Back to the grind of finding major reversals and good entry points: “buy low sell high!”
In this example, we can immediately see two lows. At first glance, they look uneven, that the second low in June 2019 is lower than the Dec 2018 low. Sure, there was that one candle in June that broke below the support level, but even the following week, bulls started to pile into the stock, with the close starting to climb back above the support level.
To make sure, I would wait for further confirmation that the bears indeed were willing to succumb, and the price wanted to go higher. One such evidence would be to watch for volume to pick up because both price lows, while significant turning points, had average stock accumulation. I want to see volume pick up if this an actual reversal.
But if we look at the volume landscape, notice where we did get the significant volume spikes: the same candlesticks we saw before!
It tells us that the bulls were starting to jump into the trade, and a good clue that the reversal was coming to fruition:
- We see a tested support level;
- We have volume accumulating on bullish bars;
- We have our largest bullish candlestick accompanied by the massive bursts of volume;
Now we have a good entry and a support level and a defined place to put our stop and risk levels. But, we are still ahead of ourselves: the completion of the bottoming pattern hasn’t been confirmed, and price can reverse and fall back down to the low levels.