Forex Trading Volume Spread Analysis and Smart Money Concepts
Please make no mistake: Volume is the missing puzzle piece that completes the picture of char patterns, and it is the secret weapon in your trading arsenal, so starting today, no more guessing or relying on luck now when applying volume spread analysis.
Forex Trading Volume Spread Analysis and Smart Money Concepts
There are two important factors to consider. Firstly, you have to look for Validation between price and Volume, and secondly, you have to look for disagreements between them. Validation occurs when any price movement is supported or confirmed by corresponding volume activity. On the other hand, if there is a disagreement between price and Volume, it indicates a possible change in the market.
If the price rises but the Volume decreases or does not maintain its pace, it may indicate a weak trend and a possible reversal shortly. Validation and divergence are the basic concepts in vssa. Traders using vssa don’t just look at price action then.
Real-time Forex volume analysis
They also do real-time volume analysis to predict future char patterns. By understanding whether the Volume supports or deviates from the price action, you can better predict the possibility of the market continuing or reversing. Now, traders use many patterns to analyze the market, but we will not talk about it. Instead of triangles, wedges, flags, or other ineffective segmentations, we will explore patterns that have proven to be highly effective and occur frequently.
Some of the patterns are retail, but some are related to smart money concepts. The first one is the trend continuation pattern. If you study the breakout of the ICT structure pattern, the BOS, in an uptrend continuation pattern, we notice a series of upward movements and corrective pullbacks. The highest points in the price are higher than the highest Previous Highs and Lows. The price points are also higher than the previous lows.
Bullish Momentum Pattern in Forex
This pattern indicates continued upward momentum as buyers push the price to new higher levels, showing a continuing upward trend. Buying pressure is needed to maintain upward movement when the market moves higher.
Buying is usually seen when the current bar closes higher than the previous bar. It is essential to pay attention. The Volume of the upper bar should be increasing but not excessively; it may indicate more supply in the market in the background. If you notice that the Volume is low as the market is moving higher, then this is a false indicator.
Low Volume indicates that smart money has excellent influence and does not participate in the upward movement because it sees the weak market. With this intelligent participation of funds, the market will likely rise significantly. We see a series of downward movements and corrective pullbacks in a downtrend continuation pattern.
The highest points in the price are lower than the previous highs, and the weakest points are lower than the previous highs. The previous lowest points are also lower. This pattern indicates a continuation of downward momentum as sellers push the price to new lower levels.
Trade the ongoing downtrend in Forex.
The trend is persistently downward. During this pattern, you may see temporary upward movements with low Volume. This means that professional traders are interested in something other than higher prices. Not actively participating in a legitimate downward movement requires evidence of selling pressure reflected in increased Volume on the lower bars when the current candle closes. Lower than the previous candle, but if the increase in Volume is excessive, it is a warning sign that there may be demand in the background.
If you notice low Volume on the lower bars, this indicates a decrease in selling pressure. The market may continue to decline, but be aware that it may quickly reverse and rise temporarily due to a lack of supply. Low Volume on the lower bars indicates little professional interest in further trading. Downward movement, the following pattern is the double top, which contains liquidity in the double top pattern.
Trade the ongoing uptrend in Forex.
In an uptrend, two similar highs create a resistance level, with the low between them known as a neckline. This pattern indicates a loss of momentum and weak buyer interest. If the price falls below the neckline, it confirms the double-top pattern.
- How can you address the argument that the flow of liquidity at the second high point may not always indicate a clear pattern and could be influenced by other market factors?
- Have you considered the possibility that the market may break the double top pattern due to factors unrelated to stopping losses, such as external events or news affecting investor sentiment?
- What would you say to someone who argues that the double top pattern may not always be reliable due to the influence of high-frequency trading or algorithmic trading strategies?
The first high is usually a pullback phase, during which the price pulls back a bit. During this phase, an expected drop in Volume indicates lower buying pressure as the price climbs toward the second high. Watch the Volume again if it is lower than it was during the formation of the first high.
Summary
It can indicate decreasing buying interest and the potential exhaustion of an uptrend. It suggests that fewer traders are willing to buy at higher prices. This decrease in Volume is a warning sign that the trend is weakening. Liquidity running on low Volume is another sign of this. It is doubtful that the most critical stage in a double-top formation is when the price breaks below the neckline. Here, Volume plays a vital role in confirming the pattern.
