Testing for Supply

Let us move on to the indication of strength. One of the most powerful indications of strength is the “Testing for Supply”.

After down trend when the SM has accumulated enough and is ready to move the stock up again they test if there is still supply present. Also in an uptrend if the SM encounters large supply they would pause till the supply disappears. Then they would check again to see supply is present.

The Testing for supply is done by rapidly marking down the price. If the stock recovers towards the high and the volume is low it would mean that there was no supply. If the volume is high and if the stock fails to recover it would mean that there still supply present. Low volume or less trading activity indicates a successful test.

A TEST bar typically dips into a previous high volume area and recovers to close near the high on low volume.

A test bar viewed in isolation does not signify anything. It necessary to look at the background to ascertain the strength of the Test bar. If there has been absorption volumes just before the Teat bar the strength of the test bar becomes more significant.