trading success principles volume analysis - amazon s3 · © trading concepts, inc. 4 volume...

© Trading Concepts, Inc.

3

Trading Success Principles

Volume Analysis

© Trading Concepts, Inc. 2

Trading Success Principles

Volume Analysis

By Todd Mitchell

© Copyright 2014 by Trading Concepts, Inc.

All Rights Reserved

This training program, or parts thereof, may not be reproduced in any

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based on market observation and years of experience. Therefore, the thoughts

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Table of Contents

Volume Analysis ............................................................................ 4

SIDEWAYS (Trading Range): BREAKOUT .............................................. 6

SIDEWAYS (Trading Range): BREAKDOWN ........................................... 8

3 General Volume Rules ................................................................. 11

Strong UPMOVE Volume Examples .................................................... 12

Strong DOWNMOVE Volume Examples ................................................ 14


Volume Analysis

Volume is considered to be one of the most valuable keys to successful chart reading.

Volume is what helps drive a market’s price moves. Generally, without higher than

normal volume, price moves are likely to prove false. Volume is a way we monitor the true supply and demand for a market; it helps reveal what the big (smart) money

is doing in a market. Below are some very important volume concepts to understand:

3 Volume Patterns Generally END a PRICE MOVE in the Markets

1. This first volume concept forms the foundation for all the remaining volume concepts. All the other volume rules and occurrences are derivatives of this one concept. An above average volume reading or climactic volume generally

indicates a near, short-term end to the current move. This is not a directional

concept, which means that the trend of the underlying market does not matter. Above average climactic volume has the potential effectively to halt or to end

upward moves as well as downward moves in a market.

2. Heavy volume after an extended price move without further price movement generally indicates that an almost certain reversal in the market is close at hand.

3. Below average (daily) volume on narrow range bars or inside vertical bars generally indicates than an upcoming expansion of volatility (increased acceleration) is about to occur. Once again, this concept does not reveal the

direction of the market. The expansion of volatility can occur in either direction

(up or down); however, this concept (3) combined with concept one (1) will help reveal the direction of the market.

2 Volume Patterns Generally START a PRICE MOVE in the Markets

1. Heavy volume on breakouts (to the upside) or breakdowns (to the downside) indicates further price movement in the direction of the breakout or breakdown.

2. The heavier the price/volume relationship on the breakouts or breakdowns, the further the subsequent moves generally are likely to carry through.

1 Volume Pattern Generally CONTINUES a PRICE MOVE in the Markets 1. Below average or very low volume – during periods of sideways, slightly upward,

or slightly downward consolidations – generally indicates a continuation of the

prior move.


3 Volume Patterns Generally END a PRICE MOVE in the Markets (1st and 2nd of 3)

3 Volume Patterns Generally END a PRICE MOVE in the Markets (3rd of 3)


SIDEWAYS (Trading Range): BREAKOUT

The two illustrations and chart examples below show the market breaking out of a

trading range (SIDEWAYS TREND) on heavy volume, which generally indicates

further price movement in the direction of the breakout. In other words, this indicates that the market should start trending in the direction of the breakout.

EXAMPLE 1: A breakout to the upside from a trading range on heavy volume

generally indicates follow through to the upside; thus the market should start an

UPTREND. This should not prove to be a false breakout since there was heavy

volume on the breakout. Look for a Trading Strategy to BUY.


SIDEWAYS (Trading Range): BREAKDOWN

EXAMPLE 2: A breakdown to the downside from a trading range on heavy volume

generally indicates follow through to the downside; thus the market should start a DOWNTREND. This should not prove to be a false breakdown since there was heavy

volume on the breakdown. Look for a Trading Strategy to SELL.


1 Volume Pattern Generally CONTINUES a PRICE MOVE in the Markets


3 General Volume Rules

1. If – after a market decline or within a sideways base – a market develops heavy

volume while resisting further decline, a good potential BUYING opportunity is

likely setting up. Look for a potential Trading Strategy here.

2. If a market breaks upward out of a trading range on heavy volume, a trader generally can BUY either on the breakout or on the first pullback after the breakout. The stronger/heavier the initial price-volume surge, the further

subsequent moves generally are likely to carry. Look for a potential Trading

Strategy here.

3. If a market breaks downward out of a trading range on heavy volume, a trader generally can SELL either on the breakdown or on the first pullback after the

breakdown. The stronger/heavier the initial price-volume surge, the further

subsequent moves generally are likely to carry. Look for a potential Trading

Strategy here.


Strong UPMOVE Volume Examples (not necessarily an UPTREND)

Example A shows heavy volume after a strong move to the upside, which should tell you (the trader) that at least a temporary end to the current up move potentially is

close at hand.

Example B shows light volume after a strong up move occurring on a Narrow Range

Bar (NRB).

Example C shows light volume after a strong up move occurring on an Inside Vertical Bar (IVB).

Example D shows heavy volume after a Bearish Outside Vertical Bar (BEOVB).

Example E shows heavy volume after a strong up move occurring on a Bearish Blow-

Off-Bar (BEBOB).

All five price pattern/volume scenarios indicate an almost certain price reversal to

the downside, a retracement back down to logical SUPPORT, or a potential

complete reversal if the market is testing a critical HIGH. Examples A, B, C, D, and E can be very BEARISH and can lead to a very sharp drop in price if/when the market

penetrates down through the lows of the price bars.


IMPORTANT NOTE: Examples A, B, C, D, and E (described above and illustrated on

the previous page) become incredibly important (potent) reversals if they occur at or near potential RESISTANCE areas, such as:

(1) Mid to Upper Keltner Channel Bands in a defined DOWNTREND,

(2) a Fibonacci Retracement Level in a defined DOWNTREND, (3) back to the 79 SMA and/or 89 EMA in a defined DOWNTREND, and

(4) if the market is testing a major HIGH.


Strong DOWNMOVE Volume Examples (Not necessarily a DOWNTREND)

Example A shows heavy volume after a strong move to the downside, which should tell you (the trader) that at least a temporary end to the current down move

potentially is close at hand.

Example B shows light volume after a strong down move occurring on a Narrow

Range Bar (WRVB, as discussed in the Price Action Analysis module).

Example C shows light volume after a strong down move occurring on an Inside Vertical Bar (IVB).

Example D shows heavy volume after a Bullish Outside Vertical Bar (BUOVB).

Example E shows heavy volume after a strong down move occurring on a Bullish

Blow-Off-Bar (BUBOB).

All five price pattern/volume scenarios indicate an almost certain price reversal to

the upside, a retracement back up to logical RESISTANCE, or a potential complete

reversal if the market is testing a critical LOW. Examples A, B, C, D, and E can be very BULLISH and can lead to a very sharp increase in price if/when the market

penetrates up through the highs of the price bars.


IMPORTANT NOTE: Examples A, B, C, D, and E (described above and illustrated on

the previous page) become incredibly important (potent) reversals if they occur at or near potential SUPPORT areas, such as:

(1) Mid to Lower Keltner Channel Bands in a defined UPTREND,

(2) a Fibonacci Retracement Level in a defined UPTREND, (3) back to the 79 SMA and/or 89 EMA in a defined UPTREND, and

(4) if the market is testing a major LOW.

trading success principles volume analysis - amazon s3 · © trading concepts, inc. 4 volume...

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