How to use volume to define support and resistance levels on MT4

How to use volume to define support and resistance levels on MT4

In this video, we show you how to use volume to define support and resistance levels using the VPOC indicator on the MT4 platform before moving to NinjaTrader where we focus on the British pound following the London open.

00:00

Introduction to London Forex Webinar

00:00

The webinar begins with a welcome to the London session forex webinar on the first day of the new trading month and the last month of 2020. The host acknowledges the challenges of the year and hints at a detailed discussion on equities and indices later. The focus is on the upcoming two weeks leading up to an important FOMC meeting on December 16th. A trading disclaimer is presented, emphasizing the risks involved in trading and advising participants to only use money they can afford to lose.

01:11

Overview of Forex Market and Key Events

01:11

The speaker explains their approach to analyzing the forex market using volume price analysis, supplemented by fundamental factors like upcoming news releases and central bank actions. This week features significant events including the non-farm payroll report, and central bank meetings from the RBA, ECB, and Fed. They also monitor related markets such as bonds, commodities, and equity indices like the Dow Jones, S&P 500, and Nasdaq, which help gauge market sentiment and risk appetite. The market began the day positively.

02:20

The previous day saw profit-taking after a strong November performance, which is typical, but overall market mood remains positive, influencing currency movements, especially risk-sensitive currencies that can sometimes lead market trends. The speaker notes that forex often reflects the truer market picture compared to other markets. The methodology used is detailed in books available on Amazon, which serve as an introduction to their approach.

03:26

The speaker discusses their comprehensive forex trading program, which builds on the concepts introduced in their books. Hundreds of students have participated with positive results. While the books provide foundational knowledge, the program offers deeper insights and structured learning through various modules. Recently, they added an optional funded trading program where traders can manage up to two million dollars of company funds with no personal financial risk. More information and a webinar explaining this opportunity are available on their website and YouTube channel.

05:06

Custom Indicators for Forex Analysis

05:06

The speaker explains a risk-free approach to forex trading using specially developed indicators that support their volume price analysis (VPA) method. These indicators analyze individual currency flows and their impact on currency pairs within the forex market. The key tools include the Currency Strength Indicator (CSI), which identifies buying and selling activity in specific currencies, and the Matrix, which shows where the strongest buying or selling is occurring across pairs. Additionally, the Array measures trend strength, and the Currency Heat Map ranks currency pairs’ performance across multiple time frames, providing a comprehensive and sophisticated way to assess forex market dynamics.

07:28

Principles of Support and Resistance

07:28

The discussion focuses on the principles of support and resistance, a fundamental concept in technical analysis and one of the five key principles in volume price analysis (VPA). The speaker emphasizes the importance of multiple time frames in trading, a concept developed beyond traditional texts. Various methods of drawing support and resistance are mentioned, including Fibonacci, Camarilla, horizontal lines, trend lines, and Andrew’s pitchfork. Unlike traditional price-based methods, this approach integrates volume analysis to determine the authenticity of support and resistance levels.

09:16

Volume Point of Control Indicator Explained

09:16

The speaker introduces the Aussie Yen chart to explain a specific trading concept using a custom indicator called the volume point of control. This indicator builds on the standard ‘volume at price’ indicator, which is common on some platforms but not Metatrader. The volume at price indicator maps volume along the price axis over time, helping traders understand where significant trading activity has occurred.

10:28

The explanation continues by describing how the volume at price indicator highlights areas on the chart where the market shows little directional movement, creating bulges or value areas that represent price congestion. These zones indicate times when market participants are indecisive, and the price oscillates within a range rather than trending.

11:43

The volume point of control refines this by identifying the most significant volume level where price has spent the longest time, marked by a yellow line on the chart. When price trades near this point, it suggests low market activity and range-bound oscillation. This can be influenced by factors like the trading session timing, especially in a 24-hour market.

12:51

The segment discusses how markets rarely stay in congestion for long and usually break out to move prices either up or down. An example is shown where the price attempts multiple breakouts and retests the volume point of control before a downward move begins as the London session starts, which acts as a catalyst.

13:50

The indicator also identifies high volume nodes, where price has paused and experienced congestion, and low volume nodes, which are areas where price tends to move quickly through. These zones act as volume-based support and resistance levels that provide insight into future price behavior when approached.

15:02

The speaker explains that the volume-based support and resistance lines become particularly important near extreme price levels, where price is likely to pause or potentially reverse. These volume levels help traders anticipate where price might stall or change direction, though confirmation is needed.

