Hi Anna! Thank you so much for writing such a valuable knowledge regarding financial trading. I’m a beginner, but from all the books, articles and studies I’ve made regarding forex, your books (I bought the two of them in Amazon) have definitively been the most valuable to me. I have two questions: 1. I didn’t really understand what I “Stopping Volume”, I’ve seen that you mentioned that a few times in your graphs. Can you explain me a bit, what exactly is Stopping Volume? Regarding VAP (Volume at Price) for determining support and resistance levels, I did not understand that part too. How do you know which VAP to pick to establish your support and resistance levels? I’m really confused in this part. There are several VAP graphs, but I still don’t know how did you choose the 2 or 3 resistance levels, and the 2 or 3 support levels based on the VAP graphs (the ones on left-hand side, in vertical position)… how did you know which ones exactly to choose? there are so many…. thanks.
Hi – many thanks for your emails and very kind comments which are much appreciated and I’m just delighted that you have enjoyed reading the books – and of course, thank you so much for buying them.
With regard to your questions, let me start with stopping volume which is one of the initial signals we are always looking for in trading using volume price analysis. This is one side of the equation, and the other is topping volume. Stopping volume is the volume which appears as the market is falling, and is the pre-cursor to the market finding some support as the market makers move in to support the price action. As I have explained in the book, markets have momentum, and even more so in a falling market, which generally moves more quickly than one which is rising. If you imagine for a moment that we have seen a price waterfall – some wide spread down candles as panic and fear grip the market and everyone is selling. The market is falling, and volumes are rising. In this phase of the price action, any wide spread down candle is likely to be associated with high or well above average volume, which then validates the price action of the candle. There may of course be pause points in the move lower, with weak attempts to rally. However, at some point, stopping volume will appear which is exactly as it sounds. It is the market makers attempting to halt the move lower by buying into a falling market. What typically happens here is that what previously would have ended as a wide spread down candle, ends with a deep lower wick as the action of buying supports the price off the low of the session, taking the price action higher and ending with a deep wick to the body of the candle. The classic candle here is the hammer, which is hammering out a bottom, but stopping volume may appear well before this, and the reason is that every market has momentum. The analogy I use if that of an oil tanker. If the engines are stopped, the tanker will continue under its own momentum for several miles. This is the same with the market, and no amount of buying, even by the market makers will stop a market dead in its tracks. Stopping volume will often be above average to high, and it is the associated price action which will confirm this for you. Narrow spreads and high volume are one, deep lower wicks to the candles after a steep fall are another. What you will often see is a series of candles with wide bodies, moving lower in the waterfall, and then a series of candles with narrower bodies and high volume and deep lower wicks, but with the price action then moving into a sideways congestion phase. This is the start of the ‘mopping up’ operation, where any residual selling pressure is finally absorbed as the market calms and the market makers prepare for the next phase of the move.
The other point to make about stopping volume is that many traders assume this only happens in the longer term timeframes. It does not – it happens in all timeframes from minutes to months and you can see this in action in all markets. Stopping volume is the first sign that the market makers are moving in and starting to put the brakes on the move lower and buying in volume. This is why the candle body is narrowing, as the close is moving off the low and back higher towards the open. The other side of the coin is topping volume – this is where the market makers are selling out at the top of a bullish trend.
With regard to your second question, volume at price (VAP) is essentially another way of considering support and resistance, and as the name suggests, clusters volume activity around the price, so it is displayed horizontally in a histogram. In terms of which one to consider in your analysis, this will depend on where the current price action is, and your trading strategy. If you are trading longer term timeframes, then just as with traditional support and resistance analysis there will be various levels, some deep, some not so deep, at many different levels on the chart. Suppose for example that the market has just broken out from a deep area of price congestion and is moving higher. Below, we now have a platform of support in place. Over the next hundred points or pips, there may be a further deep areas of potential resistance as the market moves higher. These may be tested and ultimately hold, or they may be breached, and become support. As with everything in trading, each decision you make is discretionary, and the same applies here. As each area of support or resistance comes within range, then you have to assess each region on its own merit and make your decisions accordingly. Volume price analysis will help hugely here, helping to confirm whether breakouts are genuine or false, as well as confirming the strength of a trend as it approaches and tests each of the various regions. Using the VAP indicator is just another tool to help define support and resistance which is one of the building blocks of not only technical analysis, but also volume price analysis.
I hope the above helps and once again many thanks – Anna