Stopping volume and volume at price explained

Question

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.

Answer

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

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.

6 Comments on Stopping volume and volume at price explained

  1. Hi Anna,

    I’m rereading your book for a second time as I like to refresh my mind of the key principles every now and again. This time around what caught my attention was the understanding the volume profile of a signal candle using volume by price (V/P) in a lower time frame. For example looking at the V/P on a 5 minute chart to dissect a daily candle stick. My question is will the majority of the days trading volume always appear within the body of a candle simply because the open and close encompass most of the trading volume. Im wondering if there is any benefit in determining where the majority of the volume had traded on any giving candlestick (i.e. upper wick, lower wick, candle body) and does it tell us anything significant. For with example if a hammer candle occured with a very small body closing near the highs with the majority of the trading happening on the lower part of the wick that would tell me that alot of buying happened near the lows telling me buyers set in. But if the same candlestick sees the majority of volume in the upper body of the candlestick would that be telling me a different story?

    Your thoughts as always are greatly appreciated.

    • Hi Al – many thanks for taking the time to drop by and write and also thank you so much for buying the VPA book – you deserve a medal for having read it twice:-) With regard to your question, this is an interesting one as it ecompasses the other aspect of volume which is volume at price or VAP. If you have read any of my analysis here, you will know that on the NinjaTrader charts I refer to this regularly and you can see it on the left of the chart as the histogram of bars. These describe the volumes asasociated with the various price levels, and in many ways this is also another way of considering support and resistace. After all, these are the price regions where we have a density of volume and hence weak holders trapped in the market. Moving to the single candle analysis, I’m not aware of a charting package that breaks this volume on a candle by candle basis, but the hammer candle is a good example. As I’m sure you know, the price action itself is describing the pattern of buying and selling, and intuatively one would expect to see the heaviest volumes in the bottom third of the candle. After all, the market has opened and then fallen – if the volume of buying was in the top third, then this candle would close higher as an up candle. It hasn’t and towards the bottom the selling volume is overcome with buying volume taking the market back higher and off the lows, so the concentration of volume is likely to be in the bottom third – the stopping volume if you like for this candle (inside the candle itself)

      One of the indicators I am working on at the moment is just this, as I am constantly asked for a volume at price equivalent for the MT4 platform. There are one or two, but not very precise, and this is something I hope to have ready in the next few months, which will then help to compliment support and resistance analysis and volume price analysis.

      Once again many thanks for your kind comments and I hope the above helps to answer the question. The same intuative thoughts could be applied to the shooting star candle too:-) – all best wishes and thanks again – Anna

  2. Hello Anna,

    I read your Forex for Beginners book and I am about to finish Volume Price Analysis. I have been trying to find the indicator for VAP like the one you use but no luck!

    Maybe having a section documenting the indicators you use would be great in your website.

    Thank you for everything your books have been AMAZING,

    Dayan Yamin

    • Hi Dayan – many thanks for your very kind comments which are much appreciated and thank you also for investing in my books, and I am just delighted that you enjoyed them both. With regard to the indicators mentioned, you can find further details at Quantum Trading http://www.quantumtrading.com (a company I now own with my husband David) and in the last few weeks we have recently launched a Volume Point of Control indicator which is available for both MT4 and also NinjaTrader. The VAP ( volume at price) indicator which you may also be referring to is the one you can find on Ninjatrader under the free indicators delivered as standard with the platform. I hope the above helps and many thanks once again, and if you do have any other questions please just drop me a line – kind regards – Anna

  3. Hello Anna. I am in the middle of your book Forex for beginners and am in complete awe that some of what you say is beginning to make sense to me. Your book so far is the only one that has made me feel I am not STUPID !! I am in the US and am wondering if you have any recommendations for a broker trading binary options. One site will say excellent and then another will say of the same broker a scam. Just as I begin to choose , their is conflicting information. I feel I can trust your judgement! Thanks for any information you can provide. I have already purchased your next book!! Many thanks! Shawn Jones

    • Hi Shawn – many thanks for taking the time to write and thank you also for your very kind comments which are much appreciated and I am just delighted that the Forex for Beginners book is helping to make things a little clearer for you. I cannot tell you how much pleasure it gives me to hear from traders such as yourself, and I hope the book will provide the foundation to you own success. With regard to your question on recommending a binary broker, the only one I would suggest, and indeed is one I reference in my latest book ‘Binary Options Unmasked’ is a company called Nadex. The reason is very simple. First, they are an exchange based broker based in the US and therefore tightly regulated, and second are one of the few companies ( if not the only one at present) to offer a true binary option instrument. All the others are fixed odds of varying types and generally white labels of the primary binary providers. I have no commercial relationship with them whatsoever, and simply recommend them as the only company to offer a true binary instrument on an exchange. There are ofcourse other binary instruments available from the major exchanges but those from Nadex and I explain all the others in the book. I hope the above helps and many thanks once again – kind regards – Anna PS ( apologies this is not a pitch to buy the book!! 🙂

Leave a Reply

Your email address will not be published.


*


» CONTACT ME