15:37

This volume point of control analysis is used alongside traditional price-based support and resistance to provide a fuller picture of market structure. The example uses a five-minute chart chosen for its low volatility, making it easier to identify these volume-related zones and potential price behavior.

16:10

Using Multiple Time Frames with VPOC

16:10

The discussion begins with identifying the volume point of control (VPOC) at 76.86 on the one-minute and five-minute charts. This level is significant as it corresponds to a major volume node, indicating strong support or resistance. The speaker highlights that if price breaks through this VPOC with increased volume, it can signal potential movement higher, which can be analyzed further on faster time frames.

16:58

As the price approaches the VPOC, the speaker notes increased volatility during the London trading session, which often drives price action. By examining a slower 15-minute chart on the MT4 platform, additional price targets and objectives become visible, such as a price base objective around 76.94. The analysis focuses on volume-based support and resistance levels to anticipate where price is likely to move next.

18:05

Volume-based indicators help in interpreting key support and resistance levels automatically by drawing high and low volume nodes along with the volume point of control. The current price action for the Aussie Yen on the five-minute chart is described as congested, with price repeatedly testing these volume levels but failing to decisively break out. This congestion reflects indecision and sideways movement in the market.

19:14

On the daily chart, the Aussie Yen is shown to be trading around its daily volume point of control, indicating no clear trend. Despite some recent up and down candles, the overall sideways trading leads to choppy price action in faster time frames. This lack of a strong trend at higher time frames results in less smooth, more erratic movements at lower time frames.

20:24

The speaker introduces the use of proprietary indicators for price-based support and resistance, mentioning a camarilla indicator with key levels like R4. The price is struggling to break through these resistance levels on the current time frame, suggesting limited trading opportunities. Combining volume and price-based analysis can help traders recognize when it is better to stay out of the market rather than forcing a trade.

21:35

Finally, the analysis of the Commodity Selection Index (CSI) lines shows that they are tightly wrapped and moving in the same direction, indicating no divergence and thus no emerging trend. The speaker emphasizes that trends typically develop after congestion phases, but traders must be able to identify these phases correctly to anticipate when new trends may begin.

22:07

Combining Volume and Price-Based Support

22:07

The speaker explains the use of volume-based indicators like the volume point of control (VPOC) and camarilla levels on different time frames, specifically the 15-minute and hourly charts. The hourly chart values remain consistent throughout the week, unlike shorter time frames which refresh daily. The area between R1 and S1 on the hourly chart acts as a neutral or congestion zone, indicating price is currently bouncing within this range.

23:10

Price congestion is evident on both daily and hourly charts for the Aussie Yen, suggesting a sideways movement. For fast timeframes, potential trade points might exist, but on longer timeframes, patience is advised. The Renko chart shows a downward bias but also highlights choppy price action, reinforcing the need to wait for clearer signals.

24:13

The Renko chart provides price geometry through ethanol lines and standard price-based indicators, helping identify support and resistance. The MT4 version of the indicator allows adding camarilla levels, which can be transferred to other charts for better visualization of price action. These zones serve as price targets and stop placement areas, enhancing trade management.

25:19

A move lower in price is anticipated as it transitions from a low volume node to a high volume node, which acts as a resistance point causing price to slow and possibly bounce. The final target appears to be a significant support level. This segment illustrates how volume point of control and volume at price indicators can guide expectations for price movement.

26:20

The daily chart shows a strong support area reinforced by the volume point of control acting as a fulcrum. If prices drop further, yesterday’s low may be the next target. The Aussie Yen’s price is also influenced by broader market sentiment, especially movements in major indices, which have recently bounced back. Upcoming political and economic events over the next two weeks are expected to heavily impact market behavior.

27:24

Key upcoming events include the US Electoral College report and the Federal Open Market Committee meeting, with expectations of no rate hikes and potential stimulus under a Biden administration. European Central Bank and Bank of Canada meetings are also approaching. The speaker notes the exhausting year and anticipates a brief respite around Christmas. Current market focus remains on fundamental data and vaccine developments amid ongoing virus concerns.

28:27

Upcoming Market Events and Sentiment

28:27

The speaker discusses the busy upcoming two weeks before the Christmas holidays, highlighting key events such as the Non-Farm Payrolls (NFP) report on Friday and Brexit developments. The conversation transitions to David, who invites questions about indicators and mentions numerous tutorial videos available on the Quantum Trading YouTube channel. These videos explain how to use various trading indicators creatively and effectively on charts.

