Using tick and renko charts to trade in markets moving sideways

Using tick and renko charts to trade in markets moving sideways.

00:00

Introduction and forex webinar overview

00:00

The webinar opens with a welcome to participants and an introduction by the hosts. They explain that while the primary focus will be on the forex market, the discussion will also cover related market factors since financial markets are interconnected and influenced by multiple external elements.

00:34

Trading disclaimer and attendee welcome

00:34

The speaker begins by highlighting the importance of a disclaimer displayed on screen, emphasizing that trading is risky and advising viewers not to use money they cannot afford to lose. They also note reviewing the list of attendees, recognizing some familiar names but also many new ones, and apologizing if any returning participants were not initially recognized.

01:03

Volume price analysis methodology explained

01:03

The speaker introduces a methodology called volume price analysis, which they and David have developed and used for many years. This approach, explained in their books on Amazon, focuses on the relationship between price action and volume, a concept well-known but here presented with their unique interpretation. Unlike other sources that use bars, their method emphasizes candlesticks and candlestick patterns to analyze charts more effectively.

02:13

Incorporating related markets and fundamentals

02:13

The speaker explains the methodology involving the relationship between price action and volume in trading, highlighting that technical analysis in forex also includes fundamental news and related markets such as bonds, stocks, and commodities. They emphasize that price movements are influenced by broader market conditions and that their program offers a deep dive into fundamentals, related markets, trading psychology, and advanced volume price analysis. The approach can be integrated with other trading methods, and many traders have successfully incorporated these concepts.

03:50

The speaker notes that traders often combine various techniques, such as Elliott Wave theory with volume analysis, candle patterns, and support and resistance levels. They distinguish between price-based and volume-based support and resistance, stressing the importance of integrating multiple technical analysis tools to enhance trading strategies.

04:20

Indicators and support/resistance concepts

04:20

The speaker discusses the development of specific indicators designed to identify resistance in the market, emphasizing the use of Volume Price Analysis (VPA) combined with other tools like stochastic indicators and fractals. Although moving averages are not shown on the current charts, their functionality and limitations are explained, highlighting that they work only under certain market conditions. The importance of understanding the current market environment before trading is stressed, particularly given recent market volatility.

05:23

Market volatility and trading conditions

05:23

The speaker discusses market volatility, noting that Bitcoin shows almost no volatility while the Russell and biotech sectors exhibit some. However, these smaller markets are not reliable indicators of overall market movement. Generally, the market is relatively stable with limited price fluctuations. The discussion then shifts to the importance of considering multiple time frames when trading, emphasizing the value of analyzing charts directly. Finally, the speaker introduces specialized forex indicators that form a ‘currency dashboard,’ which can be purchased individually or as a set, highlighting their usefulness for trading decisions.

06:27

Currency dashboard and market flow analysis

06:27

The speaker introduces the currency matrix indicator, which helps identify market conditions related to volatility, specifically the likelihood of significant price movement rather than just momentum. This sets the stage for understanding trade potential based on market activity.

07:37

Using an hourly currency strength indicator, the speaker explains how individual currency flows—buying and selling pressure—can reveal overbought or oversold conditions. An example is given of the dollar being oversold and the Kiwi showing strength, indicating potential reversal trades.

08:41

The speaker discusses the concept of flow in currency trading, comparing it to volume and open interest in options markets. They critique a common viewpoint that dismisses volume’s relevance in technical analysis, emphasizing that volume represents market participation and provides valuable insight into price action.

09:19

Volume is highlighted as an important tool that offers an edge in trading, especially when assessing trends and corrections. By examining volume histograms during pullbacks, traders can distinguish between minor corrections and the continuation of a primary trend.

09:49

Combining price-based and volume-based analysis with support and resistance levels helps predict potential pauses or reversals in market moves. The speaker notes that for effective analysis on the hourly chart, traders want to see divergence and strong directional angles in currency strength lines rather than them clustering together.

10:29

Currency strength and pair selection

10:29

The speaker discusses the lack of momentum in the euro currency, noting it is moving sideways and showing little trader interest. In contrast, other currencies like the yen, Canadian dollar, and British pound exhibit stronger trends. The importance of identifying strong price angles and understanding which currency pairs to focus on is emphasized, especially for traders without preferred pairs.

11:31

The speaker shares a personal trading preference for the British pound, primarily trading pairs like pound-yen, cable (GBP/USD), and pound-aussie, while generally avoiding euro-pound pairs. They describe using multiple platforms to assess market congestion and price action, aiming to quickly determine which pairs are moving significantly during specific trading sessions, since not all sessions yield equal price movements.

12:37

Current market observations reveal the British pound is being bought strongly against the yen, while the Swiss franc is moving sideways. The euro and pound are moving in tandem. The speaker plans to build a profile using different timeframes and Renko charts to identify potential trades and wait out periods of market rotation, where buying emphasis can shift between currency pairs during different trading sessions.

13:39

The speaker notes that pound buying may continue into the North American session but possibly shift away from yen pairs. They highlight the need to consider upcoming fundamental events, such as the Bank of Canada’s interest rate decision, which could impact the pound-Canadian dollar pair. Traders must recognize that currency buying or selling can reverse between sessions in this 24-hour market divided into three distinct trading periods.

