How to analyze a chart and pick the best time to enter a trend

How to analyze a chart and pick the best time to enter a trend

In this video Anna explains the structure of a chart, and from that, how to select the best time to enter a trend which is already underwat. Here it is a question of making congestion your friend!

00:01

Webinar introduction and trading disclaimer

00:01

The webinar host welcomes participants from around the world and reminds them of the trading risk disclaimer visible on the screen. They emphasize the importance of understanding the risks involved in trading before proceeding with the session.

00:29

Overview of volume price analysis methodology

00:29

The speaker introduces the use of volume price analysis (VPA) to examine various markets including futures, forex, and commodities. VPA is a methodology that analyzes price action alongside volume to determine the validity of chart movements, helping traders understand whether price changes are genuine or anomalies. The goal is to predict future price movements based on this analysis.

01:32

The speaker discusses a companion book filled with 200 annotated examples of charts for stocks, commodities, and indices, designed to help traders identify important signals. Emphasis is placed on understanding the current structure of a chart—whether it is trending or consolidating—at the specific time frame being analyzed, which is crucial for effective price action reading.

02:15

Understanding chart structure and price cycles

02:15

The speaker explains how understanding price cycles in charts helps predict whether a price will break out or reverse. They describe the typical cycle phases: accumulation at the bottom, trending, sideways movement, corrections or pullbacks, followed by major distribution and reversals. Recognizing where the price is in this cycle simplifies analysis. Volume price analysis aids in identifying these phases across all time frames. A trend on a lower time frame might appear differently on a higher time frame, such as being part of a sideways consolidation. This multi-time frame awareness provides traders with the confidence to make informed trading decisions.

03:24

Using multiple time frames for trade decisions

03:24

The speaker explains the importance of considering multiple time frames when trading. They advise waiting for a clear move on a slower time frame before entering a trade on a faster one, as this approach can lead to more reliable outcomes. Additionally, a brief overview of recent news is given, highlighting that unemployment claims have come in higher than expected due to the ongoing impact of the pandemic, which is concerning but not unprecedented.

04:25

Recent market news and FOMC impact

04:25

The speaker compares the recent market reaction to a toddler’s tantrum, describing how the market initially reacted negatively to the FOMC minutes but then calmed down. The market showed volatility due to uncertainty about the Federal Reserve’s approach to managing the yield curve and interest rates.

04:58

Despite the initial negative reaction, the market quickly recovered as investors accepted that the Federal Reserve would support the economy by keeping interest rates low for as long as possible. The Fed did not fully commit to yield curve control, which caused some turbulence, but overall confidence remains because the Fed is backing the markets.

06:01

Reviewing market charts, the speaker notes slight weakness on the Dow Jones futures and other indices yesterday, with a gradual rise after the market opened today. Markets tend to climb cautiously amid uncertainty, moving steadily upward despite concerns. The current period is August, typically a quieter time in markets.

06:33

The speaker highlights that August usually sees limited market volatility as investors await key events like the September period and the upcoming US election. However, this year is unusual due to ongoing impacts from the virus, making the market environment more unpredictable and different from typical seasonal patterns.

07:07

Forex chart analysis and session crossovers

07:07

The speaker discusses the importance of analyzing chart structures using multiple time frames, highlighting the 10-minute chart as a preferred timeframe for observing market moves. They emphasize that price movements often pause due to factors like upcoming news releases or session crossovers, which occur in all 24-hour markets. The London and North American sessions are noted for shifts in trader sentiment, with potential for market manipulation during these crossover periods.

08:19

Price pauses are explained as significant moments often occurring near session crossovers, where market activity may slow or reverse. Traders entering the North American session analyze prior sentiment and might either reverse or continue the trend. The speaker cautions that these pauses are prime times for manipulation, advising traders to wait and observe the market bias before acting.

09:22

The speaker introduces the concept of significant price levels measured by the Camarilla indicator, which identifies six key levels refreshed daily or weekly depending on the timeframe. These levels help explain why price pauses occur at particular points on charts, such as the Pound/New Zealand pair. The importance of using slower timeframes, like the 60-minute chart, is emphasized to better understand these key support and resistance zones.