29:29

The discussion continues with an explanation of price movement behavior, focusing on volume nodes and momentum shifts. The speaker describes how price pauses at high volume nodes, providing insight into market momentum and significant price levels. David then introduces a concept called the ‘Venus Flytrap move,’ referencing the London market opening at 8 o’clock and preparing to analyze this specific price action pattern.

30:30

London Session Volume and Price Action

30:30

The segment discusses a significant volume and volatility spike shortly after the market opens, highlighting a bearish trend confirmed by a trend monitor shifting colors from blue to red. This pattern is common during session crossovers, particularly from London to the US session, where reversals and traps often occur due to heavy buying or selling in earlier hours.

31:28

It explains how session crossovers reveal market behavior such as pauses, traps, and reversals, often visible through volume and indicators. The speaker illustrates this with recent trading activity on the US dollar, noting heavy selling earlier followed by a reversal and a possible shift into a bullish phase based on trend monitoring and Renko charts.

32:24

The focus shifts to slower time frames, particularly the five-minute chart, where a large spike in volume and selling pressure is observed, along with volatility triggers. The price moves back toward a key volume point of control, emphasizing that volume price analysis and indicators provide valuable insight into likely market movements, although nothing is guaranteed.

33:26

This section details how volume profile levels, such as volume point of control and low volume nodes, inform expectations for price movement speed and support areas. A break below a low volume node could lead to swift declines, while clusters of high volume and price base support areas act as potential support zones, identified through accumulation distribution indicators.

34:26

The speaker discusses risk management considerations when taking positions, emphasizing the importance of volume price analysis and chart indicators to evaluate potential support levels and price travel distances. The segment concludes by referencing current market conditions shown by multiple Commodity Selection Index (CSI) indicators, noting strong buying and overbought conditions on shorter time frames.

35:34

Currency Strength Indicator Insights

35:34

The dollar is strongly oversold on the 15-minute timeframe, but buying interest is starting to emerge on shorter timeframes like 5, 10, and 15 minutes. However, cable (GBP/USD) remains flat because the pound is not showing movement. The presenter emphasizes the need to identify opportunities carefully, using a workspace that includes major currency pairs and futures to gauge which pairs are moving and why.

36:39

By analyzing a matrix of major currency pairs on a 5-minute timeframe, the speaker highlights that the Australian dollar (Aussie) is currently showing weakness and mild volatility. Despite this, the Aussie is heavily oversold, making it less attractive for scalping trades. The presenter explains that the best time to jump into a trend is when currencies are near the midpoint of their range, allowing more balanced potential for movement in either direction.

37:37

The optimal trading opportunity occurs when both currencies in a pair are crossing near the middle of their range, avoiding overbought or oversold extremes. This balance increases the chance that the trend will continue with one currency rising and the other falling. Entering trades when one currency is already deeply oversold or overbought carries higher risk, as one leg may reach its limit sooner, though strong moves can still occur. The key is finding pairs where both legs have sufficient room and similar momentum to develop a sustainable trend.

39:14

Analyzing Trend Opportunities and Risks

39:14

The current market shows mixed movements with currencies moving in different directions, resulting in little clear trend development. The euro is rising strongly against the dollar, which is flattening out. Similarly, the Swiss franc is rising in line with the dollar but without significant changes. The New Zealand dollar is attempting a rally, but the momentum is weak and appears to be rolling over again.

40:07

Trend indicators suggest a weak rally in the New Zealand dollar that has not fully developed into a bullish trend. Negative sentiment towards the dollar is increasing. The market remains choppy with volatility failing to produce strong directional moves, and the trend monitor still shows a positive bias towards New Zealand. The pound is starting to show some buying strength.

40:57

Strong buying in the pound against the Swiss franc is evident, with clear opportunities for trading due to balanced travel left before overbought or oversold conditions are reached. Similar dynamics are seen in pound-dollar pairs and New Zealand dollar pairs against other currencies. These moves highlight potential trade setups with measurable risk and reward.

42:18

The pound may sell off during the morning session, reversing the current trends as the dollar buys back. The speaker emphasizes a trading approach focused on reversals rather than trend following, aiming to enter trends early and capture gains from the middle of moves rather than chasing ongoing trends. This approach requires patience and tolerance for initial price fluctuations.

43:16

Reversal trading demands wider stop losses and greater patience due to price buffering and the potential for prolonged consolidation before a trend begins. This applies across different time frames, from fast one-minute charts to slower ones, requiring traders to accept higher risk in exchange for entering trends early.

44:17

Stop loss sizes vary by trading style and time frame: scalping on one-minute charts might use tight stops of a few pips, while reversal trades require stops two to three times wider. On longer time frames like 15 minutes, wider stops of 20-25 pips are common. Although this increases risk, successful reversal trades offer higher rewards when the market moves decisively.