14:43

An indicator called the matrix is introduced, which ranks currency pairs based on buying strength, exemplified by the Canadian dollar’s current buying momentum. This ranking helps traders identify the strongest pairs to explore for potential trades. The speaker hints at additional important features of this indicator that enhance trading decisions.

15:16

Volatility drainage and market complacency

15:16

The speaker discusses an indicator used on hourly trading charts that measures market volatility. They explain that certain values, such as minus 1158 and plus 16, indicate very narrow market movement with little range or expansion, suggesting low volatility. This low volatility state is compared to current FX market conditions, which have returned to pre-pandemic levels. The indicator helps traders understand when the market lacks strong movement, which can be challenging.

16:28

The speaker recalls the low volatility period during the pandemic, describing it as dull and frustrating for traders, akin to ‘watching paint dry.’ They warn that such low volatility markets can be more dangerous because traders may become impatient and deviate from money management rules. The concept of ‘sea states’ is introduced to describe market conditions, with the ‘doldrums’ representing stagnant, directionless markets. The speaker advises traders to be cautious during these periods, as sudden market shifts can occur. Understanding price action and using volatility indicators can help manage risk in such conditions.

18:02

Upcoming news and inflation impact

18:02

The discussion begins with an overview of the North American market, focusing on the Bank of Canada and the Canadian dollar. Typically, the currency experiences strong movements ahead of major decisions like interest rate announcements. Currently, the Canadian dollar is neither overbought nor oversold but is showing signs of moving higher. Its value is also influenced by its relationship with oil prices. Market conditions are described as ‘waterlogged,’ indicating a period of consolidation or uncertainty across various markets.

19:14

Attention shifts to upcoming U.S. economic data, particularly core inflation figures. Inflation remains a central concern for markets, influencing expectations about interest rates and central bank policies. Despite some inflation metrics like the PCE (Federal Reserve’s preferred indicator) showing slight increases, there is uncertainty over whether central banks will maintain low interest rates or respond more aggressively. High inflation poses challenges both for consumers and for stock markets. Tools like Trading Economics and Forex Factory are useful for tracking inflation data and market reactions, with the core inflation rate currently exceeding the Fed’s target of two percent.

20:27

US inflation data and Fed market narrative

20:27

The speaker discusses market conditions around the Federal Reserve’s upcoming FOMC meeting, focusing on volatility as measured by the VIX or fear index, which is currently below 20 but not at its lowest levels. They explain how market sentiment oscillates between complacency and hysteria rather than simply fear and greed. The discussion includes the behavior of major indices like the Dow, S&P 500, and Nasdaq, noting that the Dow and S&P 500 are near all-time highs, which can cause nervousness among investors. The Nasdaq is approaching a key level of 14,000 but has not yet reached it. The speaker also references live chart analysis to illustrate these points.

22:09

Stock indices and volatility overview

22:09

The speaker analyzes three major stock indices—Dow, S&P 500, and Nasdaq—using daily charts. They note that the Dow is showing very narrow price movements, making trading challenging. The S&P 500 appears to have just surpassed its previous high, while the Nasdaq is approaching the 14,000 level but hasn’t quite reached it yet. This limited movement contributes to the current low volatility in the market. Additionally, the speaker highlights the Russell 2000, a small-cap index, as another important indicator that traders should watch, since it includes stocks that might become major players in the future.

23:20

Russell 2000 index and risk appetite

23:20

The speaker discusses the speculative nature of biotech stocks, noting that investors are attracted to them in hopes of finding the next big success like Apple. The recent strong uptrend in biotech indicates that the market is still willing to take risks. However, with the sector reaching its all-time high, this momentum may begin to slow down. This analysis provides insight into the current overall market sentiment, suggesting that investors are seeking higher returns outside traditional stocks. The speaker then transitions to discussing individual currencies based on their preferences.

24:25

Pound yen chart setup and market profile

24:25

The discussion focuses on trading pound-yen pairs using multiple chart setups including daily, hourly, 15-minute, 5-minute, and Renko charts. The speaker emphasizes the value of the Renko chart for identifying market opportunities, especially in narrow price ranges. The Renko chart is praised for its ability to provide clear insights in complex market environments, enhancing trading decisions.

25:39

The analysis turns to the pound-yen daily chart, highlighting a break from the volume point of control—a price region where a lot of trading activity occurs, representing market consensus or value area. Despite the pound-yen’s usual volatility and large moves, it experienced a period of congestion before breaking higher and then entering another phase of sideways movement. The speaker notes the presence of algorithmic traders in this pair, contributing to its trading dynamics.

26:50

Volatility signals and price congestion

26:50

The video explains a significant volatility spike indicated by an activated volatility indicator, marked by purple arrows on the chart. This spike led to either a reversal or congestion within the candle’s range. With the pound-geom example, both occurred: a lower reversal that did not breach the candle’s low, followed by sideways movement with a narrow daily candle spread. This narrow spread suggests limited daily price movement.

