Wide Spread Candle, Low Volume

 What is happening here is that the market makers are trying to 'feel out' the sentiment in the market.
The above could be from a one minute chart for example. The market opens, then the price is pushed
higher to test interest in the market from the buyers. If there is little or no buying interest, as here,
then the price will be marked back down, with further price testing.
 The market makers are testing the levels of buying and selling interest, before setting the tone
for the session, with an eye on any news releases due in the morning, which can always be
used to further manipulate the markets, and never allowing ‘a serious crisis go to waste’
Rahm Emanuel). After all, if they were buying into the market, then this would be reflected in
a high volume bar.
 The volume bar is signalling that the market is NOT joining in this price actionand there is a
reason. In this case it's the market makers in equities
testing the levels of buying and selling, and therefore not committing into the move, until they are sure
buyers will come into the market at this price level.
 A fundamental item of news is released,or is rele and the market makers see an opportunity to take
stops out of the market. The price jumps on the news, but the associated volume is low.
Narrow Spread Candle, Low Volume

 The market is starting to look weak, and is typical of a candle pattern that starts to develop at the top
of a bullish trend, or the bottom of a bearish trend.
 For example in an established bullish trend the market opens, and starts to rise a little, but the
buyers (longs) are now starting to take their profits,as they have been in this trend for while and
feel that this is the right time to close out. However, as these positions are closed out, more eager
buyers come in, (as most traders and investors always buy at the top of markets), but the price
never rises as the longs continue to liquidate and take their profits, before more buyers come in,
and the cycle repeats throughout the session.
 The specialists have driven prices higher, but the market is now struggling at this level. They are
selling to the market to clear their warehouse, but the buyers are not there in sufficient numbers to
move the price higher, as it is constantly knocked back by longer term traders,selling out and
taking their profits off the table. The specialists continue selling into the buying, but the volume of
buyers is too small, in contrast to the number of sellers, to move the price significantly higher, as
each attempt to push the market higher is hit with more selling, which in turn is replenished with
more buyers.
 What is actually taking place here is a battle. The first sign of a real struggle, with the specialists
struggling to clear their warehouse before moving the market lower, and fast. The market is not
receptive to higher prices, but the specialists cannot move the market lower until they are ready,
and so the battle continues. I explain this in much greater detail later in the book. They maintain
the price at the current level attracting more buyers in,who are hoping to jump into the trend and
take some easy profits, but the sellers keep selling, preventing any real rise in price.

Multiple Candle Examples

 The price action on each candle has been validated with the associated volume, and the overall
price action has been validated by the overall volume action. This can all be summed as rising
prices = rising volume. If the market is rising, and we see rising volume associated with the move,
then this is a valid move higher, supported by market sentiment and the specialists. In other words,
the specialists and insiders are joining in the move, and we see this reflected in the volume.
 In the first example in Fig 4.14, we had a market that was rising nicely with the volume also
rising to support the price action, so the volume here must all be buying volume, after all, if there
were any selling volume, then this would be reflected somewhere in the price action.
 We know this because there are no wicks on the candles, as the price moves steadily higher, with
the volume rising to support the price action andvalidating the price. It can only be buying
volume and a genuine move. Therefore, we can happily join in, knowing that this is a genuine
move in the market. We join the insiders and buy!
 Multiple Bar Anomalies
A.Rising Prices an Increasin Spreas On Candles

1.Candle -2 Anomaly
This is an anomaly. We have a modest spread in price, but high volume. The market should have risen
much further given the effort contained in the volume bar. This is signalling potential weakness, after all
the close of the bar should have been much higher given the effort. The market makers are selling out at
this level! It is the first sign of a move by the insiders.
2.Candle -3 Two Anomalies!
This is two anomalies in one. The price spread is wider than the previous candle, but the volume is lower.
The buying pressure is draining away.Second, we have a market that is rising, but the volume has fallen
on this candle. Rising markets should be associated with rising volume, NOTfalling volume. This is also
signalling clearly that the previous volume is also an anomaly, (if any further evidence were required).

3.Candle -4 Two Anomalies Again!

Again, we have two anomalies in one, and is adding further confirmation that the volume and price on
this trend are no longer in agreement. Here we have a wide spread up candle and even lower volume than
on previous candles in the trend. Following the effort vs result rule, we would expectto see significantly
higher volume, but instead we have low volume.
Second, the falling volume is confirming that we have an anomaly on the trend, as we expect to see rising
volume with a rising trend, whereas herewe have falling volumes on a rising trend. The alarm bells would
be ringing loud and clear now.

 What are the conclusions we can draw from these four candles? The problems start with candle
two. Here we have effort, but not an equivalent result in terms of the associated price action. This
is therefore the first sign of possible weakness. The market is what is known as 'over bought'. The
market makers and specialists are starting to struggle here. The sellers are moving into the market
sensing an opportunity to short the market.This creates the resistance to higher prices at this level,
which is then confirmed on the third and fourth candles, where volume is falling away.

