by The Volume and Price Action Trading system evaluates the price and volume information for the recent 10 trading sessions. A buy is generated when the condition satisfies that its current close is greater than the simple moving average of the last 10 trading sessions.
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 price goes counter-trend (correction periods or ‘pull backs’). If PRICE is falling, VOLUME is rising, the market is STRONGLY BEARISH.
Volume and Price Action Trading Strategy
First, we need to the direction of the market i.e. what is the current market direction well it a downtrend, uptrend, or is it range-bound?
Most people use moving averages to determine range but this can be easily done just by looking at the price action only.
The problem with moving averages is that they are time lagging and so it takes them a while to catch up with the most recent markets. Conversely, looking at volume and price action when done correctly can discover a change in market structure sooner than moving average.
The price Action structure of any market and time frame consists of just one fundamental element and that element is a price swing.
If we look at the price chart we can notice straight away the fact that prices tend to move what appears to be some kind of move or swing.
Price expands in a certain direction then stops, reverses, makes a pullback back, and then reverses back again.
This is the most fundamental volume and price action element that can be found on any chart and timeframe. When this process is repeated consistently in a swing direction for some time the market is in trend.
When the current momentum exhausted markets naturally stop and start trading in the range, price swings do not expand directionally anymore but rather go sideways.
When this happens in the trading range these types of volume and price action structures are universal as I said they can be found on any market and any time frame.
How can we read volume and price action charts in live markets?
It’s a simple look for price swings and their breakouts. If these swings are being broken consistently in an upward direction then there is up momentum in the market then you should look for long trades vice versa for short.
Now you know which direction to trade just by looking at the volume and price action.
Look For Spikes in volume
We are going to look at the volume which is commonly misunderstood by most traders. What volume shows you are the trade quantity if the volume equals one that means there was one trade but with 2 parties every trade has a counterparty.
So when you sell one lot or 1 share for instance there’s someone on the other side who buys that quantity for you.
This is a fundamental market location principle on which all markets are built. I analyze vertical and horizontal volume. Vertical Volume shows you the total volume per candlestick whereas horizontal volume shows you the volume by price.
Vertical Volume
I recommend looking for in the markets the volume spikes that follow after a period of relatively low volume like this one (refer to chart).
Such volume spikes tell you, well it may be the dominant part just got observed by limit orders or the dominant party just got stronger that the new buyers or sellers just jumped in this would likely be caused by the fact that very visible support and resistance levels were just broken.
so these would be breakout traders. So two conflict scenarios: how do you decide which one to speculate on. This depends on your directional bias based on the analysis of price swings that have just been covered.
In this case, the market keeps breaking low and its recent price swings, therefore, showing strong Momentum in a downward direction.
For me, this means I want to go short as I don’t wanna trade against the trend. I want to see a volume spike which I could perceive as confirmation the dominant party is being absorbed by limit orders.
In this case, buyers are absorbed and the market reverses back in its downtrend direction. What I want to see is the way candlesticks look, which would be a weakness in the market.
I want to see the market falling to continue its downtrend and confirming that consumption of a reversal I was looking for will go short here on this level.
This level was based on my analysis of horizontal volume or volume my price for which I use a tool called volume profile now there’s a whole lot of theory regarding this area where little volume is accumulated where we can enter
Once I know where exactly we are looking to enter and in what direction then as I said I want to see weakness in the market.
I will wait for and see price action movements such as pin bar candlestick or just a candlestick that has a long wig which means that now reversal can come around at any time due to rejection of the candle at the support levels.
So now you can enter for a long trade with a stop loss that is low off the candle and now you can ride the reversal trend with a minimum 1:2 risk-reward ratio.
Conclusion
Volume and Price Action Trading Strategy helps you to analyze your trade properly. It helps you when to execute a trade and when to exit from your positions on the basis of volume and price action.
Volume is added (starting with an arbitrary number) when the market finishes higher, or volume is subtracted when the market finishes lower. This provides a running total and shows which stocks are being accumulated. So you can take long or short positions on the basis of volume and price action.
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What is Volume and Price Action?
If PRICE is rising and VOLUME is rising, it means market is STRONGLY BULLISH. 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 price goes counter trend (correction periods or ‘pull backs’).
How do you read price action and volume?
Simply look for price swings and their breakouts. If these swings are being broken consistently in an upward direction then there is up momentum in the market then you should look for long trades vice versa for the downward direction. Now you know which direction to trade just by looking at the volume and price action.