27:55

The low daily candle movement translates to slow and limited price action on shorter time frames like the 5-minute, 15-minute, and Renko charts. Renko charts ignore time and focus on price changes, with bricks set to specific pip values. Slow movement, indicated by tick speed and the time it takes to complete bricks, signals a market in the doldrums. Volume-based support and resistance levels are derived from volume point of control, helping identify outer bands of price activity.

29:01

Volume support and resistance levels

29:01

The segment explains how volume resistance and a volatility candle signal a market reversal, indicating that price is likely to revert within the candle’s spread. It describes the concept of high and low volume nodes, marked by volume support lines, which represent areas of dense and sparse trading activity. Low volume nodes act as fast passage zones for price movement, while the lines separating these zones serve as support and resistance levels. Additionally, price-based support and resistance levels are derived from dynamic indicators.

30:07

This part discusses the use of a dynamic support and resistance indicator featuring both solid and hatched lines, with the solid line indicating stronger levels. The chart provides insights into trading conditions on faster time frames and identifies key levels for trade management and target setting. It also introduces another indicator on the hourly chart, the camarilla indicator, which is used for further analysis.

30:43

Camarilla levels and time frame relevance

30:43

The speaker explains price-based levels that are calculated for different time frames. Hourly chart levels are valid for the entire week, allowing traders to anticipate targets for the pair from Monday onward. In contrast, levels on the 15-minute chart and smaller time frames refresh daily. Levels from hourly up to daily refresh weekly. When important levels from slower time frames align with those on faster time frames, this confluence creates stronger levels, with the slower time frame level taking precedence. These levels are used alongside candle patterns and volume data for trading decisions.

32:02

The key Camarilla levels are the third and fourth, where price often pauses or reverses. An example from the morning session around 7:30 to 9:30 shows volatile congestion before the London market opened. The volatility was triggered by price attempting to break out of a congestion zone but failing repeatedly, illustrating the interaction between price action and volume during these key levels.

32:39

London open volume and price action

32:39

The segment explains the significance of a doji candle, which represents indecision rather than a reversal. It describes a volatility-triggered move with increased volume just before the London market open, initially showing momentum with a volume surge. However, this was quickly followed by a reversal indicated by candle wicks, signaling weakness despite the initial buying interest.

33:42

Here, the focus is on analyzing volume patterns during a volatile breakout and subsequent trend. The speaker highlights that upward moves had significantly higher volume compared to pullbacks, suggesting genuine buying interest. Volume analysis helps distinguish whether pullbacks signal a trend reversal or just temporary pauses. The segment also discusses the importance of volume positioning relative to median lines on a tick volume indicator, especially during deep liquidity sessions like the London-Europe market, and introduces the Renko chart as a tool to filter out noise and clarify price movement.

35:15

Renko chart benefits and noise reduction

35:15

The segment explains the use of pure price action and geometric price action analysis, focusing on the importance of camarilla levels, particularly the third level and the buffer zone between S1 and R1 where market congestion occurs. It reviews recent price movements, noting sideways action followed by an explosive move before the London session. The discussion highlights how Renko charts, combined with the trend dot and trend monitor indicators, help capture consistent trends by absorbing volatility and filtering out noise. Despite current market compression, small profitable moves of 10 to 20 points are achievable. The segment concludes by acknowledging the complexity and messiness of the current market structure.

37:34

Price patterns and renko exit strategies

37:34

The speaker discusses using Renko charts alongside traditional time charts to better navigate market reversals. They highlight how volume patterns, such as hammer and shooting star candles, indicate potential reversals or resistance levels. The Renko chart helps traders decide when to stay in a position despite apparent resistance on the time chart, emphasizing its role in absorbing market noise. Multiple shooting star patterns and volume resistance levels are analyzed to determine possible price reversals.

39:12

The presenter explains that if a reversal occurs, the price is likely to test a lower support level, specifically the R3 level. They stress that trading decisions remain discretionary, with no strict rules, but combining these indicators can help extract value even in challenging market conditions. The segment concludes with a reflection on the usefulness of these tools in difficult trading environments.

39:45

Bitcoin volatility and market conditions

39:45

The speaker discusses Bitcoin’s current lack of volatility and references a post on their site explaining this through concepts like the volatility candle and volume point of control, highlighting the importance of these levels not only for entry points but also as targets and stops. They then analyze the hourly chart, noting a two-bar reversal near the R3 resistance and a support line, emphasizing that the current market conditions may continue higher, though this remains a discretionary judgment.

40:55

Hourly chart discretionary trading rules

40:55

The speaker discusses the challenge of applying fixed trading rules, noting that while indicators like trend dots turning red can signal action points, there is no precise, universally applicable rule set for market entries and exits. They emphasize that every chart is unique and that trading based on volume price analysis is discretionary rather than mechanical. The speaker also highlights that even advanced automated systems (EAs) cannot guarantee perfect results, stressing the complexity and variability of markets. They mention the pound yen is attempting to move higher, but volume analysis suggests any pullback will be limited.

By Anna Coulling – creator of volume price analysis