 The specialists and market makers have seen this weakness, and are selling out themselves at this
level, preparing for a move lower, but continue to mark prices higher, to give the appearance of a
market that is still bullish. It is not. This may only be a temporary pause, and not a major change
in trend, but nevertheless, it is a warning of potential weakness in the market.

 The high volume is as a result of an increasing number of sellers closing out their positions, and
taking their profits, whilst the remaining buyers do not have sufficient momentum to take the
market higher. The specialists and market makers are also selling out at this level adding to the
volumes,as they have seen the weakness in the market. This is the reason that volumes fall on the
next two candles, as they continue to mark the market higher, but are no longer involved in the
move themselves. They have withdrawn and are trapping traders into weak positions.

 In point of fact, the anomaly we have seen here, might be enough to result in minor short term
weakness, a pull back due to one weak candle. The cause is weak, so the effect is weak.
B.Falling Prices an Increasing Spreads On Candles
1.Candle- 2 Anomaly
The candle has closed with a marginally wider spread than the previous bar, but the volume is high or
very high. What this is signalling is that the market is clearly resistant to any move lower. After all, it this
was NOT the case, then the price spread would he been much wider, to reflect the high volume. But, this
is not the case, and is therefore an anomaly. And, just as in the previous example, the alarm bells are now
ringing. What is happening here is that bearish sentiment is draining away with the sellers now being met
with buyers at this level. The market makers and specialists have seen the change in sentiment with the
buyers coming in, and are moving in themselves, buying the market at this price point.
2.Candle -3 Two Anomalies
Now we have two anomalies, similar to the example in Fig 4.16. First, we have a wide spread candle, but
with only average to low volume. Second,the volume is lower than on the previous bar – in a falling
market we expect to see rising volume, NOT falling volume. With falling volume the selling pressure is
draining away, something that was signalled in the previous bar.
3.Candle -4 Two Anomalies Again!
Once again we have two anomalies here. First, we have a wide spread down candle, accompanied by low
volume. The volume should be high, not low. Second, we now have falling volume over three candles in
a market that is falling. Again, this is an anomaly as we should expect to see rising volume in a falling
market.
 As with the example in Fig 4.16, the first candle too in Fig 4.17 closes, and the volume validates
the price. All is well! However, it is on candle 2 that the first alarm bells rings. Once again we
have effort (volume), but not an equivalent result in terms of the associated price action. This is,
therefore,the first sign of possible weakness. The market is what is known as 'over sold'. The
market makers and specialists are starting to struggle here.The buyers are moving into the market
in increasing numbers, sensing an opportunity to buy the market
 The specialists and market makers have seen this weakness on candle 2 and moved in, but
continue to mark prices lower, to give the appearance of a market that is still bearish. Once again,
it isn't! This may only be a temporary pause, and not a major change in trend, but nevertheless, it
is a potential warning of strength coming into the market.
 The high volume is as a result of an increasing number of sellers closing out their positions, and
taking their profits, whilst the remaining sellers do not have sufficient momentum to take the
market lower. The specialists and market makers are now buying at this level adding to the
volumes, as they have seen the strength coming into the market, and are happily absorbing the
selling pressure. This is the reason that volumes fall on the next two candles, as they continue to
mark the market lowth e markeer, but are no longer involved in the move themselves. They have
bought their stock on candle 2, and are now simply trapping additional traders into weak short
positions in candles 3 and 4.

In learning to base our trading decisions using VPA, the analytical process that we go through on each
chart is identical. The process can be broken down into three simple steps:
Step 1 – Micro
Analyse each price candle as it arrives, and look for validation or anomaly using volume. You will
quickly develop a view on what is low, average,high or very high volume, just by considering the current
bar against previous bars in the same time frame.
Step 2 - Macro
Analyse each price candle as it arrives against the context of the last few candles, and look for validation
of minor trends or possible minor reversals.
Step 3 - Global
Analyse the complete chart. Have a picture of where the price action is in terms of any longer term trend.
Is the price action at the possible top or bottom of a longer term trend, or just in the middle? This is where
support and resistance, trend lines, candle patterns, and chart patterns all come into play, and which we
will cover in more detail shortly.
In other words, we focus on one candle first, followed by the adjacent candles close by, and finally the
entire chart.

