For those familiar with Wyckoff study would realize that operators typically want to ensure that the selling is fully absorbed before next move is orchestrated. This concept is visible across various time frames and I noticed this at play in Sintex Industries daily chart. This post is just to highlight this simple concept which would offer low-cost trading opportunity. This post is not a trade recommendation and only an endeavor to highlight the concept of absorption of selling. Have a look at the daily chart of Sintex Industries featured below.
Have a look at the shaded portion in the chart above. Price has been consolidating in a range for a while. And notice the spikes above and below this range with attendant volume signature. The moment you notice a big move with huge volume at a crucial price level, it is imperative that you get a follow-through. If the follow-through is not coming by, then it could well be a fake or false move.
Big investors wanting to accumulate huge position have to use all the tricks in the book to get their orders filled at the best possible price. These shakeouts are one of the primary method to get cheap orders.
Notice how price dropped sharply, on the back of large volume, to the lower end of the range. If that was indeed selling pressure, price ought not to have opened gap-up the next day. The fact that price opened up higher with a gap, was a sign that the selling witnessed the previous day was absorbed by willing buyers.
These buyers typically want to ensure that residual sellers at that price zone have been absorbed before marking up the price. It is therefore not surprising that price revisits that erstwhile high-volume zone and typically the volume tends to dry-up on each subsequent test.
You can notice this happening in Sintex chart too. The second test, highlighted in the chart, is again on high volumes. It would therefore be prudent to await another test of that zone, which does materialise soon.
On the final test prior to the rally, we see a classic “spring” wherein price edges below the lower end of the range which is also the area where sellers were aggressively mopping up supply earlier. Price closes at the lows but with very low volume. Other than the drop in volume, the other important clue is the immediate reversal in price and bounce back into the trading range, which indicates the poke lower was just one final test by big-investors (aka smart money) to check if sellers are still lurking around. Once they find absolutely no interest from sellers to push price down, it is fairly easy to push price up. This typically marks the beginning of the Wyckoff- “Mark-up” phase.
Look at other classic wyckoff trading range and try to identify this testing action and “Spring”. It would offer low-risk entry opportunities once you know what you are looking for. It requires a bit of practice to study these charts and patterns. But the effort would be truly rewarding.