10:32

Focusing on the London open, the speaker describes how an influx of traders causes sideways movement and consolidation around a volume point of control, representing fair market value where the market is balanced. This consolidation phase shows no strong directional bias and may indicate the market waiting for a significant event or open.

11:03

At the London open, a volatility candle appears, signaled by a range exceeding the average true range, which often indicates a trap move. Such moves typically reverse and enter congestion before trending up or down. The speaker also points out a very strong resistance level on the chart, crucial for understanding potential price reactions following the volatility spike.

12:10

Volume and congestion in price action

12:10

The video explains how the thickness of the hatched line in the Ninja Trader indicator signifies the strength of resistance and support levels. The price is trading within a congestion zone, bounded by strong resistance and support lines, and is expected to remain range-bound until the London market opens. Once it breaks out, supported by volume, the price clears the volatility candle and resistance level, indicating a potential upward move confirmed by rising volume and prices.

13:13

After the initial breakout, the price enters a pause phase with narrowing candles and reduced spread, signaling congestion. Despite some down candles, the low volume behind them suggests the move is likely a temporary pause rather than a reversal. The trend indicators remain mostly positive, implying the price may resume its upward trajectory after this consolidation.

14:20

The video examines the price action at key levels using multiple timeframes, noting a pause after a strong upward move supported by volume. Narrowing candles during high volume signal possible consolidation or congestion rather than an immediate reversal. The discussion highlights the importance of interpreting these price behaviors in the context of key support and resistance zones to anticipate potential trend continuation or reversal.

15:26

Focus shifts to the significance of key technical levels like Camarilla pivots, moving averages, or Fibonacci levels in understanding price consolidation. The speaker emphasizes that reaching such a level doesn’t necessarily mean the price will reverse; instead, it often results in congestion. A confirmed break above these levels indicates a breakaway move, with the price continuing its trend, as illustrated by examples of price behavior at the R4 pivot.

16:32

The analysis continues at the R5 pivot level, where congestion recurs. Despite some volume fluctuations and narrowing candles, the price moves sideways within this key resistance zone. The speaker explains how volume patterns under down candles in an uptrend help assess whether a reversal is likely or if price is merely consolidating before continuing higher.

17:33

The discussion reinforces that volume and candle patterns are crucial for interpreting whether price will reverse or consolidate. Despite down candles with significant volume, price fails to push lower significantly, indicating consolidation rather than a downturn. The primary trend remains intact following a clean break from the volume point of control, highlighting the strength of the ongoing uptrend.

18:38

The video highlights how traders often misinterpret high volume on down candles as signs of reversal, but in this context, the price continues to march higher. The presence of anomalous volume patterns should not lead to premature conclusions about trend reversals. Understanding the structure of price movement and recognizing pause points helps traders avoid chasing price and better anticipate continuation.

19:44

The final segment stresses the importance of recognizing consolidation phases as natural parts of price movement that can precede either reversals or further advances. Missing initial moves is not critical if traders understand price structure. The speaker encourages following the broader market trend, noting the indices’ upward momentum and implying that staying sidelined may result in missed opportunities.

20:16

Trend identification and key price levels

20:16

The speaker explains the importance of analyzing multiple time frames in trading to identify potential reversals and trend continuations. They describe how the price has moved through several key levels on the 10-minute chart, indicating a strong upward move. However, due to some congestion at the sixth level, they suggest switching to a slower 60-minute chart for clearer insight. This reveals the price targeting a higher resistance level (R5). The key takeaway is that combining faster and slower time frame analysis helps traders confidently join trends at the optimal moment.

21:57

As the trading session winds down heading into the Asian market, the speaker notes that market activity will quieten. They mention the development of specialized forex indicators designed to simplify tracking currency pair movements by breaking down individual currencies, exemplified by a focus on the pound represented in yellow.

22:29

Specialist forex indicators and currency moves

22:29

The discussion focuses on the New Zealand currency, which has been oversold but is now showing signs of recovery. Attention also turns to the pound against the Australian dollar, highlighting a notable divergence trade where the pound rose while the Australian dollar fell. The pound is expected to continue gaining, particularly against the US dollar, following recent movements triggered by the FOMC announcement. The pound’s rise stalled briefly but then reversed, indicating ongoing buying interest. Additionally, the speaker references specialist forex market indicators and draws a parallel with the YM (Dow futures), noting similar market behavior typically seen at market tops.

