In every downtrend that can be found in forex, there is a moment when price begins to resist further downward movement. Resistances will be present in the market, as psychological barriers based in historical price movement. Resistances will diminish, or completely remove price momentum for downward movement.
Resistance zones are clearly visible when candle closes at its top, while creating extremely tall wick on the bottom. This forex candle formation is accompanied with extreme volume (stopping volume). This candle together with extreme volume signalises substantial buying coming into the market while low of the candle reached resistance.
Moving averages forex indicator can be plotted on volumes data to smooth out he histogram
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If the next closed candle is bullish, our assumption was correct. Most of the extreme volume on previous candle included buying. Buying caused previous candle to close near its top and was also responsible for next bullish candle.
This phenomenon will cause market to move to the side and create range. Smart money will enter the market and accumulation will begin. Smart money will be buying from weak holders, that will still see the market as bearish at this point.
Occasionally price will move downwards suddenly, luring weak holders into more selling into the downtrend. However, they are lured into entering downtrend that is just about to end.
How to trade stopping volume in forex
Identify historical resistances that could slow down or completely stop the downtrend.
Look for candle with extremely high volume. Tall wick of the candle should penetrate the resistance zone only for candle to close near its top.
Look for next candle to be bullish. We can also experience some indecisive candles (doji), and in this case we wait for next clearly bullish / bearish candle.
Stopping volume as described is very strong buy signal in forex. Its reliability can be further improved by using another trend ending confirmation such as moving average cross, MACD cross or manually drawn trendlines.