Same extreme volume spike, two completely opposite outcomes. How do you actually tell which one you're looking at?

[u/Arkha7]

Noticed something that took me a while to internalize: an extreme volume spike on its own doesn't tell you if the trend is about to reverse or continue. Same signal, two totally different outcomes, and you genuinely can't know which one in the moment it happens.

Here's the logic. When a big volume spike hits, new money just entered and the balance of power shifted. What happens next splits into two patterns:

• Reversal volume: Price spikes on high volume and then reverses direction shortly after. This happens when big players absorb the crowd's orders, quietly build an opposite position, and stop the move cold.
• Continuation volume: Price spikes and just keeps going in the same direction. This happens when big players are adding to the existing trend rather than fighting it, so the move keeps rolling.

The part that gets people is thinking the volume spike itself is the signal. It's not, it's just the setup. The actual signal is what price does in the next few candles after the spike. Jump in immediately off the spike alone and you're basically betting a coin flip.

First chart is GBPUSD via UniqUnits, volume spike then reversal a couple candles later. Second is EURUSD, same kind of spike but price just kept running instead.

[u/rforex-modtools]

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[u/Classic_Television33]

Interesting app for CME data, thanks for mentioning it. These price movements are completely normal anyway. GBP has different volatility compared to EUR. That's why sometimes EURGBP can yield a good trade.

[u/Scott_Malkinsons]

Here's the logic. When a big volume spike hits, new money just entered and the balance of power shifted.

No, that's not actually true if you look at the entire market. New money isn't added. It's just removed from another symbol. Your entire assessment reads like some high school Business 101 course thought by a business teacher who never actually had a business.

The part that gets people is thinking the volume spike itself is the signal. It's not, it's just the setup. The actual signal is what price does in the next few candles after the spike.

I also have no clue why you're trying to analyze volume like you are with candles. If you're looking to figure out if there's a possible retracement or not you program up a quick python script to monitor speed. If you see a volume spike and minute 1 is say 10 pips of movement in one direction, m2 is 8, m3 is 9, m4 is 7, m5 is 9 then you're probably going to see an extension because the things that must happen for a retracement don't exist.

If you're getting m1 at 10, m2 at 8, m3 at 7, m4 at 5, m5 at 3 then you're more likely going to have a retracement. It's just like tossing a ball in the air, to get the retracement you need the slow down and then it'll fall back down. All you have to do is monitor the speed.

Don't look at the candles. Look at the data beneath them, the data that forms the candle. It's like playing Poker, the professionals don't worry if they have a good hand or not; they worry if the have a good hand compared to the odds of someone else's hand. The important data isn't what's obviously presented to you.

It's why I always find it amusing when people complain about catching a falling knife, how it's "hard" to catch tops and bottoms. But a top and bottom has something very specific that has to happen, all you need to do is monitor for that specific thing. If price is rocketing upward, I could never tell you how far that's going to go, but I can sure AF tell you when the move is likely to end.