Chapter Five
Volume Price Analysis: Building The Picture

Mistakes are the best teachers. One does not learn from success

 The five concepts which lie at the heart of VPA, ty and these are as follows:
1. Accumulation
2. Distribution
3. Testing
4. Selling Climax
5. Buying Climax

1.Accumulation

Whilst Fig 5.10 is a graphical representation of the price action, nevertheless I hope it gives a sense of
what this looks like on a real chart. The repeated buying by the insiders is highlighted in blue.
2.Distribution

Fig 5.11 The Distribution Phase

The example in Fig 5.11 gives us a picture of what is happening here, and once we begin to think of this
behaviour in terms of a full or empty warehouse, then it will start to make sense. It is very logical, and if
we had our own warehouse of goods we wanted to sell at the highest price, we would go about this in
much the same way

3.Testing

a. Testing Supply
One of the biggest problems the insiders face when mounting any campaign is they can never be sure that
all the selling has been absorbed,following an accumulation phase. The worst thing that could happen is
they begin to move the market higher, only to be hit by waves of selling, a of sel which would drive the
market lower, undoing all the hard work of shaking the sellers out of the market. How do the insiders
overcome this problem? And the answer is that just as in any other market, they test!

 The phase of price action we are looking at here follows the accumulation phase, and prior to
this, the insiders will have frightened everyone intoselling by moving prices down fast. Panic
 selling follows with high volumes in this area. The insiders then begin to shake the trees for the
more obstinate 'fruit' before they slowly begin to push the market out from this region and to start
the gentle upwards trend, which will ultimately developinto the distribution phase at the top of
the bull trend.

 At this point the insiders are moving the market back through an area of recent heavy selling, and
the worst thing that could happen, is for this selling pressure to return, bringing the campaign to
a shuddering halt. The answer is to execute a test in the rising market which is shown in the
schematic in Fig 5.12.

 The market is marked lower, possibly on the back of a minor item of bad news, to test to see if this
is likely to flush out any remaining sellers. If the volume remains low, this instantly tells the
insiders that there are few sellers left, and that virtually all the selling has been absorbed in the
accumulation phase of the campaign. After all, if the sellers were still in the market in any
number, then the candle would have closed lower on above average volume. The volume is low,
as the insiders move the candle back near the opening price with a 'good news' story, before
continuing higher, happy with this positive result.

 The precise formation of the candle is not critical, but the body must be a narrow spread, with a
deep lower wick. The colour of the body can be either bullish or bearish.With the test now
confirmed the insiders can move the market higher to the target distribution level, confident that
all the old selling has now been absorbed.
 However, what if the test fails and instead of low volume appearing there is high volume, which is
a problem. In starting to move the market away from the accumulation area, and executing the
first part of the test by marking prices lower, this has resulted in sellers returning in large
numbers and forcing the price lower.Clearly on this occasion, the selling from the old trading
range has not been absorbed in the accumulation phase, so any further attempt to take the market
higher may struggle or fail.A failed test means only one thing. The insiders will have to take the
market back lower once again, and quickly, to shake these sellers out.

b. Testing Demand
  As the distribution phase ends, the insiders want to make sure that there is no demand still
remaining in price areas which, until recently, had seen strong buying during the entry into the
distribution phase. Once again, they test. The market is marked higher using some news, and if
there is no demand, closes back near the open, with very low volume. This is what the insiders
want to see. No demand, as shown by the low volume. They are now safe to start moving the
market lower, and fast, as they now need to replenish their warehouses again.
 Fig 5.15 is definitely NOT what the insiders want to see as they prepare to move away from the
distribution price region. The market is marked higher and buyers flood in, thinking that the
bullish trend is set to continue and move higher still. As before, a failed test stops the campaign
in itsn tracks, and the insiders have to move back into the distribution price area, and clear these
buyers out of the market, using the same processes as before. Once complete, then a further test
is made, and if on low volume, then the trend lower will gather pace, and move quickly away
from the distribution region, trapping traders into weak positions at this level.

4.Selling Climax

 This is when the insiders are selling and occurs during the distribution phase of the
campaign. A buying climax is when the insiders are buying during the accumulation phase. Just to be
clear, a selling climax appears at the top of the bullish trend, whilst the buying climax appears at the
bottom of a bearish trend, and reflects the actions of the insiders, and NOT the public
Fig 5.16 is simply a schematic of what to expect in the selling climax. Here the insiders have taken the
market to their target level, at which they are selling inventory at retail prices, to happy buyers who
believe that this market is going to the moon.
 At this stage the price action becomes more volatile with surges higher followed by a close back
to the open price, with increasing volumes of buyers flooding into the market, fearing they will
miss out on the next leg up in the bullish trend. The next leg is in the opposite direction.Finally,
the inventory is cleared and the market sells off, moving lower and back out of the distribution
phase. The clues for us, as VPA experts, are there to see.Here we will see high volume coupled
with a candlestick which has a deep upper wick and narrow body, and is one of the most powerful
combinations of price action and volume we will ever see on a chart. Naturally, I will be covering
this in detail later in the book.
 The colour of the body of the candle is unimportant. What is important, is the height of the wick,
the repeated nature of this price action, and the associated high volumes. This is sending a clear
signal that the market is ready to move fast, and as the warehouses are all empty, the reaction
will be quick. The insiders are now jumping on their mats, and heading off down the helter
skelter, back to 'square one' to begin the process once again with an accumulation phase. When
we see this price action, following a distribution phase, it's best to be in front of your screen –
ready and waiting!
4.Buying Climax

