Stopping Volume and Bottom Reversal

Absorption volume or stopping volume are alerts to signs of impending reversal. To stop a down move, demand has to overcome supply. As the market keep falling, weak holders will tend to panic as they are unable to accept capital losses. Background should be very weak and there is a visible down trend behind. To reset the game, the SM will start accumulating at the bottom. Definitely, the stock does not reverse immediately after the down move, do wait for further signs of strength such as a confirmation of test or a reverse upthrust.


Characteristic of a Stopping volume

1. Wide spread down bar closing on middle to high. Volume must be very high to ultra high.
2. Sometimes at market bottom, we do see an ultra high volume as well but it closes at the low instead. This could be potential signs of reversal too, depending on the trading activity of next bar. (2 bars bottom reversal)
3. Still on point 2, the 2nd bar should took out the high of the previois high convincingly, volume should still be high as well but lower than the previous bar.

My own observation : Once a potential stopping volume is spotted, always wait for the next bar. If the next bar closes within the body of the previous bar, with lesser volume, this could mean that supply has dried up. In the future, if we see no demand bars and price fails to penetrate the high of the stopping volume bar convicingly, be cautious.


After we witness this climatic reaction, a stopping volume, price could also potentially go further down too. Take note of the characteristic of the next bar, if it closes lower with lesser volume, this can also indicate that supply has dried up. Could be a really nice test+shake out bar. Will need need confirmation on the 3rd bar.

Below are 3 Charts that show some examples of stopping volumes and exhibit reversal pattern.

1) Wilmar

2) Olam

3) Genting SP

4) [Insert CitiBank]