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Why do we have spike in volume and then reversal .... I get caught some times, I see huge volume going short and then when I expect it to pull back and continue it just keeps on going with out continuations in reversal. It happens offen , what is the theory behind it?
Your wording is a bit vague so I'm not sure if I'm interpreting your question correctly, but I'll give it a shot.
You'll often see large volumes around known areas of support and resistance. Lots of traders will be entering and exiting positions around these levels, driving up the local volumes. Whether price actually reverses or breaks through these areas, however, depends on many other factors - primarily the strength of the impulse behind the initial move.
I've made the same mistake as you, in that I noticed some of the best reversals often occurred on heavy volume. Unfortunately, just because many good reversals have high volume, it does not necessarily follow that many high volume areas create good reversals.
Figuring out the difference is a major edge. Study it closely. Report back with your findings
It's a typical rookie fault to place stops in standard places like above e.g. recent highs or below recent lows.
When you watch the DOM you will see a one-sided lack of bids/asks so that these levels are normally broken
with a vengeance. As soon as the stop avalance runs out of steam, the move deflates. As a chart result you
see a spike and reverse.
Not sure if this is helpful or not but a spike in volume with a widening range is referred to as as a buying/selling climax in Wyckoffian circles and is actually used to predict a reversal. This is a basic intro, hope that helps some The Wyckoff Method: A Tutorial [ChartSchool]
A better way to discuss this subject here on the forum may be how do you detect a reversal from reading the tape bid/ask prints using order flow tools?
just the fact there is higher volume points to larger traders are involved. just retail day traders like us are not going to spike it that much. in general terms if you see a large red bar with high volume then a reversal. not all of the people in the lower part of the bar were sellers . even if the trade was executed on the ask. if the high volume comes when price is braking out of longer s/r it means some thing different.
