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Despite the initial occurrence of heavy selling due to profit-taking, the market could recover quickly once this period of profit-taking has concluded. Consequently, the very early price action after a buying peak may not give a clear signal as to the near-term direction. More price action is required to determine the outcome of the trading range. The boundaries of the trading in which prices vacillate between a particular range are difficult to estimate early on. Patience is required to allow the range to establish itself.

After the first decline, typically, another assault on the recent highs is attempted. If the volume on this advance (Figure 1, point B) is weak, then the evidence points to lower prices, because the lack of volume indicates the higher prices are not attracting buyers. Without a sign of increasing demand, the market should fail to hold its gains. At this stage, it is likely that participants who did not sell the last time the market was in this price range will not let this second chance slip away. A decline in prices will unfold without a firm bid to the market.

As this decline moves lower, a price that should attract buying will be reached. The buying will be made up of participants who believe that the price level reflects an undervalued situation. The demand, in turn, should be very strong. The evidence of demand is represented by the high volume and the close at the upper side of the range (Figure 1, point C). It would be even more favorable if the volume was larger on this minor advance compared with the day (point A) of profit taking that initiated the onset of the trading range, for this would indicate that the buying on the sidelines was stronger than the sellers.