David Ryan: the conditions for a stock to take off
“In a trough, you need rising volume and an absence of price volatility for the stock to turn back up.”
— David Ryan
Two conditions must come together for a stock to turn back up after a decline: price stabilisation, measurable through a falling ATR, then rising volume. The first signals that selling pressure is exhausting itself, the second confirms buyers are back. Without both, it is only a technical bounce.
David Ryan managed to reduce to the essentials what has to happen for a stock to turn back up after a fall. And the reason is simple.
Why a reversal never happens without warning
A price does not change direction by magic, without notice. You just have to know how to read the warnings.
Before genuinely turning back up — and not merely producing a technical bounce — the price needs to stabilise. That stabilisation shows up as a drop in volatility.
The tool: the ATR (Average True Range)
The simplest indicator for measuring volatility is the ATR (Average True Range). In a nutshell: the ATR measures the size of the candles.
If the ATR falls after a decline in prices → that is a first positive sign.
David Ryan’s formula
Confirmation that the reversal is real then comes from rising volume.
Which gives the formula:
Price stabilisation + falling volatility (ATR) + rising volume = lift-off
How to use this signal
With this quote alone, you will be able to identify major reversals.
To go further, pair these two conditions with additional confirmations:
- Moving averages turning up
- Moving average crossovers on price
- Price action indicators
The goal: entering a position with confidence, based on a cluster of converging signals — not on a single isolated indicator.