Blog

See Price and Volume Trading in Action.

Lesson 1: How to Interpret Support and Resistance in the Markets

(Click Here to see Lesson 1 from last week's newsletter)

Lesson 2: Reading Price and Volume

In Lesson 1 we discussed the foundations in understanding price and volume. In this lesson we are going to demonstrate how to read price and volume. If you missed Lesson 1 please visit www.hawkeyetraders.com and click on Training Center and follow the link to Hawkeye Blog. This information will be needed to fully understand today's lesson. This lesson structure is designed similarly to any structured education. In the first lesson I laid out a foundation of knowledge designed to familiarize you with the basic concepts. In this lesson I will take the basic concepts and apply them to an actual chart. In the live trading room starting August 30, 2010, I will be demonstrating the techniques that are shown in these lesson charts in real time in real markets. I will teach you at the live edge of the market How To Trade not just concepts or methodologies of trading.

In order to read price and volume we must first have a chart to analyze:

I have chosen a chart from Friday 8.20.10 for training purposes as it is an example of a choppy market where most of the charts for the week were more trending and swinging making trading easier to manage. It is these choppy days that tend to give traders, both beginning and advanced, the hardest time.

First thing in the morning a Pivot High formed as referenced in the above chart. When the pivot high was painted on the chart red volume came in on the 180 EMD tick chart. On the following bar red volume came back in on the Roadkill indicator giving us a Roadkill Volume signal. This signal plainly means that the volume changed from red to white or green back to red. This can signify a reversion back to downside. I say "can" because this ideology is not based off volume alone. We also have to analyze price. We know that in price action theory a Pivot High denotes an area of resistance. Therefore, we should see price trade down and away from a Pivot High. Looking at price action alone these signals can fail quite often and alone they do not provide for a high profitability entry. However, when we take that price action pattern and add in selling strength as seen in Hawkeye Volume and Hawkeye Roadkill we now have a price pattern with selling confirmation that produces a high probability entry. Place your stop just above the Pivot High and look for 1.5 points. I say 1.5 points loosely. This is not always going to be the case. Sometimes price action will tell us continued strength confirmed by volume. In these instances we will want to hold onto the position. However, in this case price did not. As a note though I did have a reentry shortly after the first exit that produced another 1.5 point trade. This reentry came in at 9:48 EST and hit my 1.5 point target. There is a lot of analysis that came in on this second trade that will be difficult to explain using this chart and text. However, I can demonstrate this technique and fully teach it. The basic of the price pattern is to look for a pullback and an up bar in the move. Once this up bar forms, which it did at 9:47 (The only other Pivot High in the move) look for continuous red volume in the Hawkeye Roadkill and continuous or new red volume in the Hawkeye Volume. This particular move had very high probabilities as 50% of a pivot high came in right after the pivot low.

Note: Now as you can see there is a change in jargon here i.e. 50% of a pivot high. This jargon is the sole reason why I really have to wait to teach this technique at the live edge of the market. You need to know how the bars and indicators form in order to fully grasp the full concept.

To continue the reentry narration the entry price was at 729.60 on the open of the 9:48 bar on the EMD 180. That price did drop another 1.5 points giving us our exit. From this point we would be looking for another reentry point on the short side however, price and volume did not confirm another short position.

I hope this narration has helped strengthen the information that was shared last week. Next week we will continue to look at the market in this analysis and bring to light a new aspect of the trading style. I would like to end this lesson with this message. Reading price and volume can be used as a scalping technique. However, once you have mastered this unique style of trading with volume spread analysis you will find that it can be used on any timeframe in any market. In other words day, swing and position traders can all take advantage of this unique trading style and reap the rewards in profits. I look forward to seeing everyone in the live trading room where I can teach you the art of trading. Sign up today for my free education room.

To learn more about the power of Volume Spread Analysis join Nigel Hawkes in West Palm Beach Florida as he will explain in detail how to interpret volume in terms of price spread. Do not miss out on the opportunity to learn this powerful trading technique.