An important pattern to look for and understand when trading or investing in stocks

An Important Trading Pattern

It can be difficult to determine which criteria to apply when selecting stocks from a technical perspective. In this video, I explain one of the patterns I use. This is one of the most important as it offers the opportunity to purchase stocks that have been in decline and then move into the steady accumulation phase before starting their upwards journey once more.

00:00

Introduction and webinar welcome

00:00

The speaker welcomes everyone to the afternoon webinar, apologizing for the slight delay in starting. They express gratitude to the attendees for joining from various locations around the world and briefly mention their own rural UK setting.

00:27

Trading disclaimer and session overview

00:27

The speaker expresses excitement about the global audience joining the session and thanks everyone for attending. They emphasize the importance of the disclaimer displayed on the screen, reminding viewers that trading carries significant risks and advising against using money that cannot be afforded to lose. The session will not focus on certain topics, which are not specified in this excerpt.

00:56

Volume price analysis explained

00:56

The speaker introduces volume price analysis as a method to predict price movements in stocks, forex, and commodities by interpreting chart patterns. They explain that this approach helps identify where price might go next, including potential pauses or reversals. The methodology is detailed in a well-reviewed book and its companion, which provides numerous practical chart examples. The speaker emphasizes that market behaviors and price cycles are fractal and repetitive, reflecting human nature and common trading mistakes. Recognizing recurring setups and signals through volume and price action allows traders to anticipate future price movements with reasonable confidence.

03:07

Applying VPA to stocks and charts

03:07

The speaker emphasizes the importance of timing when trading or investing in stocks, highlighting key elements such as volume and price analysis. They discuss the use of candlestick patterns and support and resistance levels as crucial tools. The methodology presented is versatile and applicable across different markets and chart types, not limited to stocks but also relevant for forex and indices.

04:13

Current market sentiment and trends

04:13

The speaker explains that the same trading principles apply across stocks and forex pairs. They briefly review the current market situation, noting that despite some corrections and pullbacks, the overall trend remains upward with new all-time highs being reached. The concept of ‘climbing the wall of worry’ is introduced, where markets continue to rise despite negative media sentiment. They reference Jesse Livermore’s advice that no market is too high to buy or too low to sell and mention that central bank actions, such as those by the Federal Reserve, are supporting the markets.

05:18

The discussion continues with a focus on the Nasdaq’s recent decline and potential shorting opportunities for traders. The speaker emphasizes that a major market crash would likely be triggered by the removal of support, particularly the end of cheap money flooding risk assets. Inflation is mentioned as a growing concern, but overall market sentiment remains positive due to ongoing vaccination programs and consumer optimism. The speaker also touches on the idea that the metrics used for trading stocks can also apply to investing, referencing short interest and the GameStop saga as examples.

06:30

Short interest and short squeeze insights

06:30

The segment discusses the phenomenon of massive short squeezes that occur when stocks are heavily shorted, highlighting the recent example influenced by retail traders on platforms like WallStreetBets. It mentions the possibility of increased trading restrictions for retail investors as a result. Various tools and platforms, such as Finviz, are introduced for identifying the most shorted stocks, although often the major price moves have already occurred by the time these stocks are identified. The speaker also touches on trading strategies after a short squeeze—whether to fade the move or continue with the momentum—and emphasizes using chart analysis to guide these decisions.

08:20

Building a watchlist and sector analysis

08:20

The speaker discusses the initial steps in building a stock watchlist, emphasizing the need for research and trial and error. Key factors include account size, stock price range, and whether to use technical or fundamental metrics. They highlight the importance of considering stock sectors—identifying which sectors are performing well or poorly—as a starting point. Once a watchlist is formed, technical analysis such as volume price analysis (VPA) and candle patterns help evaluate stocks. Additional background information like reporting dates and recent news is also important for monitoring.

10:36

The speaker introduces ChartSmart as a useful stock screening platform, mentioning plans to resubscribe due to its affordability and coverage of Canadian and US stocks. They explain how ChartSmart can be used alongside TradeStation’s radar screen feature to integrate technical metrics when selecting stocks. For example, in covered call writing, one might look for stocks in congestion with a mildly bullish bias. The speaker notes that they have developed their own technical indicators through quantum trading and highlights the value of using sector filters available on platforms like Finviz.

