Good Day Traders,
In this article I am going to continue with the volume and price action combination with some good examples and some explanation about volume indicators and the volume indicator which I use.
First of all, I use a VSA indicator for reading the volume. It’s not like the classic volume indicator in your platform. Particularly, I use the better volume indicator and it’s the most accurate and easy way for reading volumes, at least for me. So, let’s go.
If you remember, in the previous article I talked about buying and selling climax. Let’s see the first screen shot of the day. It’s from EURUSD currency pair.
As you can see in the chart there are some colors in volumes. The white color means selling climax. The red color means buying climax. The yellow color means low volume and last but not least the green color means that there is a small movement with high volume. Look at the first blue box. The yellow horizontal lines are whole numbers which they act many times as natural support and resistance levels. In the first blue box you can see that we have an increasing volume and there are two selling climax white bars. The price is moving down with solid negative candles. This means that the investors are selling heavily. But look the price hit a whole number (our support in this case). After the selling climax the investors realize that the price is in a very low level and it’s oversold, as I said in my previous article. After the two white bars it appears a red bar which is a buying climax. This is a good signal that the mini-down trend is at the end. The two white bars, the red bar after them and the whole number as a support are our signals for buying the asset right now. Look, it begins a new up- trend.
In the second blue box, you can see that we have again a selling climax but the price stop moving down and makes a reversal. This is our Price Action Signal. We have higher- lows a signal of an up- trend. We can re- enter with a call in this spot.
In this chart we have a different case. The red horizontal line is a previous resistance and a whole number, too. We have an up trend and after that as you can see in the blue box a consolidation period with low volume near to the resistance. Notice that when the price hit the resistance it appears a big white bar which is a selling volume. This is a signal that maybe it’s the end for the up- trend. Finally this is true and in next 45 minutes and more the price is moving down.
There are many ways to read the volume. Choose the indicator you like and looking for climax bars near S&R. When you have a clear confirmation of the new move of the market it’s time to trade. I recommend longer expiry.