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Unusual volume can often signal the end of a trend. When there is too much volume, it represents the last gasp of the previous trend. Suppose a stock is in a short term downtrend. As the stock drops, more and more people get scared. And at the last moment, people are so terrified that they instruct their brokers to sell everything. That is when unusual volume kicks in.
Since all the people who are scared, terrified and weak have sold, there are no more sellers. Supply has ended and suddenly the stock is left without a weight holding them down. The stock then bounces up like a spring.
The summary is this:
In the chart above, you can see how ABBV was in a dowtrend for 2 months. The stock had been dropping and scaring many weak holders. The stock then gapped down and this caused a large amount of sell orders to kick in. But by the end of the day, the stock formed a long legged doji. This told us that the stock was rejecting going lower.
The stock was also at a previous long term support area (not shown). The unusual volume that came in showed that while there were many sellers, there are probably some buyers out there picking up the stock. Therefore, the heavy volume ended the downtrend.
The chart of ACN above shows how unusual volume kicks in to end a short term down move near July and short term upward move in late September. Around July, the stock had a few days drastic drop. As the stock fell, there was an unusual amount of volume. This ended the downward move.
In late September, the stock had a few days of sharp rally. At the last day, the stock gapped up and formed a topping tail on unusual volume. This pattern plus the heavy volume ended the short term upward move.
ADS had a short term correction in late January 2017. Then it gapped down on heavy volume and formed a long legged doji or a long legged spinning top. This is a reversal pattern and notice how this stock was also at price support and the 200 MA support. This powerful combination ended the correction and ushered in a new short term uptrend.
AEE had a very quick succession of red bearish days from late September to early October. A large red candle bar formed with unusual volume. The next day a green spinning top pattern formed on even heavier volume. This told us that on the previous day, panic sellers was unloading stocks and on the spinning top day, buyers were coming in to buy the stock. This ended the short term correction and pushed the stock higher for a few weeks.
In the chart above, you can see that AEP was in a downtrend. The stock was below its declining 20 and 50 MA. It was also below its 200 MA. Then the stock experienced an unusual volume day. The presence of heavy volume showed sellers are exhausted and thus a new uptrend began.
In this last chart, we can see O had a correction in mid May that ended with a gap down on heavy volume. The stock was also at support level. The next few days, we can see two bottoming tails which gave us hints that the stock was about to reverse and go higher. Look how the stock exploded higher from there having a few weeks of nice bull run.
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