Price & Volume support & resistance on the gbp/jpy

Price & Volume support & resistance on the gbp/jpy

Support and resistance are essential tenets of volume price analysis. In this video, David explains how we can identify these key levels by using both price and volume, using the gbp/jpy as an example.

The pair sold off sharply this morning as market sentiment soured, and the British pound followed suit.

00:16

Introduction to price and volume resistance

00:16

The speaker begins by addressing technical issues with the microphone and participants’ audio. They then recap their starting point with the ‘pan’ to emphasize the importance of supporting resistance from both price and volume perspectives, and mention moving on to discuss multiple CSIs to further illustrate these points.

00:52

Currency movements across multiple timeframes

00:52

The speaker discusses currency movements across various time horizons, including three, five, ten, and fifteen-minute intervals. Currently, there is notable buying activity in the British pound and the Japanese yen across these shorter time frames. Specifically, the pound shows consistent buying, as indicated by the yellow line, and the yen is also experiencing buying pressure. This trend extends up to the daily time frame, despite previous congestion. When two trend lines move in the same direction, it suggests the absence of a clear trend due to overlapping tracks, as explained using an analogy.

01:54

Trend momentum explained with train analogy

01:54

The speaker explains currency trends using the analogy of two trains on parallel tracks. When both trains move in the same direction, there may be some difference in speed, but no strong divergence. However, when one currency rises while another falls, like the pound rising and the Australian dollar falling, this creates momentum in the trend due to the opposing movements. This differential or closing speed between the two currencies increases the strength of the trend.

02:44

Impact of opposing currency movements

02:44

The discussion focuses on the pound-yen currency pair and addresses a question about whether the current trend indicates a reversal. The answer depends on the trader’s time horizon; for short-term windows like five, fifteen, or sixty minutes, the observed movements might suggest a reversal, but one must interpret the data within the context of their specific time frame.

03:33

Timeframe considerations for reversals

03:33

The speaker explains the importance of focusing on a specific trade time frame, such as the 15-minute chart, while also observing faster time frames like the 5-minute chart. Price action on the 5-minute chart can show multiple oscillations between overbought and oversold conditions that appear only as minor pullbacks or reversals on the hourly chart. This highlights the need to understand how different time frames interact. For example, a 5-minute chart may complete a full scalping cycle, but the hourly chart might only indicate a minor trend change. Traders should use the 15-minute chart as a focus while acknowledging the signals from the faster 5-minute chart to make informed decisions about potential reversals and trend directions.

05:08

Oscillations and mean reversion in currencies

05:08

The discussion centers on the importance of multiple time frames in market analysis, particularly the 15-minute and hourly charts, which apply to all types of charts including currencies and indices. The focus is on the constant oscillation and mean reversion characteristic of currency markets, where prices move between overbought and oversold conditions. The speaker demonstrates this by adjusting charts to various time frames—3, 5, 15, and 60 minutes—showing how the pound is rising across these intervals, indicating a consistent upward movement across multiple short-term horizons.

06:19

Using multi timeframe analysis and Russian dolls analogy

06:19

The speaker explains how price movements on different time frames interact, using the example of buying the pound and reversals on the 3-minute chart potentially leading to changes on the 5-minute and 15-minute charts. They describe the market structure using analogies like Russian dolls and concentric wheels, illustrating how smaller time frames can move differently than larger ones, requiring traders to continuously analyze these multiple layers.

07:17

The discussion continues on the complexity of interpreting various time frames. The speaker notes that what might appear as a full cycle on a 1- or 2-minute chart might just be a pullback on a 15- or 30-minute chart. This difference in perspective can cause confusion and nervousness for traders, emphasizing the importance of volume as a confirming indicator to differentiate between a true trend reversal and a simple pullback.

08:21

Volume is highlighted as a critical tool to confirm whether a market move is a genuine reversal or merely a pullback. If volume does not support the price movement, traders should consider it a pullback and maintain their current trend perspective. The explanation aims to clarify these concepts for the listener and transitions into an example involving the pound-yen pair to illustrate these principles in practice.

