Reversal trading using the volume point of control
If you’re looking to take a reversal trade in the forex market, one place to look is the currency strength indicator. Another is the volume point of control, and in this video, from the third and final section of the London forex trading session, I explain how to use the British pound and Aussie dollar pair as an example.
00:11
Volume Point of Control Introduction
00:11
The speaker apologizes for technical issues caused by switching time frames during the webinar, which affected some indicators on Ninja Trader. They introduce the concept of multiple time frames and focus on zones created by the volume point of control, highlighted by a yellow dashed line.
00:46
Price Agreement and Congestion Phases
00:46
This segment explains the concept of general price agreement or fair value on a price chart. It highlights how the price moves away from this level and then returns to it. The segment also describes congestion phases where the chart shows no clear direction, possibly due to waiting for news or other factors influencing market uncertainty.
01:22
Market Momentum and Quiet Periods
01:22
The speaker explains that market activity varies throughout the trading day and across different instruments. New traders often mistakenly believe markets move continuously and consistently, but in reality, there are periods of momentum as well as long quiet phases. These fluctuations can result from various factors, including the number of active traders during a session. Understanding the volume point can help navigate these changes.
01:55
Slower vs Faster Time Frames
01:55
The segment explains how control in a chart provides structure, indicating a congestion phase. It highlights the importance of analyzing slower time frames, such as the 60-minute chart for the pound-aussie currency pair, to gain significant insights that complement faster time frame analysis.
02:25
Support at Volume Point of Control
02:25
The speaker discusses the importance of the price approaching the volume point of control on a slower timeframe. This area is significant because it represents a large amount of congestion, providing a strong support platform. Moving through this level would require substantial volume. The speaker plans to explore related concepts in more detail later, focusing next on the 10-minute and faster timeframes.
02:55
Renko Chart and Histogram Dynamics
02:55
The speaker discusses using the Renko chart to analyze an indicator known as the volume point of control. They describe observing a histogram that dynamically recalculates as price moves, highlighting areas of varying density based on recent price activity.
03:30
High and Low Volume Nodes
03:30
This segment explains the concept of high volume nodes and low volume nodes in trading volume profiles. High volume nodes are dense areas of trading, while low volume nodes are narrow and less traded. The speaker highlights the importance of the outer regions of the volume point of control, which relates to where the price is currently trading and its position on the 60-minute chart.
04:00
Potential Reversal at Outer Regions
04:00
The speaker discusses analyzing the outermost regions of a financial chart, specifically at the 76.70 level, as a potential point for market reversal. This analysis is based on the concept of mean reversion, which is crucial in the forex market. The current level indicates a dynamic situation where the pair may revert to the mean.
04:35
Camarilla Indicator and Price Levels
04:35
The speaker discusses the concept of price points that are not fixed but can be correlated with significant price-based indicators. They mention the accumulation and distribution indicator and the camarilla indicator, noting that currently, the camarilla indicator is not near any significant level on the 10-minute chart. They also check the 60-minute chart to clarify their position regarding price action support and resistance, as well as volume levels.
05:08
Price Action and Volume Support
05:08
The speaker discusses analyzing support and resistance levels along with significant price points identified by the Camarilla method. They observe the current price action attempting to establish a base around 76.0, noting buying activity at the bottom of the candle as it forms. The focus is on determining whether the price will continue its movement or reverse at these key levels.
05:39
Break Lower from Volume Point Control
06:11
Using 10-Minute Chart for Analysis
06:11
The speaker discusses using the 10-minute chart frequently for analysis and personal use. They note the presence of candles with wicks at the bottom and mention identifying a pivot point that may indicate a reversal. The focus is on the current situation rather than past events, highlighting the importance of switching to a faster time frame for further analysis.
06:38
Four-Minute Chart and Two-Bar Reversal
06:38
The speaker explains the use of NinjaTrader for analyzing timestamps in trading charts. They discuss observing the 10-minute chart and using a 4-minute chart to identify potential reversals. The example highlights the challenge of waiting for a reversal to develop over a 40-minute period while monitoring different timeframes.
07:17
Dynamic Zones and Reversal Signals
07:17
The speaker explains their preferred time frame for trading, using a benchmark time frame for observation but primarily focusing on the four-minute chart to make trades. They describe identifying a two-bar reversal pattern and emphasize the dynamic nature of the indicator zones, which change continuously. The speaker notes a missed opportunity to capture a screenshot showing the outermost limit for the currency pair and discusses analyzing candle patterns.
07:48
Price Action from Australian Dollar Sell-Off
07:48
The speaker analyzes volume alongside a benchmark chart to identify a potential market reversal. They highlight that around 6:30, the price movement was influenced less by a rise in the pound and more by a sharp sell-off in the Australian dollar, capturing this dynamic on a four-minute chart.
08:25
Volume Point Control Levels Changing
08:25
The speaker analyzes a chart where the price has stopped at 76.40, correlating this level with the volume point of control on the 10-minute chart. They explain that these levels are dynamic and constantly changing as volume builds, but they can serve as useful starting points for analysis.
09:02
London Open Price Movement
09:02
The speaker discusses the market conditions following the London open, highlighting the typical volatility and the need for patience on the 10-minute chart. They describe the price movements around the London open, including a lower move followed by a higher move, a two-bar reversal, and a subsequent decline, illustrating the common patterns seen at this time.
09:34
Trap at Low Region and Buying Attempts
09:34
The speaker explains a price movement where an initial rise appeared to attract buyers, but this turned out to be a trap as the price subsequently fell to the lowest region near the volume point of control. They highlight how these wide-range candles could be misleading, especially for traders using short timeframes like one-minute charts.
10:03
Wide Range Candles and Trading Decisions
10:03
The speaker discusses the potential significance of a move observed on multiple time frames, including the four-minute chart. They suggest that the move occurring at pivotal points on the chart could be sufficient for trading decisions, emphasizing the importance of context. The example given is a hammer candle at the 76 level with decent volume, which, despite involving only a couple of candles, might be enough to base a decision on.
10:37
Trend Continuation and Entry Timing
11:12
Waiting for Pause and Buying Pressure
11:12
The speaker advises patience before joining a market move, emphasizing the importance of waiting for a clear pause rather than jumping in prematurely. They note that although it seemed like a good entry point, the move continued downward, and buying pressure is needed from the lower candle wicks. Additionally, some market congestion is observed, and the speaker suggests analyzing the 10-minute camarilla levels for better insight.
11:46
Camarilla Levels and Potential Reversal
11:46
The speaker discusses the price movement, focusing on potential reversal points, especially the significance of the fourth level. They emphasize the importance of patience to see if a reversal will occur and suggest monitoring for congestion phases that could indicate a resumption of the trend. The Renko chart is mentioned as a tool showing that the price is currently holding.
12:23
Renko and Oversold Conditions
12:23
The speaker discusses the persistent downward trend in the market, highlighting attempts to rise that correspond with activity at the outermost regions of the volume point of control. Although a reversal is anticipated eventually, there is currently no clear sign of it. The focus shifts to the British Pound, which appears oversold, suggesting a potential buying opportunity. This movement seems influenced by buying activity in the Australian Dollar, which could drive the Pound higher depending on future developments.
By Anna Coulling – creator of volume price analysis
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