The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

Volume and Open Interest

Here are the four possible scenarios for a top and bottom with respect to volume:

1. A market top associated with extreme volume is called a blow‐off or buying
   climax.


2. A market bottom associated with extreme volume is called a sell‐off or selling
   climax.


3. A market top associated with extremely low or minimal volume is called a low
   volume top.


4. A market bottom associated with extremely low volume is called a low vol-
   ume bottom.

In Figure 6.12, we observe a market bottom being created by a couple of selling

climaxes on the daily chart of Exxon Mobile Corp. We notice the extreme volume

associated with each selling climax. We identify this extreme volume level as the

upper overextended volume level. This upper volume level will serve as a signal for

predicting potential market bottoms or tops. Notice that we have also identified a

lower overextended volume level for forecasting less significant market corrections.

In Figure 6.13, we observe a couple of blow‐offs or buying climaxes at relatively

high volume on the Daily Chart of E‐TRACS UBS Bloomberg CMCI Food ETN.

In Figure 6.14, we observe overextended volume levels in the SPDR Gold

Trust Shares. The volume overextension level is identified by visual inspection

and set at a level where only the most significant tops or bottoms are found in the

SPDR Gold Trust Shares. Setting it at a lower level tends to result in more frequent

signaling of less significant tops or bottoms. Notice the downside breakout of a

fIgure 6.12 Selling Climaxes Signaled by the Volume Overbought Level on the Daily

Chart of Exxon Mobile Corp.

Courtesy of Stockcharts.com