The buying climax is simply a selling climax in reverse. The insiders have taken the market lower, panic
has been triggered and fearful sellers are closing positions. See Fig 5.17.
 Chapter Six

Volume Price Analysis – The Next Level

I never argue with the tape.
Jesse Livermore (1877-1940)

 Principle which we need to keep in mind in any analysis when using candlesticks.
Principle-1
The length of any wick, either to the top or bottom of the candle is ALWAYS the first point of focus
because it instantly reveals, impending strength,weakness, and indecision, and more importantly, the
extent of any associated market sentiment.

Principle-2

If no wick is created, then this signals strong market sentiment in the direction of the closing price.
Principle-3
A narrow body indicates weak market sentiment. A wide body represents strong market sentiment.
Principle-4
A candle of the same type will have a completely different meaning depending on where it appears in a
price trend. Always reference the candle to the location within the broader trend, or in the consolidation
phase.
Principle-5
Volume validates price. Start with the candle, then look for validation or anomalies of the price action by
the volume bar.
 The Shooting Star Candle

Price action – Weakness

 The price action is revealing weakness, since the price has risen and then fallen to close near the
opening price, with the sellers overwhelming the buyers in the session.
 Their appearance DOES NOT signal an immediate reversal. Their appearance signals
POTENTIAL WEAKNESS at that point in the price action. The candle will ONLY gain
significance based on the associated volume.

 If we took this price pattern, as shown in Fig 6.10, and imagine that these were in fact three
simultaneous candles, each with increasing volume,then based on this combination of candle
pattern and volume, do we think the market is likely to rise or fall?
Clearly, the market is going to fall and the reason is very straightforward. First, we have seen three
consecutive candles, whose high has failed at exactly the same price level, so there is weakness in this
region. Second we have three shooting stars, which we already know are signs of weakness, and finally
we have volume. We have rising volume on three identical candles at the same price point on our chart.
The market is really struggling at this level, and the last two could certainly be considered part of the
selling climax.
 Moreover, if these signals were to appear after a period of sideways price action, then this gives
the signals even more strength, as we are then validating our VPA analysis with another
technique of price analysis, which is support and resistance.

 What is far more difficult is to try and identify major turning points in real time so I have created
the schematic in Fig 6.11 to explain how this action plays out on a chart. It will also allow me to
introduce other broader aspects of this methodology.
 Absolutely not. As I mentioned earlier the market does not turn on a dime. It pauses, reflects, then
rises, pauses once again and then falls.We wait for the next candle to form to see if it is
confirming this weakness, perhaps some narrow spread up candles, followed by another shooting
star. The appearance of the first shooting star is our cue to sit up and take note. It is our cue to
check the subsequent candles for confirmation of the initial weakness, and try to deduce with
VPA whether this is a sign of longer term weakness or merely a temporary pause. At this point we
would also be considering price congestion areas on the chart for clues. After all, if we are in a
price region where the market has reversed previously,then this too is a strong signal, and in
addition may also give some clues as to the likely depth of any reversal.
 In addition, if the price action has only recently broken out from an accumulation phase, then it is
unlikely to be the start of any reversal lower, andonce again this is a key point. To always
consider where we are in the context of the trend and its relation to recent consolidation phases
of price action during which the insiders would have been accumulating. After all, it is very
unlikely that a new trend would have been started and then promptly reverse, particularly if a
successful test had followed.
 The appearance of a shooting star candlein a downtrend which follows a selling climax could be
a test of demand as the market moves lower. Furthermore, if the shooting star is accompanied by
low volume, and the market had been in sideways congestion for a period following the selling
climax, this also confirms theinsiders testing demand as the market moves away from the
distribution phase. The shooting star is a sign that the market has been pushed higher, but there
is no demand so falls back to close, at or near the open.
 Shooting star candles may also appear at minor reversals deeper in the trend, as the downwards
pressure pauses and pulls back higher. Here again, if the candle is accompanied with above
average volume, it is only telling us one thing, namely the market is still weak, and we have not
yet reached the buying climax at the bottom of the trend.
 This pattern of price action is the insiders selling back to the market some of the inventory they
have collected from panicked sellers who had bailed out earlier. This inventory in the warehouse
has to be sold as the market moves lower. After all, the insiders don't like to buy anywhere other
than at their target price, in other words, a wholesale price.
 Some buyers will come in at these pull backs, thinking the market has bottomed out, and about to
turn higher, whilst others continue to sell. This price action occurs all the time in a price
waterfall, as the market moves lower and fast. The insiders have to stop the fall, pause, push the
market higher using the media and sell into the created demand whilst also dealing with the
 ongoing selling that is continuing to arrive. The volume will therefore be above average or high,
showing further weakness to come.