09:25

Market opens and initial price action

09:25

The segment discusses the advantages of using the NinjaTrader platform for real-time charting, highlighting its accurate timestamps compared to MT4/5, which have delayed timestamps. The speaker references different market opens such as European and London, explaining how NinjaTrader makes it easier to identify these times. They then analyze market sentiment during the European open, noting a weak rally despite an initial gap up in the UK 100 futures market.

10:29

UK market weakness and VIX rising

10:29

The speaker discusses market movements, focusing on the UK market’s decline as reflected by the VIX rising to 0.6, indicating increased volatility and negative sentiment. They explain the importance of support and resistance levels using the accumulation distribution indicator, which highlights these levels by line thickness to show their strength. The segment sets the stage for a detailed analysis of market sentiment and technical indicators.

11:30

Support and resistance via volume point control

11:30

The speaker explains that the level shown has been thoroughly tested multiple times, making it a broad and reliable indicator of support and resistance from a price perspective. They introduce the concept of the volume point of control, represented by a yellow line indicating the highest concentration of traded volume. This brings together the concepts of volume, price, and time, emphasizing that longer congestion periods result in stronger volume regions that act like support and resistance.

13:05

The discussion continues on how markets behave around volume regions, noting that low volume areas allow prices to move quickly through them. The speaker considers a potential market reversal unlikely due to current sentiment, with the yen being bought and UK indices falling while the VIX rises. They mention checking US markets but highlight that if the yen is strengthening, markets are more likely to decline.

13:32

The speaker illustrates the challenge the market faces if it tries to move higher, needing to break away from the volume point of control, which acts as a fulcrum or equilibrium point. This is compared to a seesaw balanced with equal weight on both sides, where movement requires overcoming this balance between market participants.

14:01

Breakaway trades and volume confirmation

14:01

The speaker explains market momentum and sentiment, emphasizing that if a market is breaking down, rising volume under downward candles indicates heavy selling pressure necessary to create a breakaway trade. For an upside breakaway, traders need to monitor key resistance levels that must be breached. Once these levels are crossed, the market enters a low volume area, or ‘clear water,’ where price should move quickly due to minimal resistance.

14:53

Further discussion focuses on identifying protective stop loss levels below strong support wedges once the market breaks through resistance. The speaker highlights the importance of money management and using chart information to estimate reasonable returns. They mention a potential price run from 60 up to 85 or 90 before encountering resistance again, suggesting a target range of 20 to 30 pips as a practical gain relative to the risk taken.

15:55

Daily chart congestion and break trading

15:55

The segment explains a trading analysis based on support and resistance using two key indicators: accumulation distribution and volume point of control. It highlights a solid wedge of resistance with significant volume due to extensive congestion on the daily timeframe. There is a notable low volume node between 139.50 and 141.00, spanning approximately 150 pips. The speaker describes a persistent congestion phase building on the daily chart, which is expected to eventually break down, presenting a trading opportunity. The direction of the breakout—either downside or upside—will determine the volume levels traders will encounter, with more volume resistance on the downside and less on the upside beyond 137.

17:04

Volatility’s role in trading opportunities

17:04

The speaker emphasizes the importance of market volatility as a key driver for trading opportunities, highlighting that high volatility periods coincide with strong trends that can lead to rapid gains or losses. They note that during quieter market days, such as the recent ones mentioned, there is less movement and fewer risk-on or risk-off swings, making these times less favorable for active trading. The discussion points out that recent weeks with high volume and volatility were crucial for traders to maximize their activity, regardless of the market or asset class, and that current conditions show a reduction in volatility and volume compared to those peak periods.

18:37

Maximizing profits on volatile market days

18:37

The speaker emphasizes that most trading days yield only small profits, described as ‘pocket money,’ with minor fluctuations up or down. However, during rare but significant market moves, traders must act decisively and invest heavily to maximize earnings quickly. Recently, there have been several such opportunities, resulting in excellent trading conditions.

By Anna Coulling – creator of volume price analysis