Constructing four-state range-volume bars

A two-axis bar classifier

Volume-price-analysis compares a bar's price travel with its volume to measure how much range was produced per unit of activity. Candlestick-patterns supply the price-structure half of that comparison: high-low range, close location, and inside-bar structure.

Volume-confirmation is the second axis. It accepts or rejects the range story by whether volume rose or fell versus the prior bar. The four states are not read from a candle's shape alone.

Build the facilitation ratio

A bar-level facilitation ratio is constructed as the high-low range divided by that bar's volume. That quantity is the market-facilitation-index: the bar's high minus low, divided by that bar's volume.

The ratio is not a standalone score. It is interpreted by comparing the current bar with the previous bar's ratio and volume, not by reading a single bar in isolation.

Four states from two comparisons

Four states follow from the two binary comparisons of whether the facilitation ratio and volume each rose or fell versus the prior bar. The states are mutually exclusive because each bar can only rise or fall on each axis.

When both volume and the facilitation ratio rise versus the prior bar, the construction treats the bar as directional participation by new traders. That state is a green-bar. Tick volume may stand in for volume on intraday bars.

When both volume and the facilitation ratio fall versus the prior bar, the construction treats interest as waning. That state is a fade-bar. The construction places that state often near the end of a trend, after which a new trend may emerge.

When the facilitation ratio rises while volume falls, the construction treats the wider range as lacking new outside participation. That state is a fake-bar.

When volume rises while the facilitation ratio falls, the construction treats the bar as heavy activity that fails to extend range. That state is a squat-bar: a stall that can resolve as either reversal or continuation once the bar is broken.

The same coloring on every timeframe

The same four-state coloring is applied from five-minute and hourly bars through daily, weekly, and monthly bars. A higher-timeframe stall can nest a lower-timeframe range of high activity with little net progress.