potential shift in market order flow.

For example, if the market is in a downtrend with lower lows and lower highs and the price breaks above a previous major swing, a rise indicates a change in character from a price action point of view. These patterns show a loss of momentum from sellers rather than continuing to make lower lows. The price creates a reversal pattern, where buyers gain control, indicating a trend change from bearish to bullish during a lower formation low level.

Monitor Forex trading volume.

Watch the volume. If the volume is lower compared to the previous swing low, this may indicate decreasing interest in selling and a possible exhaustion of the downtrend. This decrease in volume is the first warning sign; the most critical stage is when the price breaks above the previous major swing low. If the price rises above This level on higher volume compared to the last swing low, it confirms the shift in sentiment with buyers taking control.

Conversely, in an uptrend with higher highs and higher lows when the price breaks below a critical level. A level that forms a new lower low indicates a potential trend reversal from a price action perspective. This pattern suggests a loss of momentum from buyers rather than continuing to make new higher highs. The price creates a reversal pattern that indicates a potential shift in order flow after a slight pullback if the price continues. In creating lower lows and lower highs, it means a new downtrend.

If the volume during this high point is lower than that during the previous swing high, it indicates a decline in buying interest and a possible uptrend exhaustion. This decrease in volume is an initial warning sign. You have yet to determine whether or not there is a potential reversal. However, the most critical stage is when the price breaks below the previous primary swing level if the price breaks this level and does so at a higher level.

Summary

Understanding Volume Spread Analysis for Trading Volume compared to the volume during the previous high swing confirms the shift in market sentiment in which buyers have taken greater control, which supports a potential trend reversal.