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The almighty test

Most of you, maybe even all of you, are most likely looking at a chart and only looking for the spikes in volume. At least those of you who have read the book by Tom Williams, or have followed my videos and articles regarding VSA and Wyckoff.

This is wrong, because volume combined with price action tells us a story. And that story is what the market makers are trying to manipulate as much as they can. And when are they doing most of the manipulations? Well;

  • On Fibonacci retracements levels
  • On structure
  • On dynamic support and resistance (moving averages)
  • On tops/bottoms

This leads to the confusion you now all have "How come price moves up after a low volume bounce, and in a different example, with almost the exact same conditions, it does the same, but this time after a high volume bounce?"

This question would have been easily answered, if you just follow price and volume, bar by bar or candle by candle.

Example

Let say you have bought 1000 Samsung Phones. You are the first one to sell this phone, so naturally, you can set the price a little higher. You sell off 700 phones, and 300 remains in stock. Now, the news comes out saying that 100 more vendors are going to start selling the exact same phone, however, they are going to do so for a lower price than you are offering. Now you face 2 choices;

  1. Sell the remaining 300 phones for the advertised lower price
  2. Try and sell as many as you can, at the standard price, before lowering your price.

What do you do? Well, naturally, it would be best for business to pick alternative number 2, even if you manage to sell 10,20 or 50 you can get some more cash out of the remaining stock. Correct?

Well the markets works like this as well. This is called testing and is THE most important part when analysing supply & demand.

When you are trying to sell the 300 remaining phones, you are now testing the market. So, basically, one of three things can happen.

  1. You sell all the 300 phones for the standard price
  2. You sell a few of the phones for the standard price and then lower your price
  3. You manage to sell none, and have to immediately lower your price.

If number 1 happens, the resulting action would be that you order more phones, and sell them again for the standard price until number 2 or 3 happens, correct? This is called re-testing

 

Remember that all high volume action in a defined supply & demand zone must be tested and/or re-tested in order for the market to find the path of least resistance. If you have EURUSD drop down suddenly and stopping volume comes in to support it, this must be tested, before price can manage to go back up again.

Let us start with some picture examples:

Picture examples will come 2019-03-08