45:23

The forex market exemplifies a mean-reverting, oscillating environment where currencies regularly move between overbought and oversold states. This constant fluctuation provides continuous trading opportunities, whether for trend following or reversal strategies. Traders must choose their preferred tactics and time horizons to navigate this dynamic market effectively.

46:00

Real-Time Chart Analysis and Renko Usage

46:00

The market behaves like a vibrating string, constantly moving back and forth across different time frames. New Zealand is entering an overbought zone while the pound is showing signs of rolling over after some buying activity. On short time frames like 15 seconds and one minute charts, a rally is visible with volume confirming the move as price breaks through resistance levels and consolidates around key volume points.

46:58

Short-term charts show volatility and congestion around volume points, indicating potential pauses in price movement. The dollar is selling off, confirmed by the Dixie index moving lower but not hitting extreme lows. This suggests a transitional phase favorable for buying major currencies against the dollar, supported by multiple time frame confirmations and Renko chart analysis.

47:57

The futures currency matrix, representing dollar sentiment, shows a universal bearish trend on the dollar across multiple pairs including the Aussie dollar, cable, and yen dollar. This matrix provides a clear, linear view of dollar strength as the dollar is the counter currency in all these futures. Strong trades are emerging with consistent selling pressure on the dollar.

49:02

Euro dollar is showing a rising price and volume pattern, indicating a strong trend supported by buying activity. This aligns with classic volume price analysis and Wyckoff principles where price and volume move in agreement, confirming the strength of the trend over multiple bars rather than single candles.

49:31

Volume spikes accompanied by price increases suggest strong market interest, though the move may encounter a pause as it reaches a low volume area. The Dixie index continues to decline, reflecting ongoing dollar weakness. A volatility trigger on the yen dollar supports staying in the trade, reinforcing the bearish dollar environment and favorable conditions for major currency buying opportunities.

50:36

Interpreting Related Markets and Indicators

50:36

The speaker discusses related markets within the financial sector, focusing on trading a specific currency pair while considering movements in other pairs to gain insights on volume and indicators. They highlight the British pound as being very strongly overbought but continuing to rise, suggesting it could climb higher despite its overbought status.

51:36

Attention shifts to the US dollar, which is described as very oversold but not yet ready to reverse. The pound remains strong on slower time frames, continuing its upward trend, while the dollar is still declining, as shown on renko charts. The strongest currency currently is the British pound (cable), maintaining a strong trend across various time horizons.

52:19

The analysis isolates the dollar within multiple currency pairs, aiming to see a consistent pattern where the Australian dollar rises and others fall, indicating a strong trend. The pound remains the strongest currency. The speaker prefers short trades, especially against the dollar when it is selling off, such as in USD/CAD, though they remain open to stronger trending pairs. They acknowledge their preference for short trades as a personal trading style.

53:14

Trading Biases and Market Psychology

53:14

The speaker emphasizes the importance of recognizing personal biases, especially in intraday stock trading where there is a common bias that stocks will go up. They note that while short selling is more challenging, it is possible through options and spread betting. The key takeaway is to be aware of these biases as they heavily influence trading behavior, and most traders do not buy stocks expecting them to decrease in value.

54:22

Education and Funded Forex Trading Program

54:22

The speaker explains the structure of their educational and funded forex programs, emphasizing that the funded accounts are only available to students who complete their training. The goal is to ensure traders understand the market and trade confidently before managing funded accounts, which can be as large as two million dollars. Details and questions can be addressed via provided contact emails. They also discuss the availability of trading indicators for various platforms including NinjaTrader, TradingView, and upcoming support for TradeStation. Efforts are underway to port additional indicators to TradingView now that Pine Script supports advanced features, ensuring pricing alignment across platforms. Purchasing any full package grants automatic access to future indicator updates.

56:28

Indicator Platforms and Ongoing Support

56:28

The speaker explains that they develop tools and indicators for free as a way to thank their customers for investing with them. Long-term customers have benefited from multiple free indicators added directly to their platforms. Additionally, resources such as books and regular analyses are available on their website and Amazon in various formats. The session concludes with a note about upcoming live sessions.

57:29

Webinar Closing and Future Sessions

57:29

The speaker thanks the audience for joining and looks forward to seeing them again. They wish everyone a great trading day and week, and remind viewers to stay safe. The next session will be at 7:45 UK time for the London Forex session.

By Anna Coulling – creator of volume price analysis