Volume With Candlesticks

Exhibit 15.1 shows how volume and candlestick techniques can help confirm double tops or bottoms. On March 22 (line 1), the market pushed up to the late February highs near 94. Volume at line 1 was 504,000 contracts (all volume figures are total volume for all contract months). For the next few sessions, prices tried to push above this 94 level. The small white real bodies on these days reflected the bulls' lack of fervor. The low volume figures on these small candlestick sessions echoed this. The bulls finally surrendered after a week. In late March, within two days, the market fell two full points.

Next we turn our attention to the tall white candlestick of April 4 (line

2). Could this strong session presage gathering strength by the bulls? The answer is probably not. First, we note the volume on this rally session was a relatively light 300,000 contracts. The long black candlesticks a few sessions before (March 29 and 30) had larger volume. Another sign of trouble appeared with the action following line 2. The next day (line

3) a small real body appeared. Lines 2 and 3 constituted a harami pattern. The implications were that the prior upmove was over. Note also that this small real body day was also a variation on a bearish hanging

man (an ideal hanging-man line is at the top of a trading range or an uptrend). The next day, (line 4) there was a final surge to 94. This was a portentous rickshaw man day. In addition, this price push had relatively little force behind it as reflected by the lighter volume (379,000 contracts) compared to the volume on March 22 (504,000 contracts). The light volume test at an old high increased the chance this was a double top. The move under the March 30 low confirmed this as a double top. This double top gave a minimum measured target of 90.

We saw how a light volume test of a high could signal a top, especially when joined with bearish candlestick indications. On this chart we also have a volume/candlestick signal of a bottom. On April 27, there is a doji line. For reasons discussed in Chapter 8, doji days are usually more significant as reversals in uptrends than in downtrends. Yet, with verification, they also should be viewed as a bottom trend reversal. This unfolded in bonds. The importance of the doji on April 27 became amplified when, three days later, another doji appeared. Two doji in themselves are significant, but look at what else occurred during these two doji days. First, there was a tweezers bottom (that is, the lows were nearly the same). Note also the volume on these days. On April 27 volume was 448,000. Volume on May 2, the second doji, was almost half at 234,000 contracts. A light volume test of a support area is bullish. We see the results.

The bullish engulfing pattern, shown in Exhibit 15.2, shows that late April had a white candlestick with the largest volume in the last few months. This forcibly proved the conviction of the bulls. A light volume retest of these lows by a candlestick similar to a hammer confirmed a solid base.

There are many specialized technical tools based on volume. Two of the more popular are on balance volume and tick volumeT".

EXHIBIT 15.2. Eurodollars—June 1990, Daily (Volume with Candlesticks)
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