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This chart was the more tricky one to work out, and while you would not have known the coming result for sure. There was enough info to suggest the downside held the higher probability..
In a nutshell, the gap up high volume bars should always be respected and questioned (as they may be 'full of supply', or they may be legitimately strong). In this case the next bar had even higher volume, and price hardly made any more ground higher. At this point you could 'suspect' supply was coming in (and short term, day and momentum traders should have seen the potential weakness and sold). Then when the next bar was down in response, it probably confirms the selling pressure in the previous two bars.
The downbar has much lower volume though, so the sellers did not chase price lower.
Price then moves sideways and attempts to consolidate the gains, by absorbing any further supply coming in.
It even shakes out in an attempt to remove the sellers.
But if you look across the whole sideways range, and notice all the high volume upbars that made no ground higher at all (this is the telltale sign after the initial weakness was seen). Take note that almost all of them saw the next bar closing lower.....which suggests there was selling on the upbar and helps to confirms ongoing selling pressure. Someone or some group is most likely selling a large position up here, and are possibly setting new short positions at the highs.
