Trend trading set-ups

How To Spot Trend Trading Set-Ups

Traders are often frustrated by congestion phases, but it is during these periods that trend trading setups begin. In this video, we look at such a trade in the synthetic contract for the YM E-Mini future of the Dow Jones that can be accessed on the MT4 and MT5 platforms. This means forex traders can now access not just currency pairs but also indices, stocks, and commodities.

00:01

Introduction and webinar welcome

00:01

The speaker welcomes the audience to the second webinar, mentioning a minor microphone issue earlier. They acknowledge returning participants from the morning session as well as new attendees, noting the different time zones participants might be in. The session will soon move on to discussing charts.

00:33

Disclaimer and trading risk reminder

00:33

The presenter begins by emphasizing a disclaimer about the risks of trading, advising viewers not to use money they cannot afford to lose. The session will focus on analyzing charts using a specific approach referred to as the ‘prism.’

01:00

Volume Price Analysis overview

01:00

The segment explains volume price analysis (VPA), which combines price action and volume to determine if market movements are genuine or traps. VPA helps identify anomalies where price and volume behavior is unusual, preventing traders from being misled or caught on the wrong side of trades. Additionally, it provides valuable insights beyond just price action alone. The discussion also highlights the importance of candle patterns, support and resistance levels, and analyzing multiple time frames. The speaker mentions using a MetaTrader 5 platform with Renko charts, which are non-time based, to better handle market volatility.

02:09

Volume Price Analysis book and adoption

02:09

The discussion focuses on the benefits of using charts that absorb market fluctuations and volatility to help traders stay in trades and identify potential reversals. The principal book on volume price analysis (VPA) has been translated into several languages and is widely read by traders and investors. The methodology is applicable not only to day trading and short-term time frames but also to longer-term investing. To complement the main book, a companion book with worked examples has been created, covering stocks, indices, commodities, and forex. This companion book addresses frequent requests from traders for practical examples, emphasizing that chart patterns tend to repeat due to consistent human behaviors in the markets.

04:00

Trader psychology and market behavior

04:00

The speaker discusses how market behavior reflects the actions and psychology of traders and investors, emphasizing that chart analysis essentially reveals the collective behavior of market participants. They highlight the concept of volume price analysis, which views the market from the perspective of insiders and institutions who legally shape the market and exploit common investor mistakes. An example is given about JP Morgan facing a large fine for spoofing, a deceptive trading practice used to manipulate the market.

05:08

Market manipulation and spoofing

05:08

The speaker discusses the complexity of the market, highlighting that participants are not only active individually but also interacting among themselves. They mention having a lengthy list of current market factors to consider and decide to begin with straightforward news and fundamental updates, noting that today’s news, particularly about the Federal Reserve, is somewhat uneventful.

05:38

Current fundamental news and stimulus talks

05:38

The segment discusses recent market turbulence caused by political events, particularly former President Donald Trump’s Twitter activity that disrupted stimulus talks between Democrats and Republicans. Although initially halting negotiations for a new stimulus package, Trump later approved some measures, including an airline bailout which boosted airline stocks. The speaker also notes ongoing Brexit-related volatility impacting the British pound and expresses concern about the unpredictable nature of Trump’s communications.

07:20

This part covers continued market volatility influenced by fundamental news such as Canadian economic reports and upcoming U.S. political events. Specifically, it highlights a vice-presidential debate between Mike Pence and Kamala Harris scheduled after market hours, which could cause market reactions in after-hours trading. The speaker emphasizes the importance of tracking both real-time news and scheduled political events to anticipate market movements.

08:26

The focus shifts to longer-term political developments, particularly a Capitol Hill committee’s intention to apply anti-trust legislation to major tech companies like Facebook and Google. This potential regulatory action could impact these dominant firms, which have been major drivers of the stock market. The speaker underscores the need for traders to consider such underlying political and regulatory factors alongside immediate market news and chart analysis.

09:34

Chart analysis: daily and hourly context

09:34

The speaker introduces a combination of time-based and non-time-based charts using a synthetic contract called YM, representing the US-30 index, which can be traded on most MT4 and MT5 platforms without needing a futures account. They begin by analyzing the daily chart, noting yesterday’s significant price drop and the price action returning to the volume point of control at 27,684. The values on these charts may slightly differ from actual futures markets due to the synthetic nature of the contract, but the variation is minimal and unlikely to impact trading.

10:41

The discussion continues on the daily chart showing yesterday’s fall and a partial retracement with limited volume below the current price, indicating uncertainty whether the price will decline further. The market appears to be within a broad range rather than a strong trend, with daily candles offering trading opportunities on faster charts. The speaker highlights previous market phases including congestion, trending movements, and a volatile trend reversal, emphasizing the importance of understanding chart structure for trading decisions.

11:46

Focusing on the hourly chart, the speaker observes a trend higher following a V-shaped reversal after yesterday’s major fall during the Globex session. This upward movement provides context for examining faster time frames, leading to an analysis of the three-minute chart and the volume point of control.

