The FED delivers a lesson in VPA!

emini YM - 1 minute chart
emini YM – 1 minute chart

For intraday emini index traders, last nights FED meeting delivered a classic lesson in volume price analysis (VPA). The example here is from the emini YM 1 minute chart, and really proves the point about the power of volume and price. Ahead of the statement, the index traded in a narrow range, with narrow spreads and low volume, and even here, volume is telling its own story, confirming the price congestion phase. Then the news is released, and the market explodes into life, with a surge in volume which soared to an ultra high level. The associated price action is telling its own story – a classic shooting star candle and a sign of weakness in its own right, but when confirmed with the ultra high volume, adds that three dimensional view to the chart. Here the price action has surged higher to touch the 15,640 level, before falling equally quickly. This is the power of VPA at work.

Having sent a strong signal of weakness, now it is just a question of time, and over the next few minutes, the index tries to move higher, but note the volume on the up candles – it is falling. Another classic sign of weakness and merely confirming the initial signal. Here is an index, moving higher on falling volume, and therefore unlikely to move far. After several minutes the index touches the 15,640 area once again following a sequence of candles which include a doji, a small shooting star, and finally yet another shooting star. A classic example of price resistance coming into play at this level. The market is now extremely weak, and begins to sell off again, with rising volume under the down candles.

Shortly after, the index attempts to rally, but is short lived with a further shooting star candle on high volume, sending a clear signal of more weakness to come. This is duly delivered in abundance, with wide and increasing spread down candles associated with rising and well above average volumes. Finally the index moves into a congestion phase as the shock waves from the news subside, and volumes return to their intra day levels once again.

Volume price analysis is not new. It has been around for over 100 years and formed the basis of ticker tape reading, from which some of the iconic traders of the past made their fortunes. For them, volume and price were all they needed to forecast stock price movements, and from which they then produced their own charts. The essential principles however remain the same. The only difference is that today, this information is presented electronically on a chart. All we have to do as traders is to interpret the relationship. Assuming of course, that you believe in volume and price as a methodology and just like the market, there are always strongly opposing views!

By Anna Coulling

About Anna 1036 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 The FED delivers a lesson in VPA!

  1. Anna, I stumbled upon your book on VPA recently and I have to say that it may be the single most important book I have in my library on trading. I started studying technical analysis about 3 yrs ago and although volume has been a big part of my analysis, since reading your book I believe that I have been selling my self short! I feel that my eyes have been completely opened up to finally understanding what is going on behind the scenes as far as what the insiders are doing. Light bulbs are coming on so I just wanted to say thank you! I look forward to learning and understanding more about the correlation between price and volume. Thanks again!

    • Hi DeWayne and many thanks for your very kind comments which are much appreciated. I always feel I was one of the lucky ones, as my own trading journey began with volume. Others have not been so fortunate, and was one of the many reasons that I wrote this particular book. I am so pleased you have found it useful, and I hope enjoyable as well:) Once again many thanks for your kind words and if you do have any questions in the future, please just leave a comment here, or drop me an email at anna@annacoulling.com – all best wishes Anna

  2. Hi Anna,

    I love your VPA book. It explains everything clearly and I finally understand maybe that is how the legendary traders forecasted stock prices. Got a small question, where, in the graph, is the “further shooting star candle” in your statement “but is short lived with a further shooting star candle on high volume,”
    I see the big shooting star in the beginning, a doji followed by two shooting stars, and that’s it. I don’t see a further shooting star, unless you mean the blue one, but the volume on the blue one is not that high and it’s not quite a shooting star.

    Thanks!

    • Hi Howard – many thanks for your kind comments which are much appreciated, and I’m so pleased you enjoyed the volume price analysis book. With regard to yur question, perhaps it doesn’t show up too well on the chart, but as the YM moves higher on falling volume, there is a small shooting star candle which appears immediately before the move lower. So in sequence, we have a wide spread up candle in blue, then a hanging man, then a second wide spread up candle but on lower volume, followed by a small doji candle, and then two shooting stars, of which the second is a perfect example, and is the one referenced in the post which touches the session high of the first large shooting star candle ( seven candles after the first shooting star candle). The volume of course is distorted here by the initial volume on the surge higher, and something we always have to bear in mind when comparing volume bars. I hope the above helps and if you do have any other questions please just drop me a line and once again many thanks for your kind comments – it makes all the hard work worthwhile:) – all best wishes Anna

  3. Hi Anna

    Just last week I stumbled on your book “A Complete Guide To Volume Price ” I found it so well written that 30% through it, I went back to Amazon and bought all your other books including Forex for Beginners. I always had an interest in Wyckoff as volume in relation to Price just makes sense, but your book really connected the dots for me. Thank you.

    A long time ago, I used to play chess and I remember my teacher telling me that given two students the one that will become a champion is not the one that will play the most games but the one that will study the past games of the masters. By studying the past games the student can jump into the mind of a master and then read the game just like a master would. In this way the student can more quickly build a reference library of what to do, when and how to do it correctly. Given that chess like trading are activities based on patter recognition, I would love to see you publish a chart book filled with your chart by chart analysis. That would be of great help to your market students.

    Cheers and Thanks for the Great Books

    Sebastian

    • Hi Sebastian – thank you so much for your very kind and flattering comments which are really appreciated. I cannot tell you how it makes me feel to receive such kind words, and I’m just so thrilled that the books resonate with you, and as you say ‘ have joined up the dots’. Volume for me was the starting point, and just like you, for me it just made sense. The logic is inescapable. There is also another huge benefit in using volume price analysis, and that is simply that our brains then remain in an analytical state, and not an emotional one, which is a huge advantage when trading. It keeps our emotions under control as our brain is forced to analyse the volume price relationship, rather than worrying about each move higher or lower on the chart. I have to say I love your idea of a book of examples, and I have to say this was something I had never thought about, so a great idea, and one I have already added to my ‘things to do’ list for the coming year. One of the other things I am planning ( which I guess is in a similar vein ) is to create the VPA book as a CD set which would then be available via the Amazon shop. This would then include the basics, but also allow me to include several hours of live examples using live charts – a much more interactive way to learn. So this will be one, but I like your idea as well, so perhaps I can do both and create a book of ‘worked examples’ – I agree entirely about the chess masters – a great analogy, and you know how I love using analogies!! So thank you several times over. Thank you for your very kind comments, and thank you for an excellent idea, and finally ofcourse, thank you for buying the books, and I am just so delighted that you enjoyed them and they have helped you in your own trading. All best wishes and many thanks again – Anna

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