Volume price analysis – the universal methodology

Volume price analysis – the universal methodology

Volume price analysis is the perfect methodology as it can be applied to all markets and timeframes, and in this video from this morning’s forex trading session I explain how, using the WTI crude oil chart as an example.

00:13

Stressful morning and power cut impact

00:13

The speaker describes a stressful Tuesday morning caused by a power cut that disrupted multiple workspaces and interrupted chart loading. They mention having to rebuild several items, including some charts, while another person named Anna was speaking. Despite the difficulties, the speaker highlights oil as one product that managed to survive the disruption.

00:46

Importance of oil in forex and VPA

00:46

The speaker emphasizes the importance of oil as a commodity in the forex market, highlighting its relevance through relational analysis. They explain that applying volume price methodology and indicators yields consistent principles regardless of the chart timeframe. Various timeframes such as 15 seconds, one minute, three minutes, as well as daily charts, are used to analyze the market effectively.

01:20

Oil 5-minute chart volume spike analysis

01:20

The segment discusses a five-minute chart for oil, specifically the September contract. It highlights a significant spike in volume and notes the presence of congestion. The speaker explains that this triggers volatility, referencing a previous minor volatility event during congestion. The focus is on understanding what to expect when volatility occurs, emphasizing the behavior of market makers in such conditions.

01:53

Volatility traps and market maker behavior

01:53

The speaker explains that when many traders participate in a particular market move, it is often a trap designed to lure them in. This trap typically aims to create congestion or reverse the market direction. It is driven by the fear of missing out (FOMO), which causes traders to impulsively jump into fast-moving markets seeking quick profits, only to end up trapped on the wrong side of the trade.

02:22

24-hour market activity and session spikes

02:22

The speaker explains that the recent market movement could be due to emotional pressure from market makers or a full reversal. They highlight that many forex traders may not realize that oil and indices trade on a 24-hour market, similar to forex. The discussion focuses on increased activity during the European and London sessions, particularly between seven and eight o’clock London time. The application of volume price analysis (VPA) is mentioned, noting falling prices, spread behavior, and the significance of price-based support visible on the accumulation distribution indicator.

03:18

Support and resistance in volume price analysis

03:18

The segment explains the use of support and resistance indicators on MT4 and MT5 platforms, emphasizing their importance in volume price analysis. It highlights that these indicators rely purely on price behavior and chart patterns, showing how stronger support or resistance lines are represented by thicker lines, similar to the accumulation distribution indicator. The analogy of Popeye eating spinach illustrates how repeated tests of these levels strengthen them. The speaker monitors price action around these levels, noting the transition of an area from support to resistance and the significance of clusters of support and resistance lines.

04:15

Volume point of control and market reversal

04:15

The speaker discusses a significant market region where a strong downward price movement occurred, marked by high volume and volatility. After this decline, buying activity emerged at the bottom, indicated by specific candle patterns. This buying activity led to a congestion phase as the price reached the volume point of control around 4204-4205. A reversal started taking place, supported by trend monitoring, suggesting a potential upward move if the price breaks through and closes above the 4224-4225 level, establishing a solid support platform for further gains.

05:08

Multiple time frame volume analysis

05:08

The workspace shows multiple time frames including a 15-second and one-minute chart to analyze market volatility and congestion. Initial weakness is observed with decent volume, followed by more weakness and falling sell-side volume, indicating no expected market collapse. A low-volume test dip occurs before the price moves higher, with lightweight volume above acting as resistance. Volume is used similarly to price to identify significant regions in the market.

06:05

Volume as resistance and price movement

06:05

The speaker explains that dense regions of volume, known as the volume point of control, represent the heaviest traded price areas. When volume diminishes beyond this point, prices tend to move quickly through those lighter volume regions. Specifically, the price range from 26 to 36 is expected to be an easy zone for market movement. The principles of volume analysis remain consistent regardless of the market or instrument being observed, as illustrated by the trend monitor transitioning to blue.

06:30

Congestion and second law of cause and effect

06:30

The speaker discusses a market stuck in a tight congestion range for weeks, highlighting the patience needed in trading such scenarios. They explain the concept of the ‘second law of cause and effect,’ where prolonged congestion builds up energy, similar to winding a spring in a clock mechanism. This stored energy eventually leads to a significant breakout and extensive trend. The analogy emphasizes that the longer the congestion, the stronger the subsequent move, but successfully trading these breakouts requires patience, which many traders find challenging.

08:01

Currency strength trends overview

08:01

The speaker reviews available workspaces and examines currency strength charts, noting strong Swiss franc buying across multiple timeframes. They highlight a developing trend favoring the Swiss franc against currencies like the Australian dollar. The Australian dollar is rising strongly while the US dollar is selling off and beginning to curl downward without reaching extreme overbought or oversold levels yet. The speaker points out that short-term scalpers may have already captured much of the trend and discusses potential trading strategies, including watching for crosses on the five-minute chart and considering reversals, such as in the New Zealand dollar versus Swiss franc pairing, where extremes suggest possible turning points.

09:49

Trading trends vs reversals and risk reward

09:49

The speaker discusses personal trading preferences, emphasizing the choice between trading trends or reversals. Trading reversals offers the advantage of entering early to capture most of the trend, but requires wider stop-losses. In contrast, trend trading can have much tighter stop-losses, sometimes just a few pips, especially for scalpers. The discussion highlights the balance between risk and reward in trading decisions. The speaker then shifts focus to analyzing current market conditions on a five-minute chart, specifically mentioning the Swiss franc and the Australian dollar, noting a developing trend visible on the chart.

11:13

Using currency strength indicator as a guide

11:13

The currency strength indicator (CSI) is compared to a sonar used by commercial fishing boats to locate fish shoals. It serves as a starting point to identify promising areas in the market. While the CSI guides traders to potential opportunities, it does not provide exact entry points. Traders must then analyze charts to determine the best actions, such as observing key levels like the volume point of control.

12:06

Volume point of control and market congestion

12:06

The discussion explains the significance of the volume point of control, describing it as the market’s fulcrum where bullish and bearish sentiments balance equally. This area sees the highest concentration of volume and acts as a congestion zone. Price movement through low volume nodes near this point is easier due to less resistance. A breakaway from the volume point of control on strong volume signals a potential market shift. Current observations include market weakness and an attempted rally with significant volume below, indicating tension at this critical level.

13:28

Volume anomalies indicating buying pressure

13:28

The speaker discusses current market weakness and congestion, emphasizing the importance of analyzing volume alongside price to identify potential reversals. They highlight anomalous candles and volume behavior as key indicators. Specifically, despite identical volume levels in two instances, the market reacts differently, suggesting buying activity is present and causing a pause in downward movement. The focus is on continuously monitoring the price-volume relationship to understand market dynamics.

14:28

Dollar complex and universal buying/selling patterns

14:28

The speaker explains the significance of a chart array in providing a clear perspective on the US dollar’s universal buying or selling trends across various pairs. When the dollar is being bought, currency pairs like cable, Aussie dollar, euro dollar, and New Zealand dollar tend to rise, while pairs like dollar CAD and dollar Swiss move in the opposite direction. The trend monitor typically shows similar trends across these pairs, which recently shifted from bearish to bullish, indicating a rotation in the dollar complex.

By Anna Coulling – creator of volume price analysis