The Hammer Candle

Price action – strength

 A hammer is formed when in a session, the price has fallen, only to reverse and recover to close
back near the opening price. This is a sign of strength with the selling having been absorbed in
sufficient strength for the buyers to overwhelm the sellers, allowing the market to recover.
 As we now know, the insiders have to clear inventory which has been sold in the move lower, and
the first signal of a pause is the hammer, as the insiders move in to buy, supporting the market
temporarily. They may even push it higher with a shooting star candle. The hammer is signaling
'forced buying' by the insiders, and the shooting star is signalling 'forced selling' by the insiders.
Whilst they do move bearish markets fast, there is always selling that has to be absorbed at
higher levels, and this inventory has to be cleared before moving lower once again. After all, if
this did not happen, the insiders would be left with a significant tranche of inventory bought at
high prices, and not at wholesale prices.
 A price waterfall will always pause, pull back higher, before continuing lower. As always, volume
holds the key, and if the volumes have been rising in the price waterfall lower, then this is a
strong signal of further weakness to come. Therefore, a single hammer will simply not be enough
to halt the move lower, even if the volume is above average. As always, the price action that
follows is key, as is the price and volume in the associated time frames along with any price
congestion in the vicinity. This is the same problem as before and the question that we always
have to ask, whenever we see a hammer or a shooting star, is whether the price action is
signalling a pause in the longer term trend, or a true reversal in trend.
 A shooting star with average volume is telling us there is weakness, it is a relatively strong
signal, and the pull back may be more significant than in the first example on low volume.
Finally, we have the shooting star with high or ultra high volume and this is where the
professional money is now selling out. Whether it's the market makers in stocks and indices, or
the big operators in futures, or the market makers in forex, or the big operators in bonds, it
doesn't matter. The insiders are selling out, and we need to prepare and take note, as a big move
is on the way!
 Generally, There is never an anomaly with a shooting star /Hammer Candle, only ever a
validation of the strength of the signal. The volume always confirms the price action with a
shooting star/Hammer Candle, and all we have to do is consider whether it is low, average or
high to ultra high, and frame this in terms of the preceding price action across our time frames,
and track the subsequent candles as they unfold on the chart.
  As we can see on fig 6.12 A hammer with a low volume candle is indicating minor weakness,
average volume suggests stronger signs of a possible reversal, whilst ultra high signals the
insiders buying heavily, as part of the buying climax. The volume is giving us clues on how far
the market is likely to travel. An average volume bar with a hammer candle, may well give us an
intraday scalping opportunity. And there is nothing wrong with that. A low volume hammer is
simply telling us that any reversal is likely to be minor, as there is clearly little interest to the
upside at this price level

The Long Legged Doji Candle

Price action – Indecision

 The long legged doji can signal a reversal from bearish to bullish, or bullish to bearish, and the
change in direction depends on the preceding price action. If we have been in an up trend for
some time, and the long legged doji appears, then this may be the first sign of a reversal in trend
to bearish. Conversely, if we see this candle after the market has been falling for some time, then
this may be signalling a reversal to bullish.

 Unlike the shooting star and the hammer candle, with the long legged doji candle we CAN have
an anomaly in volume. Once again as we can see in Fig 6.13 I have shown the candle with three
volume bars beneath, and the one which is an anomaly is the first one on low volume.

 Why is low volume on such a candle an anomaly? Well, let's think about this logically. The
market has moved sharply in both directions and finally closed back or near the opening price.
This price action is a sign of volatility in the market, as the market has swung back and forth in
the session. If the market were not volatile, then we would see a very different type of candle.
Therefore, if the market is volatile, why is there low volume.
Volatile markets require effort and as we know effort and result go hand in hand. However, in this
instance we have no effort (low volume) and a big result (wide price action). Clearly this is an anomaly,
and the only logical answer is that the price is being moved by the insiders, who are simply not joining in
at the moment. The most common reason for this is stop hunting, where the market makers and insiders
are moving prices violently, first one way and then the other, to shake traders out, and to take out stop
and limit orders in the process. They are not buying or selling themselves, but simply 'racking' the price
around, generally using a news rel Cng ume) and ease as the catalyst, and this brings me to an important
point in the VPA story.

 The long legged doji is seen most often during a fundamental news release, and the classic one
for the US markets is the monthly Non Farm Payroll data, released on the first Friday of every
month. On the release, price behaviour becomes extremely volatile, where this candle is created
repeatedly when economic data such as this is released. The market swings violently one way,
then the other, and then perhaps back again. It is the ideal opportunity for the insiders to
whipsaw traders in and out of positions fast, taking out stops and other orders in the market at
the same time. And the reason we know this is happening is volume, or rather the lack of it. If the
volume is low, then this is NOT a genuine move, but an ANOMALY. For the price to behave in
this way takes effort, and we are seeing this with no effort, as shown with low volume. The
insiders are simply manipulating prices, and in this case, the long legged doji is NOT signalling a
reversal, but something very different. Insider manipulation on a grand scale at this price level. It
may well be that the market does reverse later, but at this stage, we stay out, and wait for further
candles to unfold.

