It is also great to add another validation technique like Fibonacci to the chart to gain clues of where the price is likely to break. When you start to incorporate Volume Price Analysis in association with a volume indicator, you then have an amazing trading tool at your disposal. This strategy has become more difficult since the introduction of dedicated trade execution companies in the s which provide optimal trading for pension and other funds, specifically designed to remove the arbitrage opportunity. Some go even further and say as go the first five days , so goes the rest of the year. Both strategies, often simply lumped together as "program trading", were blamed by many people for example by the Brady report for exacerbating or even starting the stock market crash. Nasdaq determined the Getco subsidiary lacked reasonable oversight of its algo-driven high-frequency trading.
In the United States in , high-frequency trading firms represented 2% of the approximately 20, firms operating today, but accounted for 73% of all equity orders volume.  The major U.S. high-frequency trading firms include Virtu Financial, KCG, .
Taking a Closer Look at Volume
This immensely powerful indicator performs over three hundred calculations per bar and provides the foundation stone of the Hawkeye suite of tools and methodology. Since then it has been acknowledged that VSA is an extremely good leading indicator. At the heart of the Hawkeye software is a complex algorithm which executes over calculations per volume bar. It then displays instantly for you whether buying or selling volume is dominating the market.
If the volume is buying volume, the bar is green. If the volume is selling volume the bar is red, and when there is no market bias the bar is white.
The end result is one of the most accurate volume prediction indicators available. By taking account of the open and close of a bar and looking at the preceding volume bars it can sense the market mood and when combined with the other Hawkeye indicators , acts as a trigger for entry and exit into trades, which of course, makes your job simple.
Volume is the second most valuable item of data after the price itself. Large volume signifies that there are a large number of market participants involved in the price action, including financial institutions, who bring the highest turnover to the market. If the financial institutions are trading, it means they are interested in a price at certain level and they literally push the price up or down.
Low volume tells us that there are very few participants in the market, and that neither buyers nor sellers have any significant interest in the price. In this scenario, no financial institutions will be involved, and therefore any moves from individual traders will be weak.
Volume helps us to determine the health of a trend. An uptrend is strong and healthy if volume increases as price moves with the trend, and decreases when the market moves into a counter trend.
When prices are rising and volume is decreasing, it tells traders that a trend is unlikely to continue. Prices may still attempt to rise at a slower pace, and once sellers take control which is shown by an increase in volume on a down bar , prices will fall. A downtrend is strong and healthy if volume increases as prices move lower and decrease when the price begins to re-trace pull back upwards.
When a market is falling and volume is decreasing, the downtrend is unlikely to continue. Prices will either continue to decrease, but at a slower pace or stop falling and start to rise. When volume spikes at certain price levels, professional traders know that this is a clear signal of increased interest being shown by traders at that price level.
If there is significant interest, as revealed by the volume bar, it means the level is an important one. This simple observation of volume allows traders to identify important support and resistance levels which are likely to play a significant role in the future. Where volume spikes are extreme, larger than any historical spikes, and generally called a volume climax, traders should look for reversal clues from the price itself. Single volume spikes alone can often bring the market to an abrupt halt.
These extreme volume spikes often occur during fundamental economic announcements which occur daily. News can cause a spike in volume for a single day then disappear again. Reversals, however, happen not over a single day but over a series of days. If higher than average volume stays in the market for several days a huge volume spike, a volume climax, will often signal a point of market reversal.
Volume can help to validate all kinds of breakouts. When the market is consolidating on low volume, an increase in volume can signify that a breakout is due. A breakout occurring on rising volume is a valid breakout, while a breakout with low volume is more likely to be false. Simply because the lack of volume signals a lack of interest from the market and traders.
Trend lines and other breakouts are validated or voided in exactly the same way. So as you can see volume is without question the most important and powerful indicator of all. It is remarkably accurate at predicting future moves. When you start to incorporate Volume Price Analysis in association with a volume indicator, you then have an amazing trading tool at your disposal.
Unfortunately forex volume cannot be measured as precisely as it is for equities, where every share traded equates to one on the volume bar. So selling shares means in selling volume. The reason large volume spikes are important is because they project extremely strong emotions that occurred during the trading action that resulted in the spike.
Using these volume and price levels as a springboard, allows traders to profit from strong emotional market levels that traders have a strong interest in. Look for a stock or ETF that demonstrates average daily volume at least 3 times higher than the average daily volume.
The volume does not have to be one isolated day but can be a cluster of up to 4 trading days. The key is to mark the high and low price that traded on the day that had the most volume.
You want to see what the highest price was and the lowest price was on the day the highest volume occurred in the volume cluster.
Once you isolate the high price and the low price that occurred on the highest volume day, pay attention to the direction of the trend. If the stock is headed upwards you only need to pay attention to the high price that was traded on the Volume Spike Day.
If the stock is trending downwards, you only need to pay attention to the low price that was traded during the Volume Spike Period. In this example you can see how the stock was trending up prior to the Spike Day. You would only focus on the long side and enter a trade Market on Close MOC when the market is closing above the highest price traded on Spike Day.
You can see the entire progression in this example. We begin by determining the direction of the trend; afterwards we isolate the Volume Spike and determine the lowest price reached that day. In this particular case, the low occurred the next day following the Spike Low and we enter the market at the close or MOC.
Often times if the market is really volatile I will watch the market and just place a market order about 2 minutes before the closing bell. I suggest you get to know how fast your trading execution platform is and how volatile the stock is so that you are sure to get executed before the closing bell.
Understanding the Forex Trading Day
Jan 19, · Volume for EURJPY doesn't accumulate much today as majority of the volume (for both buy and see) is at around /49 level. Until GMT, Max Sell Volume changes from to and price went down for about 90 pips to reach old /49 level. Since no volume can accumulate and rebound back to level. Capture High Profits with Low Volume Pullback Trading Strategy By Galen Woods in Trading Setups on February 15, Dow Theory relies on volume as a secondary indicator to confirm price action. The CAN SLIM system isn’t the only trading system that uses volume to interpret price changes. Richard Wyckoff developed a well-known trading method based on price and volume behavior. One of the leading practitioners of this method, David Weis, is an independent trader and co-author of Charting the Stock Market: The Wyckoff Method.