Signs of strength are the signals revealing the increase in Bullish pressure. These signals are characterized by specific volume-price patterns revealing new Bullish traders coming in and buying low-priced shares in high volumes. This may eventualy lead to the shift in Supply and Demand balance with further price reversl up.
When you see a Sign of Strength (SOS), in many cases it could be recommended waiting for a confirmation to see that the Bears are completely defeated. You have to be sure that this is not just a temporary bounce up within a parent down-trend. Usually, next bar may provide more clues about supply / demand condition (about bullish and bearish pressure).
You have to bear in mind that the coming after SOS bar may not always confirm this Sign of Strength. A confirmation of an up-reversal could come later. Still, a price action after SOS is an important in interpretation of SOS itself. Below, you will find some examples of possible price actions after a Sign of Strength. Ability to interpret volume-price activity from the Supply-Demand point of view helps to understand the most probable future price trend development.
The next after SOS bar is a wide-spread positive bar on high volume Ideally, the close should be as high as possible - above the bar's middle point and with low upper shadow.
Interpretation:
Despite the strong bounce up, the Bearish selling supply does not weaken. However, the buying demand of the Bulls continue to absorb all supply which continue to creates high volume. The Bulls create extra demand and push the price higher.
This is a sign of a strong Bullish pressure. In this case the odds are high we are at the begging of a strong reversal up.
The next after SOS bar is a wide-spread bar with low close (long upper shadow) on high volume It does not rely matter whether next after SOS bar is positive or negative (black or white candle). The bar's close price should be in the lower part of a bar - below the bar's middle point - the bar would have big upper shadow.
Interpretation:
On SOS we had a strong wave of the Bulls which generated high volume. On the next confirmation bar, we continue seeing high volume which means that the battle between Bulls and Bears is not finished. The long upper shadow on the confirmation bar suggests that the Bears were able to overcome the increased bullish pressure (buying demand) and push price down from its high. The Bearish pressure remains strong The SOS is not confirmed.
In this case, we have increased odds of side-way trending and a resumption of a decline.
The next after SOS bar is a narrow-spread bar on higher volume Next after SOS bar could be either positive or negative (black or white candle).It does not rely matter whether bar is positive or negative. The main point is that the candle body should be small (narrow range bar) and the next confirmation bar volume should be higher than volume on SOS bar.
Interpretation:
Narrow range bar (small candle) on high volume is a sign that the Supply (bearish selling pressure) match the Demand (bullish buying pressure). Bullish and Bearish pressure are strong (high volume) but about equal (narrow range). This is uncertain sentiment. Increase in volume reveals that the Bears are not ready to yield to the Bulls. As Bulls are increasing their buying pressure, the Bears are increasing their selling pressure as well. The Bears are absorbing the increasing demand (increase in volume) of the Bulls.
In this case the SOS is not confirmed as the Bulls may decide to step back under an increasing bearish pressure.
The next after SOS bar is a narrow-spread positive bar on high but lower volume The bar should be positive (white candle). Volume is high but it is lower than volume seen on the SOW bar.
Interpretation:
Drop in volume suggests that the Bulls are beating the Bears. The Bears are still strong (volume is still high), yet, they are yielding slowly to the Bulls - that is why we see decline in volume. The Bearish pressure is on decline and the Bulls continue to push up. This favors the continuation of an up-move.
The next after SOS bar is a narrow-spread positive on low volume The main characteristic of the bar is strong drop in volume and narrow spread,
Interpretation:
Strong drop in volume means strong drop in Bearish pressure. The Bears yielded completely to the Bulls - strong decline in Supply. Narrow spread bar meand we had a drop in the Bullish pressure as well, however, the Bullish pressure remains stronger. The bears yielded to the Bulls, however, the Bulls are not willing to push strongly lover. It may look like the Smart Money (the Bears) did not accumulated all they wanted . We still may see a up-side action, yet, the odds are on a side-way action and possible retesting of the lows.
The next after SOS bar is a narrow-spread negative bar on low volume The main characteristic of the bar is strong drop in volume and narrow spread.
Interpretation:
The same as in previous case, a strong drop in both Bullish pressure (Demand) and Bearish pressure (Supply) caused drop in volume. However, the Bears a little bit stronger and we have got narrow-spread negative bar. The Bulls left. However, the Bears are weak and they were not able to push price strongly down.
In this case we may expect more side-way action as Smart Money may try to accumulate more low-priced shares.
The next after SOS bar is a wide-spread positive bar on low volume The bar's close price should be in the upper part of a bar - above the bar's middle point. Ideally, upper shadow would be absent - bar's close would be bar's high. Volume should be at or below average volume.
Interpretation:
The Bears left - Supply declined strongly and it led to strong drop in volume. As the Bulls continue to creating a strong buying demand, we have got a strong positive up-move.
In this case we have stable strong Bullish pressure (buying Demand). the SOS signals has been confirmed and in the favor of more up-side action.
The next after SOS bar is a wide-spread negative bar on low volume The bar's close price should be in the lover part of a previous bar - below the previous bar's middle point. Volume should be at or below average.
Interpretation:
This is the case when after SOS signal, we have strong decline in the Demand. Bullish buying pressure dropped strongly which led to strong drop in volume. As stream of Supply (bearish selling pressure) remains the same. The Bears had no trouble to push price strongly down which created a wide range negative bar.
The odds are high that the SOS signal was generated by the short-term traders (could be short-term bearish traders buying to fix profit). The SOS signal is not confirmed and the odds are on the side of the Bears.
The next after SOS bar is a wide-spread negative bar on high volume The bar's close price should be in the lower part of a previous bar - below the previous bar's middle point. Volume should be high.
Interpretation:
As the Bulls pushed up strongly on the previous bar, the Bears replied by increasing their selling pressure (Supply) strongly - we still have high volume. The Bearish pressure (Supply) is not just strong, it overcame the Bullish pressure (Demand) by causing the wide-spread negative bar. That means that neither Bulls nor Bears are ready to yield in the fight for a trend.
We may see a reversal up later. As of now, the Bears are on the winning side and the odds are on the Bearish side.
Below, on the volume chart you may see an example when the next bar confirms SOS (Sign of Strength):
- The bar #1 as a Sign of Strength - it has long lower shadow (sign of the Bulls pushing up from the bottom) on high volume (the Bullish wave is big).
- The bar #2 it is another Sign of Strength - another bar with long lower shadow on high volume. We had two in a row signs of strength indicating the big wave of the Bulls coming in the market.
- In addition the second Sign of Strength has narrow spread which indicates that the gap between Supply and Demand narrowed to minimum.
- The bar #3 confirmed the SOS. It was wide spread positive bar on lower, but still high volume. The Bulls took over - the Demand overcame the Supply - and the Bulls started to push price higher,
By V. K. for MarketVolume.com
Copyright 2004 - 2025 All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Our pages are constantly scanned. If we see that any of our content is published on other website, our first action will be to report this site to Google and Yahoo as a spam website.