12:20

The discussion turns to sector analysis, outlining basic sectors such as materials, communication, consumer, energy, financial, healthcare, and industrials, including their subsectors. The speaker points out the usefulness of volume data and moving averages in sector charts, even if only line charts are available. They observe sector performance since last year’s market panic, noting technology’s strong recovery driven by major companies like Apple and Facebook. The number of stocks within each sector is also noted as a helpful factor. The speaker stresses the efficiency of visually scanning multiple charts once familiar with desired chart structures, using volume price analysis criteria. The segment concludes by introducing DMTK, a biotech stock, as an example tied to sector analysis.

14:38

DMTK stock case study with VPA

14:38

The discussion begins with a company specializing in skin cancer diagnosis, whose stock price surged rapidly from around ten dollars to a high of eighty dollars. The speaker analyzes the stock’s daily chart, identifying a saucer pattern representing a period of consolidation. According to Volume Price Analysis (VPA) and Wyckoff’s second law, breakouts after long consolidations tend to be explosive. Despite speculative nature, the stock shows sideways movement indicating research interest and potential future growth.

16:25

The weekly chart offers a clearer perspective on the consolidation phase where support and resistance zones develop over time. Using an accumulation-distribution indicator developed with NinjaTrader, the speaker highlights how certain support levels have been repeatedly tested and held. This dynamic is consistent across multiple timeframes, reinforcing the importance of volume and price-based support in understanding the stock’s behavior.

18:12

The stock initially launched just under twenty dollars but quickly dropped to around five, triggering a volatility candle. Subsequently, it stabilized near ten dollars, building a strong foundation through consistent volume and extended consolidation. On the daily chart, volume spikes begin to emerge during the consolidation, signaling gradual buying interest. Volume Price Analysis principles indicate that initial volume increases, followed by pullbacks with low volume, suggest underlying strength and potential for upward movement.

19:56

Volume continues to build with progressively larger spikes, culminating in a volume point of control (VPOC) shifting higher on the weekly chart. This indicates that the most traded price zone has moved upward, reflecting growing market interest and accumulation in the stock. The speaker emphasizes the significance of these volume trends alongside price movements to identify key support and resistance zones.

21:10

The stock enters another consolidation phase characterized by sharp pullbacks supported by strong volume, forming a robust support platform. Despite some selling pressure, it remains justified by underlying volume dynamics. A subsequent explosive move is followed by a gap up, likely driven by positive news about the company’s progress. The stock’s price has dramatically risen from ten to eighty dollars since December, highlighting the importance of volume analysis in tracking such momentum.

22:42

The speaker advises viewers to research the stock (DMTK) further using resources like Yahoo Finance or Motley Fool, incorporating fundamental metrics alongside technical analysis. The 52-week price range and average volume figures are reviewed. Future sessions will cover relative volume and VWAP (Volume Weighted Average Price), important tools for traders to assess support and resistance levels created by price action.

23:48

Support and resistance levels are defined using volume, price action, accumulation-distribution, and additional indicators like the Camarilla indicator. The speaker notes key resistance levels (R3 and R4) relevant for the current week, highlighting that the stock has already surpassed multiple monthly resistance levels. Monitoring these levels will help assess if the stock continues its upward trajectory.

24:59

The stock’s sector context is briefly discussed, placing it within the healthcare industry, which includes biotech and pharma sub-sectors. While the healthcare sector has gained around 19%, tech stocks have outperformed with a 48% increase. The speaker emphasizes that individual stock performance can vary widely within sectors, showing both significant winners and losers.

26:02

US indices market update and trap moves

26:02

The speaker introduces key US market futures indices: the YM (Dow), NQ (Nasdaq), and ES (S&P 500). These futures underpin the cash markets, which open at 2:30 AM local time. An unusual market event is noted—a ‘trap move’ involving low volume and a volatility spike, similar to an earlier trap on the Aussie Swiss pair, indicating something atypical is occurring in the market.