23:35

YM index price action and trading style

23:35

The speaker compares three market indices: YM (Dow Jones), NQ (Nasdaq), and ES (S&P). They find the YM more measured and preferable for trading compared to the more volatile Nasdaq and the fast-moving S&P, which requires quick scalping. The YM is described as more stately with a steady uptrend despite some recent market reactions, targeting the 28,000 level as a key point.

25:12

The focus shifts to analyzing the 10-minute chart of the YM, showing market behavior around the US market open. The chart reveals a messy and indecisive pattern with no clear directional commitment, as volume surges reflect the market’s opening volatility. Traders are waiting on economic data like unemployment claims, causing a volatile but compressed volume pattern typical of market opens, which can be analyzed using volume price analysis.

26:19

Volatility candle and support resistance levels

26:19

The speaker explains the price action at market open, describing a surge followed by volatility with sharp ups and downs. They emphasize the importance of patience and recognizing key price levels derived from sideways price action and camarilla pivots. A break above the high of the volatility candle and a pull away from the volume point of control are necessary signals. Support and resistance levels around 27,480 and 27,540 are noted as important reference points.

27:34

The price nearly triggered volatility but stayed within the average true range, leading to sideways movement before gradually creeping higher. The speaker mentions using camarilla levels on a Renko chart for the YM futures to better analyze and navigate the choppy market conditions.

28:08

Renko charts and camarilla levels explained

28:08

The speaker explains the challenges of analyzing price action with many candle wicks, resulting in a messy chart. To address this, they developed a Renko optimizer that calculates the optimal brick size to smooth out price action and better reveal chart structure, including trends and congestion phases.

28:43

The speaker discusses using Camarilla levels on a 10-minute chart, noting a key level at 27.66660 where the price stopped as anticipated. They explain that trend reversals are indicated first by changes in trend dots, which closely follow price action.

29:18

The speaker mentions waiting for the trend monitor to change colors as a signal of trend shifts, and highlights the use of multiple support and resistance levels related to accumulation and distribution. They also introduce the ‘cluster factor’ setting, which filters levels by significance to reduce chart clutter.

29:51

Adjusting the cluster factor to a higher value reduces minor levels and emphasizes stronger, more important support and resistance. The price bounced off the R1 resistance level as expected and may pause around 27.630 or attempt another run toward R1, potentially reaching 27.690.

30:29

The speaker advises keeping an eye on 60-minute support and resistance levels for a broader perspective, as price can sometimes pause unexpectedly. They verify the data loaded and identify the S1 level near 27.70, using it to anticipate possible price behavior.

31:08

Using levels for stops and trade objectives

31:08

The speaker analyzes a price level around 27,660 between R2 and R2, noting the lack of significant resistance before this point and identifying key support platforms below it, including S1 where congestion occurs. They explain how these support and resistance levels help traders determine stop placements based on chart structure rather than fixed risk-reward ratios. The levels to the upside serve as profit targets, allowing flexibility depending on market movement. The speaker also mentions leaving the discussion of low and high volume nodes to a colleague.

32:51

Low and high volume nodes in chart structure

32:51

The speaker explains the concept of low volume and high volume nodes in chart structure, emphasizing that high volume nodes typically develop during congestion phases. When price breaks through a low volume node, it moves quickly until it reaches another high volume node, which often coincides with important levels such as camarilla levels. The speaker invites questions and transitions to another presenter, while noting ongoing market volatility and a creeping higher price trend.

33:58

Seasonality and volume context for trends

33:58

The speaker discusses a market that is not performing exceptionally well but notes that it can still rise on low volume, especially during the typically low-participation summer months. They emphasize the importance of considering seasonality and the current uptrend. Observing down candles with low volume suggests the market is likely to gradually move higher. Patience is necessary when going long, as markets tend to fall faster than they rise, contrasting with those who prefer short positions due to impatience.

By Anna Coulling – creator of volume price analysis