 When news is released, it is often the first place where we see volume surges in the
market, and they are excellent places to start our analysis. If the volume surge has validated the price
move, then we can be sure that the insiders are joining in the move higher or lower. If the price action
has moved on the news, but has NOT been validated by supportive volumes, then it is an anomaly and
other forces are at work. This is telling us to be cautious.

 A long legged doji candle, should always be validated by a minimum of average volume, and
preferably hy high or ultra high. If it is low, then it is an anomaly and therefore a trap set by
the insiders.

The Wide Spread Candles.

Price action – Strong Market Sentiment

 The price action of the wide spread candle is sending a clear signal with only ONE message.
Sentiment for the session is strong. It is either strongly bullish or strongly bearish, but the word is
STRONG. The price action has risen sharply higher or lower in the session and closed at or near
the high of an up candle, or at or near the low of a down candle. The associated volume should
therefore reflect this strong sentiment with 'strong' volume.

 As we can see in the example in Fig 6.14, if the volume is above average, then this is what we
should expect to see as it validates the price. The insiders are joining the move higher and
everything is as it should be.If the volume is below average or low, this is a warning signal. The
price is being marked higher, but with little effort. The warning bells are now ringing. Many
retail traders will be rushing to join the move higher or lower thinking this is a valid move by the
market. But the volume reveals a very different story. If we are in a position, we look to exit. If we
are not in a position we stay out, and wait for the next signal to see when and where the insiders
are now taking this market.

The Narrow Spread Candles.

Price action – Weak Market Sentiment

 In general markets move higher slowly. Markets pause, consolidate and reverse, often on narrow
spread candles. Therefore, the interesting ones are NOT those validated by volume, but the
anomalies.
  As shown on Fig 6.15. If we have an up candle with a narrow spread and relatively high volume,
then the market is showing some signs of weakness. As we know high volume should result in a
wide spread candle, not a narrow spread. Effort vs result again. The
insiders are starting to struggle at this price level. The market is resistant to higher prices, and although
it has moved a little wa Cd aagain. Thy higher, is now proving resistant to any further progress, and the
next candle could be a shooting star, which would then confirm this weakness
further.
 Equally, if we see high volume on a down candle then the reverse applies. Here the insiders are
starting to see signs of bullish sentiment enter the market. The price is narrow, with buyers
( insiders) coming in, and supporting the market at this level. Again, this is the first sign of a
potential reversal from bearish to bullish. Subsequent candles may confirm this and we would
now be waiting for a hammer, or possibly a long legged doji to add further weight to the analysis.

The Hanging Man Candle.

Price action – Potential Weakness after Bullish Trend.

 The reason this candle is considered to be bearish is that this is the first sign of selling pressure
in the market. The insiders have been tested, and the buyers have supported the market, but this
candle is sending a signal that the market is moving towards an over sold area. The body of the
candle can be either red or blue, but the price needs to close at, or near the open.
 The hanging man is validated if it is followed by the appearance of a shooting star in the next few
candles, particularly if associated with above average or high volume. The key here is validation.
On its own it is not a strong signal, but merely gives us early warning of a possible change.
 For this candle to be validated and confirmed we need to see further signs of weakness at this
level, or close to this level, which would then increase the significance of the candle. For
example, a hanging man, immediately followed by a shooting star is an excellent combination
and adds considerably to the strength of the initial signal. Even if the shooting star appears later
in the candle sequence, this is still a strong confirming signal, provided it is associated with high
volume.
 The Stopping Volume.

Price action – Strength

This is what the price action looks like as the brakes are applied by the insiders, and is generally
referred to as stopping volume.

 In Fig 6-17,The insiders move in and manage to absorb some of this pressure with prices
recovering in the session, to close well off the lows of session thereby creating the deep lower
wick. The selling then continues into the next session, and the insiders come in again with higher
volumes, driving the price back higher off the lows, and perhaps with a narrower body on the
candle, signalling that the buying is now starting to absorb the selling to a greater extent. Next,
 we see another candle with a narrower body and a deep wick. Finally, we see our first hammer
candle.
 Stopping volume is exactly that. It is the volume of the insiders and professional money coming
into the market and stopping it falling further. It is a great signal of impending strength, and a
potential reversal in the bearish trend to a bullish trend. It is the precursor to the buying climax
which should follow as the last remnants of selling pressure are mopped up, the warehouses are
filled to over flowing, and the insiders are ready to go.You should be too!!

