What will stop downtrend in forex

Very high volumes on strong downwards (bearish) candles is always a sign of downtrend health. As it always signalises selling. However, if bearish candle closes near its top at very high volume, it may mean, that market makers and smart money absorbed selling from the crowd by buying. Causing market to lose its downward momentum.

 

This can only happen when smart holders consider price to be attractive based on strength in the background (fundamental news). This will mark start of accumulation by market makers and also a beginning of trend reversal.

 

Typical stopping volume (absorption volume) can be found in the end of the downtrend. Increased volume also signalises that there is still plenty of supply present in the market.

Price area reached on high volume may still have a lot of floating supply. Those areas will be tested for supply that could potentially slow down bullish trend.

 

Ruthless mechanics of testing in forex servers more than one purpose. This money making manoeuvre is checking the market for floating supply, luring inexperienced traders into the downtrend that is just about to end, and removing stop loss orders of traders that saw market as bullish and decided to enter long just before downtrend end. They were unlucky enough to not set their stop loss expecting this money making manoeuvre.

 

 

After the test, most of the latent supply will be removed from the market. Market will move downwards one more time before bullish forex trend is established.

 

Recognising stopping volume is not always an easy task. Media will still be flooded with negative news that will make bullish traders feel like fools. They will generally be luring traders into the downtrend. To be effective forex trader, however you need to be able to recognise the situation and stand aside together with smart money.

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