The fear of missing out and how to avoid the trap moves of volatility

The fear of missing out and how to avoid the trap moves of volatility

The fear of missing out is a powerful emotion that we all experience as forex traders. However, if you understand volatility and can see it live on the screen, this will help you to avoid all the traps associated with these moves.

00:00

Webinar introduction and disclaimer

00:00

The webinar host welcomes participants and apologizes for the initial technical difficulties, explaining that restarting the system resolved the issue. Before beginning, the host reminds viewers of the trading disclaimer visible on screen, emphasizing that trading involves significant risk and advising caution with money used for trading.

00:32

Overview of volume price analysis methodology

00:32

The speaker briefly introduces the session, emphasizing a quick overview before focusing on chart analysis. They explain that the upcoming discussion will center on volume price analysis, a methodology they and David have used for nearly 20 years. This approach examines price action alongside trading volume to understand market participation and activity. Volume is used to confirm or challenge the observed price movements, providing validation or highlighting anomalies in the market.

01:31

Richard Wyckoff’s laws and market phases

01:31

The analysis discussed is heavily based on Richard Wyckoff’s three laws, focusing on the second law, the law of cause and effect. This law involves congestion and consolidation phases, illustrated with a recent example on the pound yen. The approach considers potential entries, the price action, technical analysis, and also incorporates fundamental factors and related markets to provide a comprehensive view.

02:03

Fundamental news impact on Aussie dollar

02:03

The speaker introduces the analysis of the Australian dollar (Aussie), focusing on recent fundamental news that influenced its price action during the first day of the trading week and month. They highlight the close relationship between Australia and China as a key factor impacting the Aussie. Additionally, the speaker and a colleague, David, have developed specific indicators tailored for the forex market to better understand complex currency flows. These flows, reflected in price movements, are influenced by fundamental news, geopolitical events, and overall market sentiment, particularly whether the market is in a risk-on or risk-off mode.

03:10

Market sentiment and risk-on risk-off flows

03:10

The speaker discusses the importance of understanding market participants’ risk appetite, highlighting how flows into safe havens like gold or certain currencies reflect risk sentiment. They emphasize that forex trading involves more than just analyzing one chart or time frame; traders must grasp the underlying fundamental drivers behind price actions rather than relying on simplistic methods or chance.

04:21

Example analysis of pound yen chart

04:21

The webinar focuses on analyzing the Pound Yen currency pair using volume price analysis (VPA), which is based on Richard Wyckoff’s principles, especially the law of cause and effect. The presenter examines a three-minute chart from the Ninja Trader platform to illustrate a congestion phase, also known as a consolidation phase, where the market moves sideways without a clear direction. This phase occurs after a price move either upwards or downwards, indicating the need to wait for a breakout. The analysis method is versatile and applicable across various markets including stocks, commodities, and indices, as it relies on price action and volume. The trend monitor indicator has turned blue, signaling a potential move away from the support level at 130.40.

06:00

Congestion phase and market consolidation

06:00

The price initially moved higher before entering a sideways consolidation phase, indicating a temporary pause in momentum. This congestion can last for a prolonged period, and typically, a longer consolidation may lead to a stronger subsequent move. In this example, despite being a short three-minute chart phase, a burst of momentum followed the consolidation, supported by increased volume. The volume analysis confirms the strength of the upward move away from congestion, highlighting the importance of volume in validating price action.

07:46

Momentum, volume, and volatility indicators

07:46

The speaker explains an indicator called the attic speedometer from the Ninja Trader platform, which signals strong momentum behind a price move as it turns green. However, with such strong momentum, price action often extends beyond the average true range (ATR), indicating volatility.

08:20

The volatility indicator triggers purple arrows when price moves outside the ATR, signaling fast and intense moves. Each trigger suggests a risk of a dramatic reversal. Despite this, heavy volume under certain candles supported the continuation of the move. Typically, a retracement to within the candle’s spread occurs after these triggers, which was observed here along with significant buying volume.

09:26

The speaker discusses how traders often experience fear of missing out during volatile moves, presenting both opportunities and risks. The volatility indicator’s triggers often precede retracements or reversals, though in this instance, the price continued higher. This highlights the need for caution and awareness of volatility signals.

10:06

Volume analysis helps determine the strength of price moves. A retracement accompanied by high buying volume suggests continuation, as seen here when the price moved higher. Conversely, wicks at the top of candles indicate weakness. The speaker refers to a 60-minute time chart to further analyze this price action.

10:40

Support and resistance on multiple time frames

10:40

The speaker explains the concept of resistance in technical analysis, highlighting that resistance levels on higher time frames, like the 60-minute chart, carry more significance than those on shorter time frames. They introduce their custom camarilla indicator, which calculates key price levels on different time frames, with weekly levels being particularly important for the current week. The discussion also covers the volume point of control, a dynamic indicator that marks congestion phases in the market where price and volume accumulate, indicating areas of price reversal and consolidation.

12:33

Volume point of control and price action

12:33

The indicator has shifted higher, marking a new key region on the chart that is currently consolidating. This area acts as a base or support, raising the question of whether the price will reverse or continue upward. The volume point of control (VPOC) has moved higher, suggesting the potential for either a reversal or the next leg up. The trend monitor remains blue, indicating no immediate sign of reversal but rather a period of basing and platform-building. Price action is described as a continuous oscillation, reflecting its dynamic and ongoing nature.

13:47

Continuous price oscillations in forex trading

13:47

The forex market is described as a continuous carousel with no clear beginning or end, unlike stocks which have defined start and end points. Traders constantly enter and exit trades within this ongoing cycle, navigating price oscillations and pauses. Key trading decisions are based on identifying turning points between accumulation and distribution phases, as well as analyzing congestion phases to determine if a price move will continue or reverse. Multiple time frames and methodologies like volume price analysis and indicators are used to aid this process.

15:28

Using multiple time frames for key levels

15:28

The speaker explains how traders use various methods like Camarilla levels, Fibonacci, and moving averages to identify significant price levels. They emphasize the importance of these levels across multiple time frames to predict price movements. A specific example is given where for the price to move higher, it must break through the R5 level and then potentially move to R6. Additionally, a 10-minute chart showed a strong reversal signal with a shooting star candle accompanied by high volume, illustrating a key point about price action and potential trend reversals.

16:42

Reversal candles and market signals

16:42

The speaker discusses an example of a reversal candle and mentions revisiting this topic later. They reference recent movements in currency markets, specifically noting the Australian dollar’s activity. The speaker also points out that on the hourly CSI chart, the British pound is still rising while the Japanese yen continues to fall, attributing the yen’s decline to a generally positive market trend.

17:15

Watching related markets and indices

17:15

The speaker reviews current market indices, noting that while the S&P is slightly down, the Nasdaq is still rising. The overall market shows positive movement, but caution is advised as related markets provide important signals for currency trends.

By Anna Coulling – creator of volume price analysis