The Stopping Volume.

Price action – Weakness.

Topping out volume is the market topping out after a bullish run higher.

 The market does not simply stop and reverse, it has momentum, both in up trends and in down
trends. The down trend pressure is certainly more intense as the market is generally moving
faster. Nevertheless, in an up trend we still have momentum generated by the insiders driving
demand. Traders and investors are jumping into the market, driven by greed and fear of missing
out on easy profits. The volumes are high and rising, and Cd rket to the insiders are now selling
into this demand, driving the market higher into this selling pressure, which is building. This is
the price action we are seeing reflected in the deep upper wicks to each subsequent candle.
 At this point it is becoming increasingly difficult for the insiders to keep the market momentum
going, as they continue to sell at this level, with the candles creating the ‘arcing pattern’ as the
spreads narrow and the price rise slows. Volumes are well above average and probably high or
ultra high.
 Chapter Seven

Support & Resistance Explained

(Money and markets may never forget, but surely people do. And that will not be different this time,
next time, or any time in your life)

 In broad terms a market can only move in one of three ways, up, down or sideways. In other
words, a market can only trend higher, trend lower or move sideways in a consolidating phase of
price action. Of these three states, markets spend considerably more time moving sideways, than
they do trending either higher or lower. As a rough rule of thumb this is generally considered to
be around 70% of the time, whilst only trending for 30% of the time. Markets move sideways for
all sorts of reasons, but primarily there are three:-
i) The pending release of an item of fundamental news. To see this in action simply watch the
price action ahead of the monthly Non Farm Payroll for example. Prices are likely to trade
in a narrow range for several hours ahead of this key release.

ii) Markets move sideways in both the selling climax and the buying climax phases, when
warehouses are either being filled or emptied by the insiders.

i) Markets move sideways when they run into old areas of price, where traders have been
locked into weak positions in previous moves. As the market approaches these areas,
speculators and investors grab the chance to exit the market, usually grateful to be able to
close out with a small loss.

 Some general principles when using tSupport & Resistance analytical technique.

Principle-1:- The lines we draw on our charts to define the ceiling and the floor of these price regions
are NOT rods of steel. Consider them more as rubber,flexible bands.

Principle-2:- Always remember Wyckoff's second law, the law of cause and effect. If the cause is large,
then this will be reflected in the effect, which applies to support and resistance. The longer a market
consolidates in a narrow range, then the more dramatic the resulting price action once the market moves
away from this region. Naturally this is all relative, not least because a market that has been
consolidating on a daily chart for several weeks is likely to trend for a similar period, whilst any breakout
from a consolidation phase on a 5 minute chart may only be for an hour or so – it is all relative.

Principle-3:- The third principle is perhaps the one which perplexes most new traders and it is this – how
do I know when the market is in congestion? After all,it's easy to look back in hindsight and see where the
price action has been consolidating for some time, but when the market action is live, it is only 'after the
event' that any consolidation phase becomes self evident.This is where the concept of an isolated pivot
high and an isolated pivot low become key signals, and whilst there are indicators available to create
these automatically, they are simple to spot visually.
Isolated Pivots.
 These are the defining points for the start of any congestion phase. And the easiest way to
understand pivots is to suppose the market is moving higher in an up trend, and we see an
isolated pivot high formed on the chart. We have now seen the first sign of possible weakness in
the market.These pivots are created by a three bar/candle reversal and as shown in Fig 7.13
above. To qualify as a three bar/candle reversal the candle in the centre has to post a higher high
and a higher low, creating the pivot high pattern. The appearance of one pivot does not mean we
are moving into a congestion phase at this point. All we can say at this stage is that we have a
possible short term reversal in prospect.

 The same applies when a market has been falling and enters a congestion phase. Here we are
looking for the reverse, with an initial pivot low,followed by a pivot high which we can see in Fig
7.15.
 

 Throughout the price congestion phase we are constantly looking for clues and signals using our
VPA knowledge to confirm weakness or strength as the market moves sideways. Moreover, if the
congestion phase has been created as a result of a buying or selling climax, then the signals will
be very clear.
 But, the signal we are constantly watching for now, once we are in a congestion phase, is the
volume associated with any breakout and consequent strong move away from this region. As we
have already seen, congestion areas, are densely populated areas, with traders locked in a variety
of weak positions, and therefore any break away from these areas requires volume, and generally
lots of it. A break out from such a price area on low
volume, is a classic trap move by the insiders, and is often referred to as a 'fake out'.

