Brandon Wendell, CMT
Brandon Wendell
After last week’s article I received several emails asking me to expand on the topic of volume and tick charts. Since they are unfamiliar for many traders, I decided to dive deeper into the topic. These types of chart can be really useful to increase your chances for success.
First, in order to create the tick charts, you must format your chart. There is no exact number to use for the size of the chart, you will have to use larger numbers for higher volume stocks and lower for light volume stocks.
In the “Interval” section, the “tick” refers to the number of trades made, not the size of each trade. I have chosen the “Volume” interval so that each candle is based on the shares traded, not just the number of trades.
Now, when using the chart to find quality levels of supply and demand, you must think like an institution, not a retail trader. Most traders incorrectly believe that they should be looking for high volume to confirm trends and also for entering trades. This makes no sense if you think about it.
Supply and demand zones work as entry and exit points because there are leftover orders from the institutions. This would imply that we are looking for a large candle leaving an area of basing. In the example of a demand zone, this would mean that we left that area with very few buy orders being filled and no sell orders holding price down. There would likely be a lot of leftover buy orders to cause prices to bounce if they return to that zone.
The same would help find a supply zone. You would want to find a zone where we left a basing with a large red candle. Prices moved fast with only a few sell orders being filled. There was a lack of buy orders in that zone and if prices return, the remaining sell orders that were not filled should cause price to drop quickly.
The volume charts can also assist when looking for the end of a trend. Most novice traders have been taught to look for an increase in volume to sustain a trend. This is also counterintuitive. When the volume increases it means that all of the traders who were interested in joining the trend have done so. The trend will only continue if there is renewed interest and new orders coming into the market.
A sign of trend weakness in volume tick charts would be when you see several small candles together. Remember that each candle is volume based, not time based. A small candle or one with no body, (doji) means that there is enough opposing pressure to halt the trend. This could be a pause in the trend or if it occurs at a zone of supply or demand a reversal of the trend itself.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates
Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY gathers strength to near 157.50 as Takaichi’s party wins snap elections
The USD/JPY pair attracts some buyers to around 157.45 during the early Asian session on Monday. The Japanese Yen weakens against the US Dollar after Japan’s ruling Liberal Democratic Party won an outright majority in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi.
Editors’ Picks
USD/JPY gathers strength to near 157.50 as Takaichi’s party wins snap elections
The USD/JPY pair attracts some buyers to around 157.45 during the early Asian session on Monday. The Japanese Yen weakens against the US Dollar after Japan’s ruling Liberal Democratic Party won an outright majority in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi.
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates
Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.
Gold: Volatility persists in commodity space
After losing more than 8% to end the previous week, Gold remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000. The US economic calendar will feature Nonfarm Payrolls and Consumer Price Index data for January, which could influence the market pricing of the Federal Reserve’s policy outlook and impact Gold’s performance.
Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave
US NFP and CPI data awaited after Warsh’s nomination as Fed chief. Yen traders lock gaze on Sunday’s snap election. UK and Eurozone Q4 GDP data also on the agenda. China CPI and PPI could reveal more weakness in domestic demand.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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