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Volume, the subjectivity of interpreting
it. We are going to briefly review the

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implications of the law of effort versus
result so we can subsequently add a new

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way of interpreting this interaction,
which will allow us to draw new

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conclusions about market participation.

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In financial markets, effort is
represented by volume, while the result

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represented by price.

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This means that the price action should
reflect the volume action. Without

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effort, there cannot be a result.

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It is about evaluating the dominance of
buyers or sellers through the

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convergence or divergence of price and
volume.

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With respect to volume, a significant
increase indicates the presence of large

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traders looking to generate a movement,
be it a continuation or a reversal.

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If the effort is in line with the
result, it is a sign of the harmony of

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movement and suggests its continuation.

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If the effort is not aligned with the
result, it is a sign of the divergence

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the movement and suggests a reversal.

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Meanwhile, objectively, the absence of
volume tells us there is low

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participation. For whatever reason,
there are only a few traders interested

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trading at such price levels, which
translates into low volume.

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This complete comparison table shows the
application of the principle of effort

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versus result in different contexts
which, as you know, is an excerpt from

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book, The Wyckoff Method in Depth.

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Based on the law of effort versus
result, We always try to analyze the

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action with respect to the traded volume
to try to determine if the movement

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suggests harmony or divergence.

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We have always been told that an impulse
movement, to be valid, should be

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accompanied by high volume, which
represents the participation of the

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traders supporting the movement, and
that on the other hand, if the same

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movement is accompanied by low volume,
it represents divergence and means we

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should treat that movement as false.

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suggesting a potential and imminent
reversal in the market.

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Well, this can apply to a large number
of cases, but like everything that has

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do with the market, it is not an
absolute truth.

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If the price undertakes an impulse
movement with high volume, this is a

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positive sign, but if it does so with
low volume, this is not necessarily a

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negative sign.

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The rationale has to do with the intent
of the traders who are currently

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participating in the market.

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Here are a couple of order book charts
that show the importance of passive and

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aggressive participation, as well as the
incidence of the lack or absence of

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participation on one of the sides, an
excerpt from my book Wyckoff 2 .0.

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Is it then possible that the market can
move in one direction and that it does

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not necessarily suggest a divergence?

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Absolutely. This is what happens when
there is not a lot of very active

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of one of the parties, buyers or sellers
in the market.

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The absence of participants in one
direction makes it easier for the market

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move in the opposite direction.

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It is pure logic. If there are few
sellers willing to sell with very little

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buying power, buyers will push the price
up quickly and easily, and very few

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trades will take place because there
will be very little supply available.

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All of this will be reflected as a
bullish move accompanied by relatively

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volume. This is exactly what happens in
this example from the s andp 500 futures

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market We see an upward trend movement
that at the aggregate level shows a

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decrease in volume during practically
all of its development Especially in the

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final part But what is very striking
moreover is what we can see in the

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have marked These are upward impulse
movements accompanied by really low

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Extremely low I would say but the market
doesn't care and continues to go higher

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and higher.

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I am sure that there would be many price
and volume traders looking at the asset

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at this point and considering the
possibility that the market was going

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showing divergence, since it is not
accompanied by relatively high volume,

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leading them to continually forecast
bearish scenarios.

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As we can see, these types of
interpretations are utterly wrong, since

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start from a basic misconception.

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related to the level of interest and
participation on both sides.

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This is a very clear example of what I
am trying to illustrate with this

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concept. If the market is severely
unbalanced upwards, where most traders

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believe the price is undervalued and far
from its fair valuation, the market

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will most likely move higher, without
relatively high volume, basically and

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fundamentally because there will not be
many traders willing to sell.

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Later, we will return to this concept.

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applying it to a particular situation,
the moment of the breakout.