27:12

There was a rare low volume opening across the three futures markets, followed by a significant volatility spike and volume influx. This triggered a volatility indicator and long-legged doji candlestick patterns, signaling a trap move designed to lure traders into short positions before a sudden reversal. This unusual price action suggests a deceptive downside move that quickly reversed.

28:14

The subsequent price action shows narrowing spreads and very tight price ranges, which typically indicate market weakness rather than strength. While not signaling a full market crash, these patterns suggest a potential correction or temporary weakness before a likely continuation of the broader bullish trend. The daily chart shows fragile price movement with diminished volume, underscoring market uncertainty.

29:11

Reviewing recent price action, the market failed to sustain gains despite good volume, indicating fragility and lack of strength. The markets remain tradable but cautious, with signals pointing to vulnerability. The Nasdaq (NQ) has been more volatile and sometimes divergent from the Dow (YM) and S&P 500 (ES), reflecting ongoing uncertainty influenced by broader factors such as the pandemic and political events.

30:05

The Nasdaq shows slower recovery compared to the Dow, while the S&P 500 exhibits similar patterns of low volume and volatility spikes. Price wicks indicate attempts to recover but with uneven momentum. The question remains whether these indices will sustain upward movement or face further reversals. Volume and price behavior suggest a tentative recovery phase amid ongoing market volatility.

31:34

A 15-second chart of the Dow (YM) reveals a smooth upward trend with minor pullbacks and congestion phases. The use of a trend monitor helps visualize these transitions, showing periods of stability followed by volume injections that push price to higher levels. Accumulation-distribution levels provide additional insights, offering a visual tool to assess market strength and potential breakaways during these consolidation periods.

32:36

Accumulation distribution and support levels

32:36

The speaker explains the concept of price action strength using lines of varying thickness to indicate the strength of support and resistance areas, with thicker lines denoting stronger levels tested multiple times. Volume and price are used similarly to define support and resistance, with low volume nodes expected to allow rapid price movement through those levels. The accumulation distribution indicator shows strong price-based levels that hold when tested.

33:37

The discussion continues on price and volume-based support and resistance, emphasizing that low volume areas typically indicate zones where price will move quickly due to little resistance. As volume builds near certain levels, price movement slows. The combination of volume and price data gives a clearer picture of potential market behavior, including when price breaks away from volume points of control and moves through lighter volume zones.

34:29

The trend monitor is reviewed on different time frames, showing some choppy price action but overall decent volume. Selling volume under recent candles is not aggressive, and price-based resistance is present with volume falling quickly. If price breaks through these resistance levels with volume support, it indicates a potential move higher, with the next levels to be assessed on longer time frames.

35:20

The speaker describes a classic volatility trigger pattern where an initial sharp downside move traps traders before reversing upward. Multiple time frames reveal strong accumulation distribution levels that price must break through with volume to continue higher. The importance of analyzing various time frames is stressed, as strong resistance clusters may affect short-term scalping trades and overall market direction.

36:09

If price can break through key resistance levels with volume, there is potential for a significant move upwards. On the five-minute chart, price hit a resistance level with decent volume but showed signs of weakness and selling pressure. This suggests the possibility of a pullback towards the volume point of control, highlighting the dynamic nature of price action and the need to monitor volume closely as the session progresses.

36:57

On the 10-minute chart, a large volatility spike with high volume was followed by a reversal, indicating potential market congestion or a trend reversal. Sideways market conditions prompt trading on shorter time frames like 15 or 30 seconds to capture tradable moves. The presence of low volume nodes creates ‘clear water’ zones that facilitate rapid price movements, offering opportunities for scalpers to capitalize on these short bursts.

37:48

The speaker highlights the importance of volume areas as key support and resistance zones, noting the lightweight volume in some areas that may allow price to move freely. The trend monitor’s color changes reflect ongoing market strength or weakness. The indicator automatically generates lines representing the strength of price levels, which thicken with repeated testing, visually reflecting market muscle. Users can filter these levels to focus on stronger or all price action zones, aiding in trading decisions.

