More lessons in volume price analysis courtesy of the Aussie yen pair

More lessons in volume price analysis courtesy of the Aussie yen pair

With risk-on sentiment in evidence this morning as the London forex session gets underway, we focus on the Aussie yen pair as a proxy for risk with a steady move higher as US indices rally once more on GLobex.

00:15

Introduction to Aussie Yen and risk sentiment

00:15

The speaker briefly greets the audience and encourages them to explore bond prices and yields on investing.com. They then shift focus to the Aussie Yen currency pair, highlighting its positive movement over various timeframes and emphasizing that the current trends are driven by risk sentiment.

00:44

Risk on vs risk off market dynamics

00:44

The segment explains that financial markets move based on risk sentiment, described as a seesaw between risk-on and risk-off modes. Money flows either toward safe havens or toward higher risk for higher reward, influencing currencies, equities, commodities, and bonds. The speaker highlights monitoring the Aussie yen currency pair alongside the VIX index to observe market risk dynamics and introduces a volume price analysis (VPA) lesson related to this context.

01:46

Using NinjaTrader and volume price analysis

01:46

The video explains how NinjaTrader automatically shows local time and highlights the start of the European and London trading sessions. It discusses a positive volume price analysis (VPA) signal where rising price, volume, and widening spreads indicate strong market movement. The presence of volatility suggests a potential reversal or congestion, prompting traders to consider scaling out profits or closing positions, depending on their lot size and risk tolerance.

03:06

Anomalous candles indicate selling pressure

03:06

The segment explains how a narrow spread candle on high volume indicates an anomaly in price action, suggesting heavy selling despite prior price rises. This selling pressure is partly due to profit-taking, market makers selling, and the start of the European session, leading to increased volume. The narrow spread combined with high volume signals market weakness, implying that the upward price movement may not sustain in the short term. An analogy is given comparing this to driving a car up an icy mountain, where increased effort eventually results in no forward progress, illustrating the market’s struggle to rise further.

04:02

Following the initial anomaly, the next two candles present further irregularities: they have identical price spreads but declining volume, which is unusual since volume should match spread if conditions are equal. This suggests the market is falling on weakening volume, indicating a lack of effort behind the move. Effort is necessary for both upward and downward price movements, so this fading volume implies the downward move is unlikely to continue strongly. The segment concludes with the market entering a congestion phase, transitioning through a minor top and reflecting reduced volatility and momentum.

05:23

Volume profile and price support/resistance

05:23

The segment explains the relationship between price movement and volume using volume point control and the accumulation distribution indicator. It highlights that price advances easily through low volume regions since volume acts like price, with fewer barriers to movement. The accumulation distribution indicator shows the strength of support and resistance levels by how many times they have been tested; a level previously acting as resistance can become a strong support once breached. High volume areas tend to cause congestion, while low volume nodes allow price to move quickly through them.

06:47

Multiple time frame trading benefits

06:47

The speaker explains the concept of multiple time frames in trading using the example of a ten-minute candle composed of two five-minute candles. This illustrates how analyzing different time frames provides additional information. On the ten-minute chart, a high-volume upthrust candle with a narrow spread suggests potential reversal or weakness, which is confirmed by subsequent price congestion around the London market open.

07:42

Market sentiment is described as risk-on, supported by indicators such as the falling VIX, rising equities, and the strength of the Aussie Yen. The speaker emphasizes that using multiple time frames is a fundamental trading strategy. It offers a broader perspective and helps traders see signals they might miss on a single time frame, such as volatility triggers that can appear differently across charts.

08:44

The speaker discusses the challenge and benefit of mentally overlaying candles from different time frames to gain a more comprehensive view of price action and volume profiles. They highlight that while simple overlays of single candles are common, applying this approach to multiple, more complex time frames yields stronger trading insights, such as volatility triggers that may only be visible on certain charts.

09:43

VIX as a risk sentiment indicator

09:43

The speaker discusses the VIX index, noting a gap down opening followed by a rally, with the volatility index currently around 24.2 on the daily chart. They highlight the Nasdaq’s strong upward movement dragging other indices along, though recent weeks have shown divergence between the Nasdaq and other markets. The speaker points out anomalous price action recently, emphasizing the importance of monitoring the VIX for intraday trading as a key risk-on/risk-off indicator.

11:05

Despite a strong V-shaped rally in equity markets, the VIX remains elevated around 24-26, which the speaker finds unusual as they would expect lower volatility. Attention shifts to the Australian dollar versus the yen, with multiple time frame charts showing recent fast price movements and some buying interest emerging. The Aussie and pound are described as overbought, while the yen is oversold, suggesting potential trading opportunities based on these momentum and positioning signals.

12:06

Trading reversals vs trends and risk management

12:06

The speaker explains their trading strategy of targeting reversals by entering trades early at tops and bottoms, accepting higher risk with wider stop-losses to capture more of the trend. They contrast this with trading trends once they are established, which involves lower risk and tighter stop-losses but also smaller potential rewards. The key principle emphasized is the balance of risk and reward: taking on more risk can yield greater profits, while less risk generally means lower returns. The speaker prefers to accept higher risk for the chance to maximize gains by entering trends early, while other traders may prefer to join trends later with less risk and reward.

By Anna Coulling – creator of volume price analysis