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Day Trading Was Impossible Until I Applied Wyckoff Price-Volume Analysis (Smart Money Trading TIPS) - YouTube
Channel: The Secret Mindset
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Hello and welcome.
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Today we'll look at volume, based on Wyckoff
theory, as well as discuss how to read volume
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in combination with price, and additionally
we'll showcase several strategies you could
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apply for day trading, swing trading and even
scalping.
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So if you could… like, subscribe to the
channel and stick around for the full video.
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Volume is the ultimate leading indicator.
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When there is unusually high volume in any
given time period (which could be 5 minutes,
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an hour, a day, or a week), then the price
tends to continue in the same direction in
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the future.
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This principle applies to all financial markets.
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When prices are rising, the market will not
decrease purely as a result of low volume
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but will simply move sideways as it takes
a breather.
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Conversely any reversal from a falling market
cannot occur without an increase in volume,
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and is sometimes also referred to as a volume
climax.
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Volume confirms the strength of a trend or
suggests its weakness.
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Because if the market is rising, and volume
increasing, then this suggests that we have
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a strong trend supported by an increasing
number of buyers.
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Think about it, if this was selling volume
coming into the market, then prices would
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fall, or perhaps move into sideways congestion
before falling.
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As this is not the case, we can therefore
conclude that the volume is BUYING volume,
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and you expect the trend to continue.
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Conversely, if you have a rising trend but
falling volume, then this is WEAK.
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It’s logic, if the buyers are still in the
market, then this would be represented by
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RISING volume, and in this example we have
FALLING volume, so we can assume here that
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the buyers are NO LONGER INTERESTED.
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The trend is running out of steam and becoming
exhausted.
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This is the first sign of a POSSIBLE change
in trend.
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The buyers have left the market, and MAY now
be replaced with SELLERS.
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In a trend, the volume will go with the trend,
so expect to see the volume fall away in the
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pullback of the trend.
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This is NORMAL volume behavior.
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The buyers are taking a rest, before re-entering
the market to buy once more.
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WHY? - because there has been NO SELLING CLIMAX
to signal a change in trend.
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If we see the following in an uptrend, with
an ultra-high volume bar appearing, then this
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is a signal that the trend is about to reverse,
as volume climaxes OFTEN highlight price reversals.
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This is particularly true if the extreme volume
is associated with no equivalent reaction
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in the price.
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According to Wyckoff’s third law, if the
market requires effort (VOLUME) to rise and
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fall, the if the market has failed to rise
with significant volume, then clearly the
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market is resistant to any further increase,
and this volume must therefore be considered
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to be SELLING volume.
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If it were BUYING volume then the market would
have risen strongly.
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Here we can see that the market has been rising
strongly, with increasing volume, a positive
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sign.
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However, on the last bar, the volume has been
ultra-high, but the market has fallen with
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a narrow spread price bar.
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What’s happening here?
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In simple terms the buyers are no longer interested
at this price and a trend reversal is imminent.
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If the volume bar was BUYING volume then the
market would have continued to rise as in
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the previous bar.
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Instead it has failed to rise and the price
spread of the bar is narrow, so this MUST
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be selling volume coming into the market.
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Points where the market trades on high volume
are the points of strong support and resistance,
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and are the first signs of a change in trend
or a breakout.
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Volume helps us to confirm the potential breakout
from an area of price congestion.
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In this example, we can see that we have high
volume at the bottom of each market reversal,
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which is suggesting BUYING or ACCUMULATION
at these points.
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The support area confirms this view, so that
when we FINALLY see the breakout we have a
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GREAT signal from our volume bars, that this
is a GENUINE breakout and therefore a LOW
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RISK TRADE.
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In this example, the high volume is at the
TOP of each trend, so in this case we can
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assume that this is SELLING volume with the
market creating a region of price resistance
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in this case.
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As this is selling volume, then when we see
the breakout to the down side, VOLUME once
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again VALIDATES this breakout, as we have
seen the HIGH volume bars on each FAILED attempt
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to move higher.
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Once again we have a low risk entry, confirmed
by our volume.
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Breakouts and market spikes can be validated
or voided with the help of volume.
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Without volume, we are merely guessing at
the future direction of the market.
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With volume, we have an insight into the market,
and whether the interest is buying or selling.
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However, just like price, volume in isolation
tells us very little about the market’s
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future direction.
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All it can signal on its own is interest in
a market or event.
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For this we need to combine price and volume
together to give us the most powerful analytical
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tool available, which will reveal the market’s
future direction.
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As Wyckoff said: “all you need to know can
be found in price and volume.”
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From Wyckoff I learnt that price alone can
only tell you what is a market’s present
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technical position and where the trend is
probably headed.
