Volume zones, TPO and accumulation & distribution

Question

Hi Anna, I would first off like to thank you for your book.  I have never truly incorporated volume into my studies but I now see the importance and I believe that I can look for bigger trades with better rewards by analyzing volume.

Just a couple of questions I have:

1.) For congestion, do you ever look at a volume profile chart (similar to what you show in ninja trader as the volume at price) and just wait for price to go to where volume is heavy?  What I mean by that is volume and TPO profile charts have the area most heavily traded (point of control) and could that be considered as an area of congestion?  If that’s the case, then currently EUR/GBP seems to be a pair currently in congestion and I may want to watch and wait for a valid breakout of it’s congestion range.

2.) When I look at the currency futures I am currently seeing higher volume on the US Dollar at its current level, and decent to high volume on EUR futures at its current level.  Would you consider watching for a valid upside breakout on EUR/USD in the near term?

Thanks again!

Answer

Hi – Many thanks for your email and apologies for the delay in responding, which has been due to problems with the forwarding system I use from my site. This has resulted in a number of emails simply not coming through. This has now been resolved, but as you can imagine there is a bit of a backlog! Thank you for buying my book and delighted you are now looking to incorporate volume into your own trading.

With regard to your questions I will try to answer them as follows:

Given the time gap since your email and not knowing the timeframe you were referring to with regard to EUR/GBP, I can only give you a very general answer to this question. Congestion phases are always a precursor to one of two things: either a breakout and continuation of the original trend or a breakout and a reversal of trend. In both scenarios it is volume that will then confirm whether any breakout is genuine or not. How that volume is interpreted will be up to you. Volume zones in NinjaTrader are great for highlighting those areas where price may struggle, and in fact since your email David & I have developed our own accumulation and distribution indicator which is more precise. You can find the details here at http://www.quantumtrading.com.

When developing this indicator we also wanted to include some measure of the strength of these zones – similar in a way to TPO (time price opportunity) & have done so by including the number of times areas of price have been revisited which is then shown numerically. This helps to gauge the amount of momentum needed to break these regions, with one showing those areas where accumulation has been strong, and the other where distribution has been dominant. Where there has been accumulation this is shown as blue, and are those regions where price has been tested from above, and a consequent platform of support created through the accumulation phase. These regions are then painted blue, with the depth displayed visually along with the number of times the level has been tested. Equally for distribution phases, these are regions where price has approached from below, and then reversed creating the resistance level. These are painted red. The indicator works dynamically constantly calculating these regions as the price action develops.

Many thanks once again for some great questions – Anna

By Anna Coulling

About Anna 1011 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.

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