Discover how to trade volatility by looking to the cross currency pairs

Discover how to trade volatility by looking to the cross currency pairs

Discover how to trade volatility by looking at the cross-currency pairs, and this morning in the London session, this was a good example. Many forex traders would have been focused on GBP/USD as the news was released, leading to a whipsaw in price action. However, moving to the GBP/AUD delivered some real trading opportunities with lower risk.

00:01

Webinar introduction and disclaimer

00:01

The webinar begins with a warm welcome from the host and her husband David. She reminds viewers of the trading disclaimer, emphasizing the risks involved and advising against using money they cannot afford to lose. She also introduces the session for first-time attendees.

00:29

Overview of volume price analysis method

00:29

This session focuses on analyzing the U.S. markets, particularly the indices. David will present charts related to oil, gold, silver, and other commodities and indices, while the speaker will cover forex charts. The analysis is based on price action combined with volume, following a methodology called volume price analysis that they have been using for over 20 years.

01:03

Price action and volume relationship explained

01:03

The segment explains the relationship between price action and volume in trading. Volume represents market participation and activity, which helps confirm whether a price movement is genuine or manipulated. Understanding this relationship is crucial because market moves can be deceptive, often designed to trick traders and cause financial losses.

01:35

Key elements: candles, support, resistance, time

01:35

The segment introduces volume price analysis, which combines price action, volume, candle patterns, and crucially, support and resistance levels. It mentions the use of two specialized indicators for support and resistance but acknowledges that traders may use their own methods. The final key element of volume price analysis discussed is time, which will be examined across multiple time frames.

02:09

Volume price analysis book and examples

02:09

The Volume Price Analysis (VPA) book, which contains over 200 worked examples across various time frames and markets like stocks, indices, commodities, and forex, remains relevant even years after publication. This is because VPA signals and chart structures follow consistent principles that repeat endlessly across all time frames. By learning to recognize these patterns, traders can better anticipate future market movements.

03:19

US labor market and unemployment data review

03:19

The segment discusses the recent fundamental news affecting US trading sessions, focusing on unemployment claims. The claims slightly improved, coming in at 1.1 million versus an expected 1.4 million, which is positive news. However, the devastating impact of the virus on the US labor market is evident, with unemployment rising to over six million. Additionally, there is ongoing government action to provide further financial support through additional payment tranches, although this has yet to be approved by Congress.

04:28

Market futures and index levels update

04:28

The market is currently flat, influenced by ongoing political negotiations on Capitol Hill. The Dow Jones futures have surpassed a critical level of 27,000, and the S&P and Nasdaq are also elevated but not showing strong upward momentum. The Nasdaq recently broke through the 11,000 mark, though trading volumes and price spreads remain narrow, indicating cautious investor behavior. Despite August typically being a quiet month for markets, this year is expected to be an exception due to global events and unresolved issues that were anticipated to be settled earlier. Traders are advised to monitor daily charts and remain adaptable to evolving conditions.

06:04

Bank of England interest rate meeting impact

06:04

The speaker advises to expect the unexpected in market behavior and quickly transitions to David to review the oil chart. The market is currently flat, and attention is drawn to an important day for the British pound, marked by the Bank of England’s interest rate decision and accompanying statement released at 7:00 AM London time. Typically, such events significantly impact the currency pair known as ‘cable,’ which is one of the most heavily traded pound pairs.

07:20

Volatility in pound pairs after news event

07:20

The speaker discusses trading strategies around a significant news event, focusing on whether to trade through the event or wait for price moves to complete before taking a fade trade. They compare the volatility seen in the GBP/USD (cable) with the GBP/AUD cross pair, noting that while both experience volatility during news events, the pound-aussie shows more measured and manageable price action compared to the more erratic cable.

08:26

The speaker examines the 15-minute charts of both cable and pound-aussie pairs to illustrate the differences in volatility and price movement. Cable shows significant whipsawing with spikes to candle tops and bottoms, raising questions about tradeability. They reference additional resources on their forex page for deeper analysis and highlight an indicator developed with a colleague that identifies when price action moves outside the average true range, marked by purple arrows on the chart.

