“Hi David in your comment today about China you mentioned 'upside dynamics indicate accumulation'. If possible please could you go into more detail on this. Eg: Is it that lows are holding on blue candlesticks or a combination?  Any suggestions on what to look for would be really appreciated. Many thanks,”

David Fuller's view

Thanks for a relevant question on a topic covered at The Chart Seminar. I was talking about clues and probabilities rather than certainties, because there are few of the latter in markets and circumstances can change. 

However, a sideways trading range of at least a few weeks is caused by a temporary standoff between supply and demand.  In other words, buying and selling pressure is approximately equal; otherwise the market would not be trading in a clearly defined sideways direction.

The longer this pattern persists, the more it tends to thin out supply above and below the pattern, as people who were hoping to sell a little higher will have to lower their offers if they wish to get out quickly.  Conversely, some of the people hoping to buy below the range will raise bids if the market has steadied at a slightly higher level.  In other words, if the market is not going to them, they will have to change their bids and offers and go to where prices are trading, if they wish to be sure of participating. 

Eventually, the neutral supply / demand balance will change, as one or the other gains the upper hand.  There are often clues in the form of price dynamics within the range shortly before the eventual breakout.  If demand is beginning to increase relative to supply within the range, some of the daily price action will show bigger daily rallies relative to declines within the range.  This is most easily seen on candlestick charts where blue candles indicate that the market closed higher than where it opened.  Conversely, larger red candles would show that selling pressure was increasing as the market closed sharply weaker than where it opened on that day.

These clearly stronger or weaker moves within ranges are examples of the price dynamics that Eoin and I refer to on occasion.  As a ‘rule of thumb’, I would pay more attention to the most recent clear dynamic within the trading range, since the supply / demand balance may change quickly for some reason.  If the price breaks out of the range on a dynamic, and sustains the move, that action will attract attention.  If the prior range was sufficiently lengthy to reduce supply above or below the pattern, a self-feeding trend can easily follow a successful breakout.    Treat yourself to The Chart Seminar.