Technical Analysis Module

For many traders and investors, price and the price chart itself are the beginning and the end of technical analysis, and this perhaps best describes those traders who classify themselves as price action traders, because all they ever consider is the price and nothing else.

The question you may well be asking yourself now is why volume price analysis, and what’s so special about it. So let me dive right in and try to answer this for you straight away.

If we take any price chart for any market and in any timeframe, then the price action can be described as having one of two states. The market is either in TREND or the market is in CONGESTION, in other words no trend.

Volatility is a non directional measure. It says nothing about the direction of any price move either higher or lower, and in fact the market may simply move sideways in a whipsaw phase.

Meanwhile, average true range or (ATR), as it is sometimes referred to, is a further attempt to define and display volatility in a more meaningful way.

Whilst all traders study price charts in different ways, few if any consider the price action in terms of the conditional aspects, and by this I mean the sea state of the chart.

In broad terms a market can only move in one of three ways, up, down or sideways.

So do we see the same at the bottom of a trend lower? And, the answer, of course, is yes. We have exactly the same principles at work here.

Returning to our house again, and in particular the failure to break the ceiling of resistance on the second floor. The reason for this failure on the price chart, may well have been as a result of sustained areas of old price congestion in the same region, and indeed failures at this level in the past.

Now in this video podcast I would like to consider an individual price bar in more detail, and the four elements help to create it.

A similar and related tool to support and resistance also used for validating price is the use of patterns on a chart.

There are two other triangular patterns which are variants of the pennant, and these are known as the rising triangle, and the falling triangle.

Next in the list of chart patterns come, triple tops and triple bottoms. And the reason for including these two is that they are often the signal for a major turning point in a market or instrument.

In this video podcast I want to introduce the core principles of volume as we move on to begin the process of combining price with volume into the study we call volume price analysis.

And now I want to tackle the thorny, and much discussed question of whether volume is even valid when trading spot forex.

So what do we mean by volume?

In this video podcast I want to start with an analogy, which although not perfect, will I hope explain some of the principles of volume price analysis, and the power the simple logic of this relationship can convey to us as traders.

But what does this law mean? Well in simple terms, if the market is going higher, then we should see this reflected in increased volume.

The wick of the candle is one of the most important elements of the candle, and even more so when it is large.

In this video podcast we’re going to consider some more examples of Wyckoff’s third law, following on from the principles we learned in the previous video about cause and effect and our consequent approach to our analysis of volume and price.

In this video podcast I’d like to continue building on Wyckoff’s third law of effort and result.

Wyckoff’s second law states that in order to have an effect, you must first have a cause, and furthermore, the effect will be in direct proportion to the cause.

Now as we move deeper into volume price analysis, we’re going to consider the five stages of price action, which appear in all timeframes from one minute to one month.

By contrast the distribution phase is, of course, the exact opposite of the accumulation phase.

As I have already explained, congestion phases are the most important area on any chart, as markets spend more time in no trend than in trend for many reasons, not least because this is where new trends are born.

As I have already explained, congestion phases are the most important area on any chart, as markets spend more time in no trend than in trend for many reasons, not least because this is where new trends are born.

I am often asked how the insiders decide on the target levels for accumulation and distribution, and this was something I struggled with myself.

One of the biggest problems the insiders face when mounting any campaign is they can never be sure when all the selling has been absorbed, in an accumulation phase.

But what of the reverse scenario, where we are coming to the end of a distribution phase. The last thing the insiders want is to start a campaign to begin filling their warehouses again, move back into an area that has seen high demand (buying pressure in other words) only for the buyers to take the market in the opposite direction.

So far in our studies of volume and price we have only considered the relationship between the two based on the X axis of the chart.

And so we come to Wyckoff’s first law, the law of supply and demand.

The supply and demand dynamic can be applied and understood in several different ways, and will depend on the market under consideration, and we have included three examples here from different markets to highlight the different approaches.

When we look at the world of futures, we can consider supply and demand through the prism of open interest, and in many ways the futures market also opens up several interesting avenues for forex traders.

And finally we come to supply and demand in the world of spot forex, which is different and because there is no central exchange.