Volume Moves Prices - PERIOD! Looking At Ways To Read Volume
Volume moves price. Price moves because volume is being pumped into the markets at a certain level. It's called supply and demand. If you follow the volume, you will be able to see where the fair price of the asset is being seen by the markets.
If you have been following my trading posts lately, you already know I have become addicted to reading volume. It has changed my trading game and I am just excited to share my learning lessons with you!
Volume By Time
If you have ever opened a chart on TradingView or any other chart software, you have seen the volume histogram below the price. This is a standard feature on most charting platforms. There is a reason for this. It is the number one leading indicator on your chart. Volume tells you everything.
The standard histogram shows volume by time, meaning it will show a corresponding volume bar for each candle in the chart. Price moves with volume. If it is a bearish candle, it will be red and bullish is green (I have custom colors on my charts so my bear color is purple, bullish is teal). No matter the color you make them, the idea is the same.
You can see that volume is what moves the price. As volume increases up or down, price moves in that direction to fill any orders that are sitting and waiting.
Following the volume can tell you if the moves are going to be bullish or bearish, and can show if a move is a strong or weak move, indicating possible trend exhaustion and reversal.
Volume By Price
This is represented by the Volume Profile. The profile shows you where the big money is stacking up at different price levels.
This chart shows a combination of 2 different volume profile indicators that I have done my own customization for my visual pleasure. If you want the links for those, check out this post I wrote on volume profiles.
The big histogram on the right shows where the large amounts of volume are coming in. The white line shows the Point of Control which is the price with the highest amount of volume for that time period and value area. Price will chip around this line and if breaks, will retest at some point in time.
The purple box is the value area for this time period. It shows 68% of the last 360 candles. If it goes above or below this area, it will tend to retrace back into the area, or find it as support or resistance and start to move away from the box to create a new high volume area.
The smaller blue and white volume profiles shows the volume coming in at different levels for those points of time. You can use these as strong support and resistance lines as well to find trade entries and exits.
Volume Weighted Average Price (VWAP)
There are several different indicators for the volume weighted average price. This particular indicator is a custom version of the market cipher indicator, but the rules are the same.
The yellow line and area represent the volume weighted average price, or the VWAP. This indicator is a leading indicator that runs with the volume by time showing the direction of the price by volume.
The standard VWAP indicator shows as a line similar to a moving average on the charts, but with everything I already have going on, I like it to be in a separate area, basically replacing the RSI.
Based on that, some key takeaways about the VWAP according to Investopedia:
The volume-weighted average price (VWAP) appears as a single line on intraday charts.
It looks similar to a moving average line, but smoother. VWAP represents a view of price action throughout a single day's trading session.
Retail and professional traders may use the VWAP to help them determine intraday price trends.
VWAP typically is most useful to short-term traders.
The VWAP is used allot by scalp traders like myself because it accurately shows the movement in price and can help you determine the trend direction, as well as your entries and exit points.
Volume Weighted Colored Bars
In addition to the other indicators, you can also turn on Volume Weighted Colored Bars which is another community created TradingView indicator.
So basically what this does is add the volume by time histogram to your candles and shows what kind of strength each candle has.
PRICE BARS ARE:
DARK RED when prices go down and VOLUME is bigger than 150% of its (default 21 day) average, that indicates us price action is supported by a strong BEARISH VOLUME.
RED when prices go down and VOLUME is BETWEEN 50% AND 150% of its (default 21 day) average, at this situation we can think that volume is neither strong nor weak.
ORANGE when prices go down and VOLUME is just less than 50% of its (default 21 day) average, so the volume is weak and doesn't support the price action much.
DARK GREEN when prices go UP and VOLUME bigger than 150% of its (default 21 day) average, that indicates us price action is supported by a strong BULLISH VOLUME.
GREEN when prices go UP and VOLUME is BETWEEN 50% AND 150% of its (default 21 day) average, at this situation we can think that volume is neither strong nor weak.
LIGHT GREEN when prices go UP and VOLUME is just less than 50% of its (default 21 day) average, so the volume is weak and doesn't support the price action much.
Put The Lime In The Coconut And Mix It All Up
Using a combination of all these volume indicators can help you become an unstoppable force in the markets, nailing trades right and left. But there is no indicator of EMOTIONS! You have to remember to trade smart and by a system. If you try and jump in and out with no real plan, you will get rekt!
Hopefully you got something out of this as it is basically my new trading strategy. I am focused on learning to master reading volume and volume profiles to help me become a small time master trader, that can eventually make it to the big time, lol. But for now, I am just trying to trade to survive in this crazy world!
Until next time...
Be Cool, Be Real and always Abide!
Nothing we say is financial advise.
This is for educational and recreational purposes only!
Stay safe in these volatile markets and don’t get rekt!
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