12:21

Congestion zones and trend identification

12:21

The speaker discusses the importance of identifying congestion zones in market charts, noting that trends often begin or reverse in these areas. Rather than focusing solely on trends, traders should pay attention to phases of congestion, such as distribution or accumulation points, where the market is comfortable transacting within a certain range.

12:54

The explanation continues about market behavior around congestion zones, highlighting the significance of volume surges and volatility candles at market opens. A volatility trigger is indicated by specific chart markers, showing that the candle’s range exceeds the average true range, signaling heightened market activity.

13:28

After a volatility candle appears, the market often retreats within the candle’s spread. The speaker notes that deciding how long to wait after the market opens before trading depends on observing price action and volume, emphasizing there is no fixed rule but rather it varies based on individual trading style and conditions.

14:03

To better judge market conditions, especially at open, the speaker recommends using non-time-based charts like Renko charts. These charts focus on price movement rather than time intervals, helping traders identify meaningful bricks or blocks that represent price changes, which can improve decision-making based on price action rather than time.

14:35

Renko charts and non-time based analysis

14:35

The speaker explains the use of an indicator set to five points, which can be adjusted manually or automatically. They highlight how Renko charts eliminate market noise and choppiness, providing a clearer view of price action. Additionally, support and resistance levels based on price are shown.

15:10

The discussion focuses on a congestion phase observed before the market open or major news announcements, where price movement becomes uncertain. This congestion often results in a V-shape reversal, with the trend color changing to indicate potential direction, though the exact movement remains unpredictable in volatile markets.

15:43

The speaker advises waiting for a clear trend confirmation indicated by bright blue trend dots and matching trend monitor colors before considering entry points. They emphasize using support and resistance lines on time charts to identify reasonable entry levels, especially after congestion zones clear.

16:19

Using congestion zones as breakout signals helps define stop-loss placement, often just below the volume point of control (VPOC) or last support line, allowing more aggressive trading. The speaker notes that volatility triggers often signal potential retracements within candle spreads.

16:54

The Renko chart helps maintain position during volatility and congestion phases, demonstrated by holding through several candles of congestion. The speaker describes how after a volatility trigger and congestion, price may either reverse or continue, with Renko charts supporting better trend holding.

17:29

The trend dot indicator uses three colors: blue for uptrend, red for downtrend, and gray for congestion phases. The chart currently shows congestion without a bright blue signal. Traders can either wait for a clear uptrend signal or exit early, as the indicator rarely shifts directly between bright colors without an intermediate phase.

18:01

The speaker discusses trade management during uncertain trend phases, suggesting partial profit-taking if holding multiple contracts while letting some run. They note the market is currently moving higher and transition to analyzing levels on a 10-minute chart for further insights.

18:35

Camarilla levels and volatility triggers

18:35

The segment discusses the application of the Camarilla levels, a system for marking price levels in trading. It highlights the use of six levels and explains how a volatility trigger on the 10-minute chart indicated a retracement. The key point is that once the price breaks through the R4 level, it suggests a directional movement, prompting the question of where the price might head next.

19:09

The speaker explains that on the hourly chart and longer timeframes, the Camarilla levels remain valid for the entire week, making them significant support and resistance points. They suggest that the next logical price target is around 28.89, and external factors like positive news could push the price toward that level.

19:44

This part focuses on the strength of support and resistance on slower time frames, emphasizing the significance of the hourly chart where the price is currently testing the R4 level. The discussion centers on whether the price will break higher or experience a pause, congestion, or pullback at this important technical level.

20:23

The final segment highlights the integration of volume price analysis concepts with the Camarilla indicator. It covers analyzing trends, congestion, and the use of non-time-based charts to better understand price action. The speaker notes that pullbacks and volatility cause the price bricks to expand, reflecting periods of increased market activity.

21:02

Volatility indexes and market implications

21:02

The speaker discusses market volatility, highlighting the Dow’s volatility index and comparing it to the more commonly referenced VIX for the S&P 500. They explain that the VIX generally signals market direction: falling VIX suggests a rising market, while a rising VIX indicates potential market reversal. The importance of monitoring volatility indicators alongside support and resistance levels is emphasized to anticipate market movements and identify targets.

23:08

The speaker advises caution when interpreting resistance levels like R4, noting that markets may retest or consolidate after breaking through such points. They mention the unpredictability of market reactions to news, such as announcements from political figures, underscoring the current market’s uncertainty and the need for careful observation.

23:39

Market outlook and Q&A session

23:39

The speaker discusses current news, noting that a particular individual has been very active and media coverage is substantial due to the many opinions involved. There is uncertainty about whether this person will succeed or not, and the speaker prefers to wait before sharing a personal view. The media appears likely to miss this figure because they generate a lot of content to write about. The segment ends with an invitation to viewers to submit questions via chat for live or typed responses, and then the host passes the discussion over to David.

By Anna Coulling – creator of volume price analysis