Seems that I talk myself in circles regarding the meaning of volume. Here, after a significant advance to the downside, I think there is some meaning in this spike. Obviously, buyers and sellers have met on happy grounds, since price stayed in a tight range on the tick chart. That gives me something to watch on subsequent bars. 4 bars later there was a test of this low, which did not quite make it, and was on very much smaller volume. This suggest that the buying pressure was sufficient to guard the earlier low, and selling pressure had lost its momentum. At least in relation to each other it appears that a test to the upside may be in the offing. I did not show it, but I will often take a long on a supply line break on something like this, as I often observe a sharp move from such a test. Actually I will often place a buy stop just above the bar that has the potential to become a higher low point after such a lack of volume follow through. But as you have said, and as I read in Shaybacker this is really just a measure of activity at this level. In the ballpark?
In the ballpark. The increase in activity in that interval is not in and of itself important. What matters is the result of it, which is that price stops falling. This means that there are enough buyers to absorb whatever sellers are throwing at them AND pay higher prices in the bargain. This does not guarantee a reversal though it may set the stage for it. Sellers are after all thrilled to be able to command higher prices. So price reverses. It's not difficult, however, to find examples of spikes of this kind stopping the decline for a bar or a few only to result in price's continuing fall. This can happen several times before price finally finds a bottom. The advantage of the SLA in this regard is that the requirements for a reversal trade are cream cheese firm, i.e., you've got some flexibility if you need it, but you're prevented from doing any real damage to yourself. In cases where "preliminary support" repeatedly shows itself, the requirements for a reversal trade just aren't, as a rule, met. In this case, they are, but the volume doesn't have anything to do with the decision to take the trade or not. It's there, of course, but one can see the result without being aware of it directly.
Here is my chart with notes. I'm not really studying entries yet although its no great mystery. There is one area I marked where I thought a short was warranted but no short was indicated.
First, the green dots are longs; the red dots are shorts. Exits are made at the break of the line, not noted because the annotations serve no purpose other than to clutter up the chart. Second, good catch on the "why no short?" I must have put it in after saving the chart and neglected to save it again. But, yes, there is a short there. Nice job. Face palms to everybody else, including me for being sloppy. This can be the gotcha chart for those who come along later.
Considering this volume spike happened at yesterday's low I imagine this is a combo of short covering, long liquidating and aggressive bulls initiating new longs. I'm not sure it means anything except this is a spot a lot of people see on their charts.
Just for grins, try this. It's a chart we haven't looked at, though those of you who for some reason are interested in trading the ES may have done so. I've posted the first trade to get you started. And those of you who are just tuning in and want to get the most out of this should avoid looking at your neighbor's paper and complete the exercise before reading other people's work.