Blow Off Bottom
The term blow off bottom refers to extraordinarily high trading volume in a single session that is associated with the end of a downward price trend. A blow off bottom can be seen in charts, and is used by technical analysts to predict price trends.
Technical analysts study various market data with the hope this information will guide them in selecting securities. Two of these data include historical trading volume and security price trends. One of the predictors used to signal the end of a downward price trend is a blow off bottom, which is characterized by both a rapid decrease in the price of the security and a spike in trading volume. A blow off top is the converse of a blow off bottom.
The appearance of a blow off bottom can be the result of unexpectedly good financial news as well as market speculation. A blow off bottom signals the end of a security’s downward price movement, and the beginning of an increase in price. This trend is characterized by the following:
- A statistically significant spike in trading volume, oftentimes appearing in a single trading session.
- A historical pattern of price decreases, followed by a sharp decline in price on the same day trading volume spikes.
- The inability of the security to sustain the low price occurring earlier in the trading day, indicating a resistance level.