Question
Hello Anna, I am currently reading your book “A Complete Guide To Volume Price Analysis”. It is an intriguing book as it explains the principals in layman’s terms much better than the other manuals around, such as Tom Williams’ and Gavin Holmes. Rather than just presenting a concept and moving along to another completely different concept, you build on a concept further. It is a true teaching manual. I am currently about ¼ of the way through it. I have one embarrassing question to ask you. I wasn’t sure if I could ask you a question directly or if I have to join a specific blog or become a member to do so. But here goes anyway.
My question is: Why is it that volume has to rise with rising candles to confirm a legitimate up-move? Why can’t the volume remain the same as the previous volume where the price rose? If, for example, a volume of 10,000 made a price of a stock rise from $1.10 to $1.20, why can’t the same volume of 10,000 also raise it from 1.20 to 1.30? All the principals of VSA start from this premise of this basic principal so it would be nice to get the reasoning behind it. Thanks for publishing a very helpful book Anna. I cannot wait to read the rest of it. Regards
Answer
Hi – Many thanks for your email. It’s always a great pleasure to hear from fellow traders, particularly those who have kindly bought my books. It is much appreciated and I’m so delighted you find the volume book useful. There are no embarrassing question and what you ask is an interesting question, and one which lies at the heart of volume price analysis. So here goes with an answer. Using your example, the answer is – it can. In other words, the stock rises by 10 cents on a volume of 10,000 and then rises a further 10 cents on a further 10,000. Indeed it could continue higher this way for some time, with perhaps 5 or 6 consecutive bars – all rising on the same volume and similar price. The key is when either the volume or the price then displays an anomaly.
Using your example once again, following the first candle, the second candle then forms with a 10 cent move, but with 30,000 of volume. This is clearly signaling an anomaly. Alternatively, we could see the 10 cent move with only 5000 volume – again an anomaly since we know from the previous candle that it has taken a volume of 10,000 to move it 10 cents. Neither of these would be trading signals, but merely giving us an early warning of possible strength or possible weakness which we then wait to be confirmed or validated with further price action. I hope the above clarifies this aspect for you, and thank you once again for taking the time to write to me. Kind regards – Anna
Hello Anna, I have finish reading your book “A Complete Guide To Volume Price Analysis”. And I also bought two of your book “forex for beginner” and “A three dimensional approach to forex trading”.
I am a part time trader that trade US stocks for five years, but up to now I can only earn around $1200 per month. I being try very hard to improve myself but nothing much have change, I really need your help(advice).
Hi Alfred, many thanks for taking the time to write and also of course thank you also for buying all three of my books, and I hope you found them both enjoyable and helpful. With regard to your question, first of all you should be very proud of your achievements to date, as making this sort of return monthly is an excellent result, and you should pat yourself on the back. Whilst the money is important, it is the fact that you are achieving this consistently which really is the key. After all, if you can be profitable on a consistent basis, then this tells you two things. First that you have a plan and are able to follow this methodically, and secondly, that in order to increase your returns, then it is simply a case of increasing the position sizes you are trading. After all, if you can make money trading a $25,000 account, then the same rules will apply to a $50,000 or $100,000 account, and providing you are using the same strategy, then the returns on a monthly basis will increase. Naturally I would suggest you do this slowly and not suddenly as you are probably happy with the loss size from your current trading positions, so increasing this gradually is the best way forward. So in summary, you should be absolutely delighted and very proud of your achievements – many traders never achieve this level of consistency which is the ultimate goal for all of us. Trading is all about percentages. After all, turning $1000 into $1100 in a year from trading rarely excites anyone – yet this is a 10% return which is better than the average fund manager! It’s the consistency that matters, not the money. The profits will come if you can be consistent, which you have proved you can be, and on a part time basis which is even better, while you hold down the full time job!
Finally, as you probably know I do invest in stocks, both UK and US and have been invested since re-entering in 2009. I am currently writing a major book on stock trading and investing, which is due for release in Q1 next year following the release of binary options book which is due out in Q4 2014. With regard to any help or advice, ( and without knowing all the details ) from your comments I think you are doing all the right things. The good news is that I will be posting far more regular stock market analysis both of the indices and also for individual stocks over the next few months, so I hope you will keep in touch. All best wishes and many thanks again – kind regards Anna
Hello Anna, sorry to bother you again. I got two questions to ask you, my first question is: why most full time and professional trader only trade currency and indices(using futures) but not stocks?
My second question is: do currency(forex) really make fast money as compare to stocks? Regards
Hi Alfred, many thanks for your questions which are both excellent ones and which I will try to answer for you. These questions may appear simple but require a more nuanced answer.
