A worked example of VPA in action using the NZD/USD

Question

Hi Anna, Sorry to send you a question, without asking if it is ok! Anyways, if you have time to have a look on it, I appreciate. Here is a 5min chart and 1 hour chart of the nzd/usd. The question and annotations are in the charts. The indicator below shows the difference between the open and close for each bar(I wrote the indicator for MT4). Thank you very much for your time!

NZDUSD 5 min

NZD/USD 1 hour chart
NZD/USD 1 hour chart

Answer

Hi – many thanks for your email & apologies for the delay in responding. There has been a problem with my mail forwarding system. Fortunately this has now been resolved, and I am now busy catching up with everyone. Also many thanks for sending me your indicator which confirms the range of the bar. This email too was temporarily lost, and I will be studying it in more detail in the coming days. With regard to your screenshots I am not sure if your question is about the two time frames or the associated price action on the 5 min chart, so I will try and answer both. If we start with the 5 min chart over to the left this gives us our benchmark for volume with the series of three up candles topped with a shooting start and rising volume, clearly signaling weakness at that point, resulting in a waterfall (which is what we would expect).

This ultra high volume gives us our ‘benchmark’ and what is clear in the move at point 1 is that volume here is rising gently with a associated rising price action, and I would not consider this to be bearish at this stage. There is a little weakness appearing, but nothing excessive. The key point to note prior to price point 1 is the wide spread down candle two bars before, on low volume which suggests a lack of selling pressure, and indeed with the support platform building in that region adds further weight to this view. The candles between 2 and 3 are suggesting bullish, as you say, once again with falling price action and falling volume, and coupled with the platform in place we would expect to see a further rally in the market.

Finally, the price action then tops out (as you would expect) with a candle with wicks to top and bottom & ultra high volume, matching that over to the left hand side of the chart, and signaling weakness at this level. This is duly confirmed, once again. Moving to the hourly chart the precursor to this price action was suggesting a drop off in bearish tone given the falling volumes under the two down candles, but the upwards response is relatively weak given the height of the upper wick. So, in summary a market that has some bullish momentum but wish some weakness appearing on the hourly chart. However, the volume on the last hourly candle with the wick is only half that of the volume to the extreme left of the chart, so again this does not imply a substantial reversal, but merely some short term weakness. I hope the above clarifies this for you. Many apologies once again for the delay in replying and may I wish you every success in your trading career. Kind regards – Anna

About Anna 1040 Articles

Hi – my name is Anna Coulling and I am a full time currency, commodities and equities trader. I have been involved in both trading and investing for over fifteen years and have traded many different financial instruments, from options and futures to stocks and commodities. I write and publish articles ( mostly for free ) for UK and international publications on a wide variety of financial issues, and in particular I enjoy helping others learn how to invest and trade.

Be the first to comment

Leave a Reply

Your email address will not be published.


*


» CONTACT ME