VPA - VOLUME
PRICE ANALYSIS
QUANTUM STONE
CAPITAL
, VOLUME PRICE
ANALYSIS
Let’s start by dissecting a typical candle and explain how much we can learn from it. In
any candle, there are seven key elements. The open, high, low and close, the upper and
lower wicks and the spread.
Whilst each of these plays a part in defining the price action within the time frame
under consideration, it is the wicks and the spread which are the most revealing in terms
of market sentiment, when validated with volume.
Perhaps the simplest way to visualize the price action contained within a candle, and is
applicable regardless of timeframe (from a tick chart to a monthly chart), is to display
the price action, as a sine wave, with the market oscillating back and forth, as buyers
and sellers battle for supremacy.
Volume Price Quantum Stone
www.quantumstone-capital.com Analysis Capital
, The image above is a visual representation of this price action and in this case it is the
buyers who are triumphant. However, the price action could have taken a different
journey in creating this candle. It is the completed candle, which is important.
Let's start with the spread which reveals the sentiment for that session. A wide spread
between the open and the close indicates strong market sentiment, either bullish or
bearish, depending on whether the closing price finished above the opening price or
below it.
A narrow spread between the open and the close indicates sentiment which is weak.
There is no strong view one way or the other. The wicks to the top and bottom are
indicative of change. A change in sentiment during the session. After all, if the
sentiment had remained firm throughout, then we would have no wicks at all. This is
the power of the wicks and why, when used in combination with the spread, reveal so
much about true market sentiment. It forms the basis of price action trading, which is
perfectly valid in it's own right. However, why stop at this point and refuse to validate
that price action with volume?
So, as you can see, the length and context of the wick, whether to the upside or to the
downside is paramount in Volume Price Analysis, and the easiest way to explain this is
to consider some further visualization examples, which will help to make the point.
Volume Price Quantum Stone
www.quantumstone-capital.com Analysis Capital
, We will consider two examples. In the first one, we have a wick where the price has
opened, the market has moved lower, and then recovered to close back at the open
price. In the second example, we have a wick where the price has opened, the market
has moved higher and then moved lower to close back at the open.
Let's analyze what is happening here with the price action and market sentiment. In
both cases we can be certain that this is the profile of the price action, since the closing
price has returned to the original opening price. So there is no guesswork. It is true that
within the price action, there may have been ups and downs, pull backs and reversals,
but at some point in the session, the price action hit a low, or a high and then returned
to the original starting point.
Lower Wick Example
Taking the lower wick example first, the price bar opened and almost immediately
sellers were in the market forcing the price lower, and overwhelming the buyers.
Perhaps within the move lower, there were pauses and brief attempts to rally, which
would have been seen perhaps in faster time frames, and a key part of trading. However,
in this session, as far as we are concerned, the sellers remained in control throughout the
first part of the candle’s creation.
Volume Price Quantum Stone
www.quantumstone-capital.com Analysis Capital
PRICE ANALYSIS
QUANTUM STONE
CAPITAL
, VOLUME PRICE
ANALYSIS
Let’s start by dissecting a typical candle and explain how much we can learn from it. In
any candle, there are seven key elements. The open, high, low and close, the upper and
lower wicks and the spread.
Whilst each of these plays a part in defining the price action within the time frame
under consideration, it is the wicks and the spread which are the most revealing in terms
of market sentiment, when validated with volume.
Perhaps the simplest way to visualize the price action contained within a candle, and is
applicable regardless of timeframe (from a tick chart to a monthly chart), is to display
the price action, as a sine wave, with the market oscillating back and forth, as buyers
and sellers battle for supremacy.
Volume Price Quantum Stone
www.quantumstone-capital.com Analysis Capital
, The image above is a visual representation of this price action and in this case it is the
buyers who are triumphant. However, the price action could have taken a different
journey in creating this candle. It is the completed candle, which is important.
Let's start with the spread which reveals the sentiment for that session. A wide spread
between the open and the close indicates strong market sentiment, either bullish or
bearish, depending on whether the closing price finished above the opening price or
below it.
A narrow spread between the open and the close indicates sentiment which is weak.
There is no strong view one way or the other. The wicks to the top and bottom are
indicative of change. A change in sentiment during the session. After all, if the
sentiment had remained firm throughout, then we would have no wicks at all. This is
the power of the wicks and why, when used in combination with the spread, reveal so
much about true market sentiment. It forms the basis of price action trading, which is
perfectly valid in it's own right. However, why stop at this point and refuse to validate
that price action with volume?
So, as you can see, the length and context of the wick, whether to the upside or to the
downside is paramount in Volume Price Analysis, and the easiest way to explain this is
to consider some further visualization examples, which will help to make the point.
Volume Price Quantum Stone
www.quantumstone-capital.com Analysis Capital
, We will consider two examples. In the first one, we have a wick where the price has
opened, the market has moved lower, and then recovered to close back at the open
price. In the second example, we have a wick where the price has opened, the market
has moved higher and then moved lower to close back at the open.
Let's analyze what is happening here with the price action and market sentiment. In
both cases we can be certain that this is the profile of the price action, since the closing
price has returned to the original opening price. So there is no guesswork. It is true that
within the price action, there may have been ups and downs, pull backs and reversals,
but at some point in the session, the price action hit a low, or a high and then returned
to the original starting point.
Lower Wick Example
Taking the lower wick example first, the price bar opened and almost immediately
sellers were in the market forcing the price lower, and overwhelming the buyers.
Perhaps within the move lower, there were pauses and brief attempts to rally, which
would have been seen perhaps in faster time frames, and a key part of trading. However,
in this session, as far as we are concerned, the sellers remained in control throughout the
first part of the candle’s creation.
Volume Price Quantum Stone
www.quantumstone-capital.com Analysis Capital