If we start with your first question, it is certainly true that the futures market is generally considered to be a much more speculative market, whilst the stock market is generally considered to be assoicated with investments, and there are several reasons for this. If we scroll back ten or fifteen years, the futures market was indeed a specialist one, only traded by the professionals, primarily because the contracts on offer were large requiring large initial and maintenance margin requirements for a full size contract. So a specialist market requring deep pockets and which of course was also used for those buyers and sellers hedging against future price movement, or indeed buying and selling the underlying commodities. So a professional market in every respect. In the last decade this has changed dramatically, led by the revolution in the E mini market allowing smaller traders to speculate on the indices with both large and smaller contracts. In addition, the CME and other exchanges have made the market more accesible for retail traders offering mini and micro contracts which are a fraction of the size of the full size contracts which were once the only ones available. Gold for example has a micro contract the MGC, a tenth the size of the full GC contract. The GC is 100 oz whilst the MGC is only 10 oz – the GC is much more heavily traded and price action can be a little ‘cluncky’ on the MGC. The same applies to currencies – here again you can find micro contracts on the primary majors, which again match lot sizes and below. So again, this is attracting new traders into this market and with small contracts now on offer increases the speculative nature of the futures market.
Stocks on the other hand ( or shares ) have always tended to have a longer term bias, both in terms of how they are viewed and also in terms of sentiment, which is generally bullish! Eveyone is bought up to believe that stock markets only rise, and buying low and selling high is easy to understand. Short selling is more difficult both to understand and execute and requires a margin account, with the stock borrowed by your broker. In addition, intra day trading stocks is extremely hard with the % spread on a stock making the mathematics of trading work against you in terms of % profit intra day, and what tends to happen with day traders, is that the position then becomes a buy and hold, as the trader waits for the price action to recover the spread over the next few days ( or not!). Stocks also require significant margin and capital requirements, which some speculative traders simply do not have then they first start, so making this the preserve of the fund manager for longer term investments.
And so to your second question – with regard to making money fast. Well you can do this in any market. Forex is very high profile at the moment, as are binary options, but you cannot really compare one market with another as there are so many factors. Forex for example offers higher leverage, which is now increasingly being reduced by legislation. The US authorities for example have imposed a 50:1 maximum and this is likely to reduce further to 10:1. This is a good thing in my opinion since the maximum for stocks is 2:1 and gives you some idea of the power and danger of leverage. Yes you can make money fast with a leveraged account, but then you can lose equally as fast. You cannot really compare the forex market with thee stock market, since the leverage on offer is so different. ( and yes you can still find brokers offering 100:1 and higher, but offshore). My own opinion is that you can make just as much money in the futures market as opposed to forex, but this will require higher margin deposits even for the micro and mini contracts. For stock trading, this is even greater and I guess to answer the question directly, I would focus on either FX or futures as a speculator, and not on stocks – just my humble opinion. There are ofcourse many other ways to trade a stock intraday using spread betting ( easy to short) or ETF’s for example, with options yet another alternative. All have advantages and disadvantages and its a personal choice depending on your funds, location, time and many other aspects!
Thanks again for two great questions and I hope the above helps, and good trading – Anna
Thank you Anna. I read your book on price volume analysis and applied it to my forex price action trading approach and my winning rate has increased to over 80%.
Hi Morris – many thanks for getting in touch and I’m absolutely delighted to hear of your success and I cannot tell you the pleasure this gives me to feel I have been able to help in my own small way. So well done you, and do keep in touch and wishing you every success for the future – all best wishes Anna
Hello Anna,
I would like to revisit this post a bit as the issue seems to be unsettled among some of my friends who just had a chance to read your book. The book has one paragraph about the anomaly: “The price spread is wider than the previous candle, but the volume is lower. The buying pressure is draining away. Second, we have a market that is rising, but the volume has fallen on this candle. Rising markets should be associated with rising volume, NOT falling volume. This is also signaling clearly that the previous volume is also an anomaly, (if any further evidence were required).”.
My concern is that low volume could result from hesitance to sell, rather than reduced buying pressure. Then, the wide spread of the up candle is interpreted as a very good sign of continuation, not something worried about. These two opposite views are hard to make a clear cut in many circumstances, and I believe you are experienced at this. So could you please advise on how we could deal with this or any other elements I should look at to consolidate either interpretation?
Thank you so much
Thank you for your question – one way is to consider the price action in multiple timeframes – preferable three. It’s one reason I always look at the weekly – even if focused on the faster timeframes. Hope this helps.