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This Volume Price Action Trading Strategy Will Halve Your Losses | Swing Trade ETFS & Stocks - YouTube
Channel: The Secret Mindset
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Hey guys.
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So, I don鈥檛 know about you, but when I started
trading I was completely ignoring the trading
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volume.
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I was testing all possible combinations involving
different indicators and strategies, on all
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kind of timeframes, but I didn鈥檛 bother
to include the volume in my trading decisions.
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And of course, my trading balance was going
down every week and my frustrations increased
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with every trade I took.
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Luckily for me, I read some articles about
volume and decided to incorporate it in my
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trading strategy.
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You see, there aren鈥檛 many trading books
devoted to the topic of volume analysis and
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most trading books or courses cover volume
as a secondary topic and don鈥檛 offer an
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in-depth discussion.
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Volume is a critical aspect of technical analysis,
so in this video, we鈥檒l discuss about how
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you can add volume into your price action
trading and you鈥檒l learn how to spot strong
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trends and how to anticipate with better accuracy
the reversal areas, taking into account just
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2 variables, price and volume.
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Before we continue, if you are new to the
channel and you find value or you learn something
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new, please consider subscribing and leave
us a like to show your support.
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So, volume is a significant tool because it
shows the conviction of buyers and sellers
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and is one of the simplest methods for observing
buying and selling activity at key levels
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on a chart.
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By itself, volume can provide conflicting
messages for a specific setup.
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But when you combine volume with price, things
will become much clearer and simpler.
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So, first, let鈥檚 define the basic principles
of price action.
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I know that the following techniques may sound
extremely easy for some of you, but you will
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be surprised at how often people will forget
these simple facts of reading price action.
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Now, when I analyze a chart, I like to assess
the market phases.
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There are only three ways the market can go:
up down sideways.
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The market is going up when price is making
higher highs and higher lows
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The market is going down when price is making
lower highs and lower lows
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The market is going sideways when price is
not making higher highs and higher lows or
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lower highs lower lows
Like I said, very simple and not complicate
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at all.
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Now, a trend remains intact until there is
a clear sign that the trend has reversed.
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A reversal in the primary trend is signaled
when the market is unable to create another
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consecutive swing in the direction of the
primary trend.
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So, for an uptrend, a reversal would be signaled
by an inability to reach a new high followed
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by the inability to reach a higher low.
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In this example, the market has gone from
a period of consecutive higher highs and lows
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to consecutive lower highs and lows, which
are the components of a downward trend.
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The reversal of a downward primary trend,
as shown in this example, occurs when the
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market no longer falls to lower lows and lower
highs.
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This happens when the market establishes a
new swing that is higher than the previous
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swing followed by a low that is higher than
the previous low, which are the components
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of an upward trend.
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When the price will start to stall and not
make a new swing high/low and will stay contained
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within the last swing high and low that was
made on the chart, this translates into a
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trading range.
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In this chart you can see that the price is
making LH's & LL's all the way to the first
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arrow which it would be the latest lowest
low.
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Price then moves higher to make a HH.
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At this point on the chart, in real time,
price needs to either start moving higher
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past the last swing high making a new high
or move lower past the last swing low making
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a new low.
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Until either of those things happens price
will most likely remain range bound.
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These are the main techniques of determining
a trend using price action, but how about
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increasing our chances by adding volume to
the equation.
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Like i said in the beginning of the video,
adding volume to the price action will allow
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us to be more precise when we enter or exit
the market.
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I鈥檝e tested most of the volume indicators
but the most efficient one for me is the on-balance-volume.
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The on balance volume (OBV) relates volume
to price change.
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We鈥檒l keep things simple, so all you need
to know about the OBV is the fact that it
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increases or decreases during each day in
correlation on whether the price closes higher
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or lower compared to the close during the
previous day.
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So, the main assumption is that on balance
volume movements precede price changes.
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As the volume is the main fuel behind the
market, OBV is designed to anticipate when
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major moves in the markets would occur.
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There are 9 different patterns involving the
price action and the OBV, 3 for each market
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phase (upward, downward and range).
