No Demand Understanding Bearish Market Trends

How does a trader identify no demand in bearish market trends? A lack of demand is the most common indication and you will regularly see this on stock charts. A no-demand bar will be a low-volume up bar with a narrow spread.

No Demand

There are three places where a ‘No Demand’ bar can show up:

  1. In an up trend
  2. In a downtrend
  3. At market tops

A high probability trade is to short on a no-demand bar when you are in a downtrend. An even higher probability trade is if you have a significant sign of weakness behind you, a climatic bar or a buying climax. A trader can look at placing a trade when a ‘No Demand’ bar appears. You must see either an ‘End of a Rising Market’ or a ‘Buying Climax’. The no demand must appear at the same price levels where these climatic bars appear.

No Demand in an Up Trend

No Demand in a up trend
No Demand in an Up Trend

No-demand bars in an up trend usually will cause prices to decrease for a few bars. Prices at any time can quickly rebound up, to resume the up-trend. The up-trend will continue because there will be climatic action in the background, i.e. strength. The strength appears in the market when professional traders are buying from the panicked herd who are selling their holdings after negative news.

Once professional traders have accumulated at the lows then the up-trend will begin. Markets do not move in a straight line. Prices will retrace back and usually, the start of a retracement will occur when a No Demand bar appears. The volume of this bar is usually lower than the two previous bars.

In the first No-Demand bar shaded in yellow, the price dropped over three bars. In the third bar, a sign of strength appeared which continued the rally. The second No Demand appeared after a “Supply Coming In” which occurred two bars prior. The market moved down two bars and a sign of strength appeared which enabled the market to continue rallying.

No Demand at Market Tops is Bearish

No Demand at market tops is a high probability trade setup when they appear after ‘climatic action’ at market tops or an ‘end of a rising market’ indicator. A No-Demand that appears within 5 bars of the climatic action bar, a serious sign of weakness, and into a new price action area, or at an old resistance level, is a valid no-demand confirming the bearishness.

These setups will appear after positive news and at times may appear after a gap in price, exciting the herd to enter the market at these tops.

Taking a short trade after a no-demand bar, make sure there is a serious sign of weakness in the background. Also, the no demand must occur within 25 bars. If upthrusts appear after a serious sign of weakness, means that upthrusts and no-demand bars are confirming the weakness.

It’s considered aggressive trading ‘no demand’ at market tops if you have indicators showing weakness. If they appear at previous resistance levels, the probability of a successful trade is greatly increased.

No Demand in a Down Trend is Very Bearish

When we see no demand in a downtrend after climatic action or an end of a rising market, this is usually one of the best trade setups that you can get to the short side.

When you see no demand in a downtrend, do not immediately trade it. Place a sell stop a tick or two below the no-demand bar. Doing this you will avoid getting caught out by upthrusts which will often appear after a no-demand bar.

Most traders lose money in the markets by chasing price, meaning they buy on up bars and sell on down bars. Professional traders do not operate like this. High volume indicates that professional traders are active and low volume means they are inactive.

In a downtrend, if professional traders become inactive when the price rises, then they are sending a signal that lower prices are coming. This is what we call No Demand when we are using the volume spread analysis methodology.

no demand in a downtrend
No-Demand in a downtrend

Confirmed Weakess After Climatic Action

In the chart above we have climatic action with ultra-high volume. The market continues to rally and at point A we have a market top. The first sign of weakness is no demand and the second sign of weakness is an upthrust. As we mentioned earlier, upthrusts usually appear after no demand and this confirms the weakness.

The market drops and rallies back to the previous top at point B. We see a no-demand bar which also confirms the weakness. We can also see that the market is mushrooming and the price begins to drop.

The market is in a downtrend and at point C we witness a no-demand bar after a two-bar retracement. Clearly we can see volume is decreasing and the price is retracing indicating that professional money has no interest in higher prices. The market continues to drop after the confirmation of the no demand.

Trading in the shadow of the smart money

In “Trading in the Shadow of the Smart Money” Gavin discusses why market manipulation is actually a good thing for traders and investors who can read the chart correctly based on universal laws. All markets work because they are governed by three universal laws, which are the law of supply and demand, the law of cause and effect and the law of effort versus result. To make money in life there is a fourth and very important law, the law of attraction, and for the first time in any book on trading that we are aware of Gavin unlocks the key to success in trading and investing in the markets: BELIEF in your human ability to make money and in your system to read charts. The book gives actual trade set ups taught to Gavin by Tom Williams and gives over 50 annotated color charts explaining the VSA principles bar by bar.