Trading the gold chart using volume price analysis

Trading the gold chart using volume price analysis

In this example from the US futures trading session we take a closer look at the five minute gold futures chart, which has a great lesson in volume price analysis.

00:10

Gold futures order flow and 5-minute chart

00:10

The speaker begins by focusing on gold, a topic frequently discussed and traded. They introduce a 5-minute chart illustrating the current order flow in the gold futures market, showing bids, asks, and sales windows. The discussion highlights volume and price analysis, emphasizing congestion opportunities. The segment mentions a recent rally and a trend transition indicated by the trend monitor, setting the stage for deeper analysis of market behavior.

01:18

Volume price analysis signals of weakness

01:18

The segment explains how rising volume pushing the market higher can lead to the first signals of weakness, such as a candle with high volume, a large wick to the upper body, and a narrow spread. This indicates selling pressure but does not necessarily mean an immediate market reversal. It cautions against overreacting to these volume price analysis (VPA) signals, noting that while occasional sharp V-shaped reversals occur, markets generally behave more gradually like an oil tanker, requiring time to lose momentum before entering congestion phases.

02:18

Resistance buildup and congestion phase

02:18

The segment explains a market analysis focused on volume and price action indicators during a rally that may be nearing a reversal. It highlights the significance of declining volume despite rising prices, suggesting profit-taking and potential weakness. The speaker describes how the accumulation distribution indicator signals resistance building in the region and points out specific candle patterns, including wide spread up candles accompanied by low volume, which confirm the market’s weakness. Comparative volume metrics across different sessions, such as gold futures and index futures, are used as benchmarks to assess market strength. Overall, the price action and volume patterns indicate a congestion phase with a possible reversal forming.

04:27

Congestion price action and narrow spreads

04:27

The market is currently in a congestion phase characterized by narrowing price spreads and very low volume, indicating a period of indecision. Despite some upward moves breaking through previous resistance levels (volume points of control), the price action remains weak, with narrow candle spreads rather than wide ones that would indicate strong momentum. This congestion creates a well-defined trading range of about four to five dollars per ounce, providing clear opportunities for breakaway trades with defined entry and stop-loss points.

06:19

Breakaway trading opportunities explained

06:19

The speaker discusses the strategy of trading breakouts by observing volume and price action around a key ceiling level. They emphasize confirming a true breakout with strong volume to distinguish it from fakeouts, highlighting the advantage of having a solid support platform below the price. This approach applies similarly to upside and downside breakouts.

06:51

The focus shifts to differentiating between upside and downside breaks within a defined channel marked by two key levels around 86 and 91. The speaker notes that volume is currently building near the upper resistance, signaling significant congestion. Breaking above 91 suggests strong upward momentum, supported by increasing volume at the volume point of control.

07:21

Analyzing the chart further, the speaker explains that if the price breaks upward, there is little resistance ahead, but a downside break encounters immediate support. Successful downside breaks require strong volume and consideration of these support levels, which could cause the downward move to stall. This highlights the importance of volume and support clusters in breakaway trading.

07:50

The principles of breakaway trading are outlined, emphasizing how congestion zones clarify resistance and support levels, almost like a slide rule. This clarity helps traders set precise stop-loss points and understand potential price barriers, improving risk management and trade planning.

08:21

The speaker advises positioning stop-loss orders relative to breakout direction; below support for upside breaks and above resistance for downside breaks. This approach provides natural price protection not typically available in trend trading, where levels of support and resistance may be less defined.

08:48

Patience required in congestion phases

08:48

The speaker explains that trading out of a range or congestion phase requires patience because the market may remain in this phase for an extended period, potentially lasting hours or even days. Markets tend to spend more time in congestion phases than in trending phases. The key to successful breakaway trading is volume confirmation, which helps distinguish genuine breakouts from fake outs. Traders who use volume and price analysis are less likely to be misled by false breakouts.

09:46

Time and sales order flow analysis

09:46

The speaker explains how to use the time and sales window to gauge trading participation, emphasizing the importance of identifying block trades rather than small single orders. Blocks in double figures or higher are key indicators of market-moving activity. The speed of order flow correlates with market momentum, with faster trade execution signaling increased activity. Currently, the market shows slow, small trades with gaps of several seconds between orders, indicating weak momentum.

11:13

The focus remains on identifying blocks of trades that can move the market and observing their actual impact. If large volumes do not shift prices, it signals market weakness. The speaker mentions plans to further explore this analysis using TradeStation software. The example given is a 5-minute gold chart showing a volume point of control and a clear resistance ceiling with support below. Due to a US holiday and late session timing, market volume is thin and likely to enter a congestion phase. The discussion then shifts to reviewing the indices.

12:51

Indices market divergence and sentiment

12:51

The indices are at a critical point with contrasting movements. The YM and ES have remained within the range of a significant plunge candle, showing sluggish behavior and bearish sentiment, especially in the YM. In contrast, the NQ has broken out into new highs and is trading independently, displaying strength that is unusual given the typical close correlation between these markets.

14:20

The YM and ES continue to show bearish trends with no signs of strong bullish momentum, while the NQ remains an outlier by moving higher. This divergence is anomalous since these markets usually move in tandem. The key question is how long the NQ can maintain this isolated strength before the broader bearish sentiment in the YM and ES pulls it back. Until the ES or YM break out of their current daily ranges, the unusual nature of the NQ’s move persists.

15:33

The NQ’s price action has moved into a low volume area, with current volumes remaining moderate and no large blocks traded. Observing the time and sales linked to the NQ shows relatively low numbers, indicating the price movement hasn’t yet accelerated significantly. As price action develops, a noticeable increase in trade speed and momentum is expected, similar to the dynamics visible in tick charts rather than time-based charts, providing a better sense of market momentum.

16:35

The speaker pauses to address any questions from the audience and briefly manages the chat, indicating a transition before handing control back to another presenter.

By Anna Coulling – creator of volume price analysis