A lesson in volume price analysis on KNM stock

Question

Hi Anna – This is my first attempt in understanding the VPA after reading your books, appreciate if you could assist me in understanding better the chart based on VPA.
This is on of Malaysian stock, how VPA explain on small spread candle (inverted hammer) with high volume at support area? Attached is the file for your reference.
Really appreciate your assistance.

Answer

KNM share price - daily chart
KNM share price – daily chart

Hi

Many thanks for sending me this chart & well done on the analysis you have applied to the chart. I’m so delighted you are using VPA as a trading method & from what I can see you have a good grasp of the concepts and principles.

With the regard to your specific question here is my response:

The initial weakness for the stock appears on the left of the chart with the shooting star candle in the 1.14 region associated with high volume and clearly signalling weakness at this level. This initial weakness is duly confirmed with a subsequent shooting star candle and although the volume is lower than the first and the candle is also smaller, nevertheless the stock is looking increasingly weak at this price point.

Once the stock breaks below the 104 region then the platform of potential support has been breached and this element of volume price analysis then come into play at this level. The move through 1.00 is confirmed with a wide spread down candle good volume and the share then hints at a possible rally. However the volume response is weak and in addition the subsequent candles are now testing resistance in the 103 region before rolling over with widening spreads and increasing volume and confirming the bearish sentiment further. The ultra high volume on the 17th is simply confirming the negative sentiment and note there is very little stopping volume here as signaled by the lack of any meaningful wick to the lower body of the candle.

Whilst the share price does indeed rally the next day, the subsequent volume is low, suggesting a lack of meaningful momentum and in addition major reversals rarely occur based on one candle, and certainly without any evidence of stopping volume this appears to be short covering in preparation for a deeper move lower. In addition he reversal is also testing resistance in the 0.94 area and the weakness is duly confirmed on the 1st with the high volume up candle and wick to the upper body. The weakness is confirmed again with the price moving lower and finally as the market approaches the 70 – 80 area we begin to see some sustained stopping volume with narrow spread down candles and high volume.

However, note the final up candle on the chart which has high volume and a narrow spread candle, suggesting the rally is weak at present, and the insiders are not yet ready to reverse the trend just yet. What seems likely is the price may consolidate in this region, with further selling pressure absorbed and once we see a low volume test following the buying climax, then a reversal from the bearish trend to bullish is likely to develop. For a longer term view we would need to consider the weekly and monthly charts for a perspective on where the share price is over these time frames. With regard to the inverted hammer, it is the narrow spread of the candle that is important here and clearly signaling an anomaly with the high volume and further buying by the insiders.

I hope the above helps and many thanks for a great question and wishing you every success with your volume price analysis in the future  – all best wishes 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.

9 Comments on A lesson in volume price analysis on KNM stock

  1. Hi, Anna! First of all i apologize if my english is not very good. I wonder if VPA could be applied on future crude palm oil (fcpo)? My friend said vpa is not suitable for fcpo analysis. But the more i read about volume and price, the more interesting it become and i started admire you for your book make me understand easily about reading chart. I really appriciate if you could answer my question. And i hope i could ask you anything about vpa in future from now. Tqvm once again.

    • Palm Oil - Daily Chart
      Hi Laila – many thanks for your kind comments which are much appreciated and your English is perfect, so please don’t worry. Please do feel free to contact me at any time via my site here as I am always happy to answer any questions you may have. As you can see from the attached, I have taken a screenshot for Palm Oil on the daily chart with volume, and as you can see this works perfectly so I’m not sure I agree with your friend. Volume price analysis can be applied to any chart provided there is volume reported or available. This is from a site called Investing.com where you can find the live futures data for the instrument. You can read the chart in just the same way as any other instrument and you can clearly see the weakness in the chart with the volume spikes arriving on the narrow spread price action. I hope this helps and if you do have any other questions please just drop me a line – happy to help further – all best wishes – Anna

  2. Hi Anna. I have read and re-read your two most important books, and I will no doubt read them again as they have so much valuable information. My question might be a bit unfair but here it is anyway. It is based on a scenario.

    Assuming a retail trader buys a currency pair. The trader has checked all the fundamentals that affect these currencies (such as commodities, indices, equities etc), market sentiment, and the relationship between these and other currencies. The trader has also undertaken VPA analysis, and examined trends, candlestick patterns and individual candles like the doji and hammer.

    Based on sound analysis of the fundamentals and VPA, the trader then takes a trade. My question is this: from your experience, what percentage of the time is the trader likely to make a winning trade based on correct and proper analysis?

    If you want to publish your answer on your website, please feel free.