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First, let鈥檚 analyze the patterns during
an uptrend.
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First pattern is when the price is making
higher highs and higher lows and the OBV direction
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is upward.
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This indicates a clear and strong uptrend.
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When you see this on your charts, it means
that the price and volume are aligned and
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that the buyers are in complete control of
the market, as you can observe on this chart.
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Here鈥檚 another example, the price is making
consecutive higher highs and lows, and the
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OBV is following the same pattern.
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The second pattern involves the price making
higher highs and higher lows but the OBV direction
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is sideways.
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This translates in a moderate uptrend.
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So, if in the previous case, the price was
still making consecutive highs and lows and
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the OBV also increased, this time, the OBV
runs sideways.
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This isn鈥檛 necessarily bad, it means that
the market direction is still up, but the
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strength of the buyers diminished and more
sellers entered the market.
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Here is another example, with the market recording
consecutive highs and lows, and the OBV in
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sideways mode.
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The price continued its upward direction,
but at a slower pace.
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The third pattern involves the price making
higher highs and higher lows but the OBV direction
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is downward.
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When you see this pattern on your chart, this
means that you are in a weak uptrend near
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reversal.
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Let鈥檚 analyze this chart.
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We can clearly see that the price is making
higher highs, but the OBV is making lower
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highs, suggesting a possible reversal of the
price.
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Of course, during strong trends the price
may continue to go higher, but when you see
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the OBV in divergence with the price action,
you should be careful adding long positions.
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Now, let鈥檚 analyze the patterns during a
downtrend.
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First pattern is when the price is making
lower lows and lower highs and the OBV direction
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is downward.
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This indicates a clear and strong downtrend.
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When you see this on your charts, it means
that the price and volume are aligned and
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that the sellers are controlling the market,
as you can see on this chart.
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And here鈥檚 another example, the price is
making consecutive lower lows and lower highs,
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and the OBV is following the same pattern.
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The second pattern involves the price making
lower lows and lower highs but the OBV direction
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is sideways.
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This suggests in a moderate downtrend.
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Like in the case of an uptrend, this isn鈥檛
necessarily the end of the downtrend, it means
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that the market direction is still down, but
the strength of the sellers decreased and
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more buyers are entering the market.
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The third pattern involves the price making
lower lows and lower highs but the OBV direction
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is upward.
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This means that you are in a weak downtrend
near reversal.
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If you look at this chart, we can clearly
see that the price is making lower lows, but
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the OBV is making higher highs, indicating
a possible reversal of the price.
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So, when you see a rising OBV in divergence
with the downward price action, you should
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be careful adding short trades, because the
buyers are adding more positions on the market.
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Now, let鈥檚 analyze the pattern during a
range.
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When the price fails to make a new swing high/low,
will stay contained within the last swing
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high and low and the OBV is increasing, this
could be a possible accumulation period.
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The accumulation phase basically is a stage
of consolidation.
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There is no clear trend, and traders and institutions
are slowly accumulating shares, but the market
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has not made a breakout yet, as in this example.
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You鈥檒l see this kind of price action and
volume during a market bottom.
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When the price fails to make a new swing high/low,
will stay contained within the last swing
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high and low and the OBV is decreasing, this
could translate into a period of distribution.
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This phase is characterized by some periods
of volatility, but primarily is a period of
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consolidation.
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The control of the market begins to shift
from buyers to the sellers, as traders and
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institutions begin to take their profits.
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You鈥檒l see this kind of price action and
volume during a market top.
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The third pattern involves a sideways price
action combined with sideways OBV.
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You should simply not take any trades during
this period, because this is a period of uncertainty
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with no clear direction from price or volume.
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By now, I hope you are convinced about the
power of combining price action with volume.
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Volume is invaluable when confirming trends
and if the volume isn鈥檛 present alongside
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price action, then the resulting trading signal
isn鈥檛 as reliable.
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So, if you learned something new and found
value, please consider subscribing to our
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channel, share and like this video, as it
would help us a lot in the future.
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Until next time.
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