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That volume determines the trend with more
accuracy and detects turning points.
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But together, they form a complete picture.
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Volume expresses interest and enthusiasm.
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Volume is the fuel of the market, it is what
drives the market, and without it, the market
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will simply drift.
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Volume exposes the truth of the market.
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Volume reveals conviction in the market.
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If the market is moving higher, but with falling
or low volume, then this is simply telling
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us that this is not a genuine move.
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Equally, if the market is falling with falling
volume, then once again this is not a genuine
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move.
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I know I’m repeating myself, but this is
so simple and powerful.
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On their own, price and volume only reveal
a part of market information.
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After all, price tells you a number.
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Volume on its own only tells us there is interest,
and nothing else.
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However, when combined, the true market intent
is revealed giving clear signals of both buying
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and selling interest, something that would
not be revealed by either on their own.
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In simple terms, the more people that participate
in a price move, or in our case the more volume
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associated with a price move, the more that
price move is validated.
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When there is low volume, few buyers, then
our price is simply not validated.
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It really is that simple.
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Let’s talk about volume and news announcements.
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The markets, as we know, are always full with
news of every type, from the daily release
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of fundamental and economic data, to the political
statements from governments, to the latest
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announcement from a central bank.
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All of these pieces of news are absorbed by
the markets and built into the latest price
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action.
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Now, as this new information is released into
the public domain, volume reveals the effect
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of this information on price.
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By watching the change in volume, as this
information is released, we can instantly
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see how the markets are reacting to the news,
and how quickly the latest piece of news is
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being absorbed by the various market participants.
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What this means in simple terms is that the
volume substantiates the importance of the
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release.
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If the volume rises on the news and the price
rises in tandem, then the market is placing
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significant emphasis on this piece of news.
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Clearly in this case the price is being validated
by the volume surge.
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Conversely, if the volume fails to rise on
the news, then the market and the market participants
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have clearly discounted this item, and consider
it to be unimportant or irrelevant, as they
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now wait for the next release to arrive.
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Let’s look at a few more examples of how
volume plays a key part in the current AND
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future direction of a market.
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VOLUME HIGH OR LOW
As we have seen volume is the second most
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valuable item of data after the price itself.
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Large volume confirms market activity and
that market participants are involved in the
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move, including smart money, who bring the
highest turnover to the market.
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When the smart money are trading, it means
they are interested in price at certain levels
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and they literally push the price up or down.
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Low volume tells us that there are very few
participants in the market, and that neither
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buyers nor sellers have any significant interest
in the price.
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In this scenario no smart money will be involved,
and therefore any moves from individual traders
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will be weak.
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VOLUME AND TREND
Volume helps us to determine the health of
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a trend.
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An uptrend is strong and healthy if volume
increases as price moves with the trend and
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decreases when price goes counter trend (correction
periods or ‘pull backs’).
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When prices are rising and volume is decreasing,
it tells traders that a trend is unlikely
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to continue.
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Price may still attempt to rise at a slower
pace, and once sellers take control (which
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is usually signified by an increase in volume
on a down bar or candle), prices will fall.
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A downtrend is strong and healthy if volume
increases as prices move lower and decreases
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when the price begins to re-trace (pull back)
upwards.
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When price is falling and volume is decreasing,
the downtrend is unlikely to continue.
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The price will either continue to decrease,
but at a slower pace or start to rise.
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VOLUME AND REVERSALS
When volume spikes at certain price levels,
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traders know that this was an area of high
interest at that price level.
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If there is a great deal of interest, it means
the level is a key one.
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This simple observation of volume allows traders
to identify important support and resistance
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levels which could play a significant role
in the future.
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Where volume spikes are extreme (in other
words larger than any historical spikes nearby),
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this is generally known as a volume climax.
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When this occurs traders should look for clues
for the future direction of the move from
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the price itself, and this is often followed
by particular candle or price bar pattern.
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Single volume spikes can bring price to a
halt temporarily and these are often seen
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during fundamental and economic announcements
on a daily basis.
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Reversals, however, happen not over a single
day, but over a series of days.
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If higher than average volume stays in the
market for several days a huge volume spike
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- volume climax - will crown a point of market
reversal.
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VOLUME AND BREAKOUTS
Volume can help to validate all kinds of breakouts.
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When the market is consolidating on low volume,
a pick up in volume can signify that a breakout
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is due.
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A breakout occurring on rising volume is a
valid breakout, while a breakout that attracted
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no interest from traders occurring on low
volume, is likely to be false.
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If you’re learned something new, please
hit the like button, since it really helps
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us out, and subscribe, to stay up to date
with our latest releases.
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And check out our academy program if you want
to further level up your trading.
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Until next time.
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