Cable’s recent revival which was signalled with a two bar reversal off the strong support platform at 1.5163 came to a juddering halt today on the release of the CPI data. Until this release cable had been testing the 1.5474 area as well as the 100 ma which capped the recent rally.
In today’s trading session the CPI coupled with a resurgent USD has seen cable sell off sharply, and as we approach today’s close the pair is now looking to test the platform of support now in place in the 1.5329 region, as denoted by the support and resistance indicator. Below this level in the 1.5275 area we also have a high volume node region and for any continuation of the bearish trend we will need to see both these levels breached on high volume.
For intra day traders today’s price action around the release of the CPI data was a classic example of two things; first volume price analysis in action, and second a classic trap move with the volatility candle, with all the action concentrated at the VPOC (volume point of control).
Here in the UK we used to have a weekly competition called ‘Spot the Ball’. This was simply a photograph of a football game, but with the ball removed and the object of the competition was, of course, to place a cross where the ball should be. The winner would be the person with the cross closest to the centre of the ball. My version on the 15 minute chart for cable is to invite traders to place a cross where they think the selling by the insiders took place on the news. Answers to me on a virtual postcard!
This was one of those examples where even traders who are sceptical about volume price analysis would have a hard time denying what is self evident on the chart. The consequent move lower was also further confirmed later in the session with ultra high volume on the break away from the VPOC region thereby confirming the strength of the move. This has been one of those examples where taking points out of the market has been straightforward.
The initial trigger of the volatility candle around the news gave even more weight to the fact that this was a trap move leaving traders stranded at the 1.5460 price point.
By Anna Coulling
Charts by Quantum Trading and MT4
Hi Anna,
Firstly just so you know, the BBC are now doing spot the ball competitions again on their sports page! Secondly, I just wanted to ask about what volume data you are using. I am well aware that tick volume is a fairly accurate representation of market volume, but as far as I can tell the volume indicator in say, MT4, only shows the volume for the broker you are using. Does this not give a distorted view of volume? And is there a way to get access to full market tick volume?
Thanks,
Will
Hi Will – many thanks for taking the time to write and also for the heads up on spot the ball. I’m showing my age here, but I remember when it used to be grainy black and white picture in the paper and it was the old fashioned ball point pen which marked the ball! I must try to keep up with technology in future! With regard to your question it is certainly true to say that there are always some slight differences between one broker feed and another on the MT4 platform and this is just a fact of life. What I always try to recommend to all my readers and webinar attendees is to look for a broker whose feed is broad and encompasses a wide spread of banks from the interbank market. The best place to research this is at 100forexbrokers.com which is an excellent resource site and which details all the MT4 brokers and full details on each. Whenever we use volume, it is imperfect and will always vary from one broker to another and from one date provider to another, whether paid or free. All I can confirm is that in the futures market we saw exactly the same pattern of volume, and also on the spot market from a different data provider, so whilst there may be slight variations, the key point is this – when using volume, the important thing to remember is to compare like with like – apples with apples – in other words choose one broker or data supplier and stick with it, and not to try to compare one with another. There will be variations – its a fact of life – but it does not invalidate the volume price methodology in any way. I hope this helps to answer your question and many thanks once again for taking the time to write, and I’m off to check out the spot the ball competition – speak soon and thanks again – Anna
Thanks for your reply Anna, I appreciate you taking time out of what must be a busy schedule to reply. I’m finding it hard to find out any information about what banks each broker includes in its feeds, but I have come to the conclusion that simply using a broker with the highest volume (Saxo Bank or XM.com, for example) would be a good way to go. Could you confirm that this would help with Volume Price Analysis? Thank you for your help, I’m currently working my way through your kindle books on Three Dimensional Trading and Volume Analysis and they’ve been extremely helpful in my quest to start trading Forex. Will.
Just another quick thought. Surely the insiders at banks and large corporations do not use the same retail brokers that beginners like me use, so how can volume really be a useful tool, because it will never identify the activity of the big players? Please correct me if I’m wrong. Will.
Hi Anna. I have a problem calculating how many lots I need to trade when I’m on a 5M chart with 5% risk. It’s too fast. How do you do it?
Oh and one more.
Why does trading exist? I think it’s almost too good to be true that something like this is possible.
Is it because the majority of traders lose money so the banks etc. make the money?
One last question.
Why do you think that the trade in the picture bellow didn’t work out?
SELL on the candle bellow the arrow. http://i.imgur.com/C3C1Fie.png
Thanks