09:29

Indicators for volatility and support/resistance

09:29

The speaker explains the use of various trading indicators, focusing on how the volatility indicator reacts immediately to price action outside the ATR for the timeframe, unlike other lagging indicators. The discussion highlights market behavior at the European open around 7 o’clock, noting congestion near the volume point of control (VPOC) which acts as a strong support and resistance level. The accumulation and distribution indicator visualizes price-based support and resistance with lines that thicken as levels are repeatedly tested. Additionally, volume-based support and resistance is analyzed through high and low volume nodes, complemented by the Camarilla indicator which provides a hierarchy of chart levels. The recent buying of the pound is attributed to the Bank of England’s decision not to cut interest rates or increase bond buying, contributing to a positive market outlook.

11:11

Pound price reaction and camarilla levels

11:11

The segment discusses the UK economy’s impact on market reactions, focusing on price action following volatility candles. After an initial sharp move, the price retraces within the candle’s spread and then forms another volatility candle with measured upward movement supported by reasonable volume. The discussion introduces the concept of the fourth level of the Camarilla protocol, a key support/resistance level that price often breaks through and retests multiple times, demonstrating typical market behavior and volume confirmation during these moves.

12:10

This part analyzes a pullback in price action, highlighting a divergence between price movement and volume. Despite apparent weakness as prices dip, the volume under the down candles decreases, indicating insufficient strength to continue a downward trend. This volume-price disagreement suggests the market will resume its upward movement, a pattern consistent with similar charts previously mentioned.

12:43

Whipsawing effect in cable 15-min chart

12:43

The segment discusses a significant price move visible on a 15-minute chart following a news release, highlighting the presence of ‘whipsawing’ or erratic price wicks within the candle. This volatility challenges traders, especially scalpers, as the wide range complicates decision-making. The advice given is that the trading approach depends on the individual and their tools; for instance, using a seconds chart might reduce the noise from whipsawing. Ultimately, traders need to assess if the charts offer enough opportunity for quick gains and consider broker restrictions on trading during such volatile moves.

13:49

Scalping considerations and broker factors

13:49

The speaker discusses scalping in forex trading, highlighting that not all brokers allow it. Market-making brokers may cause spreads to widen, leading to stopped-out trades. Scalping suits traders who prefer quick trades and have little patience. It’s important to choose the right trading instrument and timeframe that works with both the trader’s style and the broker’s conditions. Additionally, during volatile markets, stop orders may not be guaranteed unless a paid guaranteed stop is used, which increases costs. While scalping may seem straightforward, practical challenges exist.

14:55

Comparison of pound aussie and cable moves

14:55

The speaker analyzes the Pound Aussie currency pair, noting a key difference from the Pound Sterling (cable) earlier in the morning. They highlight a price move that stopped at resistance on the 15-minute chart, coinciding with the top end of a low volume node, indicating a potential reversal point. The discussion includes observing candle patterns suggesting hesitation or a pending reversal after the move higher. Additionally, market activity slowed ahead of a scheduled 12:30 press conference by Bank of England Governor Andrew Bailey, which influenced the price action.

16:04

Price consolidation ahead of Bailey press conference

16:04

The speaker explains that the market is likely entering a phase of consolidation and congestion, which is typical before significant news events such as the upcoming Non-Farm Payroll (NFP) report. They emphasize the importance of analyzing multiple time frames, noting that while the 15-minute chart shows a temporary pause in price movement, the hourly chart reveals a recent upward move, providing additional context for the market’s behavior.

16:35

Hourly chart volume point of control resistance

16:35

The speaker discusses price movements observed during the London open and Bank of England announcements, noting how the price has moved directly into the volume point of control on the hourly chart. They explain that while camarilla levels on charts up to but not including the hourly chart refresh every 24 hours, the hourly chart levels remain constant for the week. The price action is seen approaching strong resistance levels, including just below R1 and around 180.360, with further details available in supplementary notes. Additionally, potential reversals indicated by the CSI quantum indicator were also reviewed.

17:49

Currency strength indicator shows reversal signs

17:49

The speaker explains analyzing individual currency movements, focusing on the pound and the Australian dollar on a five-minute chart just after noon. The pound was beginning to reverse direction while the Australian dollar had not yet started to move upward, indicating both currencies were moving similarly, suggesting possible market congestion. This analysis was made just before Andrew Bailey’s press conference. The speaker hints at a subsequent market reversal and references additional details available on their Facebook page before transitioning to another speaker.

18:52

Transition to David and next steps

18:52

The narrator hints at returning later to reveal the subsequent events, comparing this approach to the suspenseful storytelling found in the best novels.

By Anna Coulling – creator of volume price analysis