This Volume Price Action Trading Strategy Will Halve Your Losses | Swing Trade ETFS & Stocks


Hey guys. So, I don’t know about you, but when I started
trading I was completely ignoring the trading volume. I was testing all possible combinations involving
different indicators and strategies, on all kind of timeframes, but I didn’t bother
to include the volume in my trading decisions. And of course, my trading balance was going
down every week and my frustrations increased with every trade I took. Luckily for me, I read some articles about
volume and decided to incorporate it in my trading strategy. You see, there aren’t many trading books
devoted to the topic of volume analysis and most trading books or courses cover volume
as a secondary topic and don’t offer an in-depth discussion. Volume is a critical aspect of technical analysis,
so in this video, we’ll discuss about how you can add volume into your price action
trading and you’ll learn how to spot strong trends and how to anticipate with better accuracy
the reversal areas, taking into account just 2 variables, price and volume. Before we continue, if you are new to the
channel and you find value or you learn something new, please consider subscribing and leave
us a like to show your support. So, volume is a significant tool because it
shows the conviction of buyers and sellers and is one of the simplest methods for observing
buying and selling activity at key levels on a chart. By itself, volume can provide conflicting
messages for a specific setup. But when you combine volume with price, things
will become much clearer and simpler. So, first, let’s define the basic principles
of price action. I know that the following techniques may sound
extremely easy for some of you, but you will be surprised at how often people will forget
these simple facts of reading price action. Now, when I analyze a chart, I like to assess
the market phases. There are only three ways the market can go:
up down sideways. The market is going up when price is making
higher highs and higher lows The market is going down when price is making
lower highs and lower lows The market is going sideways when price is
not making higher highs and higher lows or lower highs lower lows
Like I said, very simple and not complicate at all. Now, a trend remains intact until there is
a clear sign that the trend has reversed. A reversal in the primary trend is signaled
when the market is unable to create another consecutive swing in the direction of the
primary trend. So, for an uptrend, a reversal would be signaled
by an inability to reach a new high followed by the inability to reach a higher low. In this example, the market has gone from
a period of consecutive higher highs and lows to consecutive lower highs and lows, which
are the components of a downward trend. The reversal of a downward primary trend,
as shown in this example, occurs when the market no longer falls to lower lows and lower
highs. This happens when the market establishes a
new swing that is higher than the previous swing followed by a low that is higher than
the previous low, which are the components of an upward trend. When the price will start to stall and not
make a new swing high/low and will stay contained within the last swing high and low that was
made on the chart, this translates into a trading range. In this chart you can see that the price is
making LH’s & LL’s all the way to the first arrow which it would be the latest lowest
low. Price then moves higher to make a HH. At this point on the chart, in real time,
price needs to either start moving higher past the last swing high making a new high
or move lower past the last swing low making a new low. Until either of those things happens price
will most likely remain range bound. These are the main techniques of determining
a trend using price action, but how about increasing our chances by adding volume to
the equation. Like i said in the beginning of the video,
adding volume to the price action will allow us to be more precise when we enter or exit
the market. I’ve tested most of the volume indicators
but the most efficient one for me is the on-balance-volume. The on balance volume (OBV) relates volume
to price change. We’ll keep things simple, so all you need
to know about the OBV is the fact that it increases or decreases during each day in
correlation on whether the price closes higher or lower compared to the close during the
previous day. So, the main assumption is that on balance
volume movements precede price changes. As the volume is the main fuel behind the
market, OBV is designed to anticipate when major moves in the markets would occur. There are 9 different patterns involving the
price action and the OBV, 3 for each market phase (upward, downward and range). First, let’s analyze the patterns during
an uptrend. First pattern is when the price is making
higher highs and higher lows and the OBV direction is upward. This indicates a clear and strong uptrend. When you see this on your charts, it means
that the price and volume are aligned and that the buyers are in complete control of
the market, as you can observe on this chart. Here’s another example, the price is making
consecutive higher highs and lows, and the OBV is following the same pattern. The second pattern involves the price making
higher highs and higher lows but the OBV direction is sideways. This translates in a moderate uptrend. So, if in the previous case, the price was
still making consecutive highs and lows and the OBV also increased, this time, the OBV
runs sideways. This isn’t necessarily bad, it means that
the market direction is still up, but the strength of the buyers diminished and more
sellers entered the market. Here is another example, with the market recording
consecutive highs and lows, and the OBV in sideways mode. The price continued its upward direction,
but at a slower pace. The third pattern involves the price making
higher highs and higher lows but the OBV direction is downward. When you see this pattern on your chart, this
means that you are in a weak uptrend near reversal. Let’s analyze this chart. We can clearly see that the price is making
higher highs, but the OBV is making lower highs, suggesting a possible reversal of the
price. Of course, during strong trends the price
may continue to go higher, but when you see the OBV in divergence with the price action,
you should be careful adding long positions. Now, let’s analyze the patterns during a
downtrend. First pattern is when the price is making
lower lows and lower highs and the OBV direction is downward. This indicates a clear and strong downtrend. When you see this on your charts, it means
that the price and volume are aligned and that the sellers are controlling the market,
as you can see on this chart. And here’s another example, the price is
making consecutive lower lows and lower highs, and the OBV is following the same pattern. The second pattern involves the price making
lower lows and lower highs but the OBV direction is sideways. This suggests in a moderate downtrend. Like in the case of an uptrend, this isn’t
necessarily the end of the downtrend, it means that the market direction is still down, but
the strength of the sellers decreased and more buyers are entering the market. The third pattern involves the price making
lower lows and lower highs but the OBV direction is upward. This means that you are in a weak downtrend
near reversal. If you look at this chart, we can clearly
see that the price is making lower lows, but the OBV is making higher highs, indicating
a possible reversal of the price. So, when you see a rising OBV in divergence
with the downward price action, you should be careful adding short trades, because the
buyers are adding more positions on the market. Now, let’s analyze the pattern during a
range. When the price fails to make a new swing high/low,
will stay contained within the last swing high and low and the OBV is increasing, this
could be a possible accumulation period. The accumulation phase basically is a stage
of consolidation. There is no clear trend, and traders and institutions
are slowly accumulating shares, but the market has not made a breakout yet, as in this example. You’ll see this kind of price action and
volume during a market bottom. When the price fails to make a new swing high/low,
will stay contained within the last swing high and low and the OBV is decreasing, this
could translate into a period of distribution. This phase is characterized by some periods
of volatility, but primarily is a period of consolidation. The control of the market begins to shift
from buyers to the sellers, as traders and institutions begin to take their profits. You’ll see this kind of price action and
volume during a market top. The third pattern involves a sideways price
action combined with sideways OBV. You should simply not take any trades during
this period, because this is a period of uncertainty with no clear direction from price or volume. By now, I hope you are convinced about the
power of combining price action with volume. Volume is invaluable when confirming trends
and if the volume isn’t present alongside price action, then the resulting trading signal
isn’t as reliable. So, if you learned something new and found
value, please consider subscribing to our channel, share and like this video, as it
would help us a lot in the future. Until next time.

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