What is the concept of confirmation in market analysis?

Confirmation in market analysis refers to the principle that the validity of market movements is established through subsequent price action that aligns with the initial movement. In this context, when there is a downward movement in prices, confirmation occurs when new lows are reached. This suggests that the downward trend is strong and continues, reinforcing the view that the market is indeed in a bearish phase.

In technical analysis, traders often look for such confirmations to validate their trading decisions. For instance, if a stock begins to decline and then subsequently hits a new low, it provides evidence that the sellers are in control, and the downtrend may persist. This concept is essential as it helps traders avoid false signals—movement that doesn't have the backing of additional price action.

Other choices, while they may touch on various aspects of market analysis, do not directly embody the concept of confirmation as understood in technical analysis. The establishment of new highs, for instance, might indicate a bullish trend but does not reflect the confirmation process related to downward movements. Meanwhile, significant price retracements or prioritization of volume over price trends also do not specifically address how secondary price actions confirm ongoing trends in a specific direction.