    • Hi Garry – first of all many thanks for your very kind comments on my books which are much appreciated and I’m delighted that you found then useful and enjoyable. And now to try to answer your question, which is perfectly fair, but not an easy one to answer in a couple of sentences. Perhaps if I jump to the end and answer it this way – I have been using this methodology for almost 20 years, and I am still standing! The question of course is how and where it is applied, and as always in trading, the easy part is getting in – the hard part is then staying in and managing the position as the price action unfolds. The maths of trading is not about how many winners or losers, but the relationship of the two, in terms of small losses and larger winners, and this is where most traders struggle. If for example we were to take 10 identical trades with two identical traders trading the same market, and they both entered the same trade simultaneously but were allowed to exit on a discretionary basis, their results would be different. One might be profitable and the other not – it would depend on many factors, and not least on their analysis of the market once in, and more importantly their ability to maximise any profit available and not to exit too early. It really does depend so much on the traders ability to stay in a position, and not exit too early – and the good news is that volume price analysis helps enormously here – when you have a position in the market, then analyzing volume and price in multiple timeframes which help you see when a market is pausing or potentially reversing. This is what makes VPA so powerful – it gets you in, but also helps to keep you in and then exit at the right time and not too early. I hope that helps to answer the question – as best I can – and many thanks once again for your kind comments – all best wishes – Anna

  3. Hi Anna. I have read your book A Complete Guide To Volume Price Analysis and it is simply fantastic! Finally I have an understanding of why the markets move the way they do. All I ever had before was the ‘how’, with no teacher, course or book ever getting past ‘this is how it is, accept it’, as if the way the market behaves is some sort of heaven’s decree. That always left me feeling a bit helpless, in the dark, but now thanks to you I have the ‘why’, and this changes everything.
    To quote the Merovingian character from The Matrix: “Causality. There is no escaping it. We are forever slaves to it. Our only hope, our only peace is to understand it, to understand the why. Why is what separates us from them, you from me. Why is the only real source of power, without it you are powerless.”
    And so I say thank you, thank you a thousand times for writing this wonderful book and giving me the why!

    I have a question if I may about the KNM chart at the top of this page. On Sep. 17th there is a wide spread down candle with ultra high volume. What I see here is market strength because the effort is much larger than the result when compared with the candle on the 15th that has similar spread but much less volume. Yet you say this bar on the 17th is a confirmation of the negative sentiment (before considering the following day’s up candle on low volume that shows weakness). Can you please explain why this bar, in itself, is a confirmation of the move and not a signal of potential reversal? Is it only because the lower wick is not longer?

    Thanks in advance. And again and again thank you.

    All the best to you and a happy 2015!

    • Hi Gil – first of all thank you so much for taking the time to write, and thank you also for your very kind and flattering comments which are much appreciated. What can I say except thank you, and I’m just delighted and thrilled that you enjoyed the VPA book and that finally it was able to provide that ‘aha moment’ for you. This was the reaction it had for me all those years ago. To me volume price analysis simply made sense – I could not argue with the logic of using two simple leading indicators to provide a deep market insight. For me I was lucky as this was at the start of my trading career and which then set me on the right road to success. So I am thrilled it has done the same for you:-)

      With regard to your question and the bar of the ’17th’, the reason it is adding further confirmation is that the volume is extreme and there is no suggestion within the body of the candle that there is any form of buying here – in other words, there is no signal of stopping volume when the market makers and insiders start to buy and absorb the selling pressure. The classical candle here is a hammer candle with a deep wick, but you will often seen the first signs with a wide candle but one with a deep wick to the underside. Alternatively we will also see narrow spreads on high volume to further signal buying. In this case, we had ultrahigh volume and had there been sustained buying, then the lower wick would have been more pronounced – it was not – confirming that the bulk of the volume here is selling, and even though the market rallies a little, the selling pressure has not been absorbed by the insiders. I hope this helps to explain and once again many thanks for your kind and generous comments and may I wish you and your family a belated and very happy New Year – all best wishes Anna – PS – if you do have any other questions please just drop me a line – always happy to help if I can 🙂

  4. Morning Anna,hope you’re fine.
    Right now i’m still enjoying reading your book “A Complete Guide To Volume Price Analysis” and it is just a pleasure.However i’m still struggling on the concept of testing the market after a distribution/accumulation phase so here is my question and please bear with me:supposing we were in an accumulation phase then the market starts moving higher(as you describe in the book)but insiders need to test if there is any remaining sellers so they start moving price a bit lower to an area of heavy selling,is this area before or after the accumulation phase?and how would you describe this area?thank you for your efforts and time it is priceless!!

    • Hi Sami – many thanks for your very kind comments which are much appreciated and thank you for investing in the book which I’m glad you are enjoying. With regard to your question, the test always comes after the accumulation phase, or the distribution phase. In your example, the insiders have accumulated, and now want to make sure all the selling pressure has been absorbed. They drop the price, and if no selling appears, then they mark it back up – this will be on low volume if succesful. What this shows is the selling has been absorbed and it is now safe to take the market higher and away from this region. If the test fails, the high volume will appear – further accumulation to absorb, and then another test to check – I hope this helps and thanks again – Anna

  5. Morning Anna and thank you for your reply sorry i wasn’t around earlier.
    Sorry to say i’m still missing a point or two here so please bear with me:
    1)when dropping the price after leaving an accumultin area does the test occur in the same area or somewher else/near?
    2)in your book you say that for the test to be succusseful a pinbar/hammer has to be formed on a low volume and that’s what i struggle to understand because if a pinbar formed after testing an accumulation area that’s a sign of buyers wanting to defend this area and if the volume is low it’ll show that they are not strong enough,at least this is how i understand it!
    thank’s again for your valuable effort Anna,have a good day!

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