39:06

Stock examples and pre-market price action

39:06

The speaker reviews a selection of stocks that have all performed well, showing a variety of price levels but sharing similar chart patterns. They highlight the importance of pre-market price action for intraday trading, explaining that traders focus on price levels that indicate support and resistance. Using a 10-minute chart example, the speaker emphasizes how pre-market activity helps identify key levels that may influence trading decisions during the session.

40:17

The discussion shifts to the significance of consolidation phases in stock charts, particularly from an investment perspective. Stocks that have been in consolidation for some time often present breakout opportunities. The speaker illustrates this with a daily chart example of a stock that has risen from 80 cents to over $3, highlighting volume spikes that indicate buying interest and support levels that form the basis for upward moves. They explain how volume patterns and volatility triggers help anticipate either reversals or congestion phases.

42:28

Examining volume and price action in detail, the speaker describes how markets react around volatility triggers and support/resistance levels. They note that despite some volume fluctuations, the overall trend remains upward. The speaker introduces the concept of Camarilla pivot points (R4, R6, S6) as potential targets for price moves. They stress the importance of monitoring these levels to gauge potential price trajectories, even in low-priced stocks where percentage gains can be significant.

44:20

The speaker reflects on the manual process of scanning thousands of charts nightly to identify promising setups based on shape, consolidation, and volume profiles. They demonstrate this approach with another stock chart, showing periods of resistance turning into support, sideways trading with high volume, and recent modest price declines accompanied by falling selling volume. This suggests weakening selling pressure and potential for recovery, illustrating how volume trends can signal market strength or weakness.

46:06

Further analysis focuses on volume behavior during price pullbacks, where falling volume on downward moves signals lack of strong selling pressure. The speaker explains that while broader market trends influence stocks, individual stocks can diverge. Using intraday and daily charts, they highlight how volume spikes and congestion areas help anticipate continuation or reversal. They also identify key pivot points (R4, R6) as important reference levels for potential price targets.

48:21

The final segment reviews another low-priced stock with strong congestion and volatility patterns. The speaker shows how volume distortions can be adjusted by zooming out on the chart to get a clearer picture. They note an injection of volume breaking through a volume point of control and low volume nodes, indicating potential upward momentum. The stock is trading near key resistance pivot points (R1, R2), with room to advance toward higher levels (R4, R6). The segment concludes with a promise of further detailed stock analysis in the future.

49:17

Market levels, trend monitor and trading tips

49:17

The discussion focuses on primary market indices showing a shift from negative to positive momentum, with emphasis on the YM index reclaiming strength. Multiple time frames are analyzed, revealing a recent pullback that is now reversing higher. Key resistance levels have been breached with decent volume, indicating bullish price action despite volume not being as strong as desired. The market attempts to maintain an upward trend, with significant price levels being tested across 5 and 10-minute charts.

50:23

Attention is on testing a critical resistance level on the 15-minute chart. If the price breaks through this level with solid volume, it is expected to trigger a strong rally towards higher targets around 500 and 520. Volume is decreasing nicely as the price approaches these levels, supporting the potential for continued upward momentum.

51:01

Quantum Trading indicators and education program overview

51:01

The speaker highlights the availability of various trading indicators on quantumtrading.com for multiple platforms including MT4/5, NinjaTrader 7/8, TradingView, and TradeStation. TradeStation is available in two versions: one driven by Interactive Brokers and another via TradeStation Securities. Customers who purchase one or more indicators receive credits for upgrades or package changes, ensuring they never lose their investment. Those who buy the full package receive lifetime upgrades and all future indicators free of charge. This policy also applies to TradingView users.

52:28

The speaker discusses the development of forex-specific indicators such as the currency array, currency matrix, heat map, support/resistance, and VPOC, which will be available on TradingView with the full package. They also mention the funded forex program that enables traders to trade with the company’s capital rather than their own. Emphasizing the importance of understanding equities, bonds, and commodities, the speaker explains that trading is fundamentally about managing risk and money flows across markets. Finally, they highlight the availability of educational resources, analysis, and books on Amazon, noting the success of a recently launched Vietnamese edition.

53:52

The speaker thanks the audience for attending, expresses hope that they enjoyed the session, and mentions that they will return soon. They wish everyone a good trading day and sign off.

 

By Anna Coulling – creator of volume price analysis