 The insiders are trying to trap traders on the wrong side of the market once again, and a break out
from recent congestion is another classic strategy. Only VPA traders will be aware of such a false
move, since the volume associated with any move higher or lower will be clearly visible.This is
why these price regions are so important and they are important for three reasons :-
i) If we have a current position in the market, and we see a breakout validated in our direction,
then this is a VERY clear signal of a continuation of the move, and therefore gives us
confidence to hold the position.
ii) If we do NOT have a current position, then this gives us an excellent entry signal, once the
move away has been validated with volume.
iii) If we have an existing position and the trend reverses against us, then we have been given a
clear signal to exit.
  As we can see in Fig 7.16 the initial move higher up and through the ceiling level, has to be
accompanied by strong and rising volume. It takes effort for the market to move away, rather like
dragging someone out of quicksand or a bog. The same applies here, and you should see this
reflected in the associated volume of the next few bars. If you DON'T see this, then you know it
is either a trap up move by the insiders, or there is simply no interest from market participants to
take the market higher at this stage.
 If it is a valid move, then the volumes on the initial break will be well above average and rising,
as the market finally throws off the shackles and starts to build a trend. At this stage, do not be
surprised to see the market pull back to test the ceiling as it moves higher, but this should be
accompanied with low or falling volume, since we are now developing a bullish trend higher and
expect to see a rising market with rising volume, if this is a true move higher. Once clear, VPA
then takes over and we are back to a candle by candle analysis of the price action as the trend
unfolds.

Exactly the same principles apply when the breakout is into a bearish trend (See Fig 7.17). Once again, it
makes no difference whether this is a continuation of a bearish trend, or a reversal from bullish to bearish.
The only difference is that this time we are breaking through the floor of price congestion, and not the
ceiling.As before, this breakout should be clean and well developed, and accompanied by well above
average volume to reflect the effort required to break Away.
 Generally,We can trade breakouts by defining congestion zones using pivots, then charting
the price action using VPA, and finally when the breakout is validated by volume, enter any
positions.
Chapter Eight
Dynamic Trends And Trend Lines
(The loss was not bad luck. It was bad analysis)
 Chapter Nine

Volume At Price (VAP)

(In a bull market it is better to always work on the bull side; in a bear market, on the
bear side.)
 Chapter Ten

Volume Price Analysis Examples

(Two… key factors: correct action and patience. These you must supply yourself)

Exaple-1

 The stock sells off, moving lower, and initial weakness is signalled by the small shooting star
candle, which is then confirmed with rising volume and a wide spread down candle. So no
anomaly here. This is then followed by a narrow spread down candle with higher volume than on
the previous bar. This is an anomaly, and could be stopping volume. The following day, the
market closes with a hammer candle, and high volume again. We are now looking for this stock
to pause at this level, perhaps move into a congestion phase, or perhaps see more accumulation
before a breakout and move higher.
 In this case, Honeywell moves higher immediately on the following day with a gapped up open,
but the volume is only average. The following day the price spread is narrow, and although
higher on the day, the volume is falling away. This is not a good sign and suggests weakness. The
stock is possibly not going to move too far, and does move into a congestion phase. However,
towards the end of this phase we start to see daily selling pressure absorbed with a narrow
spread down candle and high volume, again an anomaly. After all, if this was selling, then we
would expect to see a wide spread candle, and we haven't. We have a narrow spread candle,
followed by another, three candles later.
 The selling is being absorbed, and we are now waiting for a potential break out from this region,
which duly arrives. Rising volume with wide spread up candles. A positive signal that the market
is bullish. We also have a nice platform of support below. The market then moves sideways again
at the higher level for two weeks, sliding lower, but note the down candles. The selling volumes
are falling all the time at this level, not a sign of a
bearish market. If t c maeeks, slhe stock were truly bearish then we would expect to see falling prices and
RISING volume. We have falling volume.Remember, it takes effort to rise AND fall.
 Therefore, we are expecting to see buyers come into the market soon, which is precisely what
happens next, and with attitude! The buyers come in with above average volume, and note the tail
on this candle which is the last in the current congestion phase. This looks positive.
 The following day we get the breakout, with high volume. This is NOT a trap up move, but a
genuine move higher. And we know it is genuine because VOLUME reveals everything. Not only
have we seen a breakout, but this has been accompanied by a gapped up open as well. All signs
of a bullish market, PROVIDED this is validated with volume. Three months later the stock was
trading at $76.08.

Exaple-2

 Once again, there are several lessons to be learnt here, and the most valuable one is patience. If you recall
what I said at the start of the book.When I first started trading using VPA I used to get very excited as soon
as I saw a hammer candle, or stopping volume and would immediately take a position in the market
 First, at the extreme left of the chart we can see that the stock has been rising on relatively low volume. The
volume on the last bull candle, a wide spread up candle, is only marginally higher than on the previous
candle, which was half the price spread. Clearly there is an early sign of weakness ahead, which duly
arrives two candles later. The stock attempts to rally before entering a price waterfall with falling prices
and rising volumes, with stopping volume initially putting the brakes. At this point Duke Energy attempts to
move higher, but with a wick to the upper body of the candle, this is not a strong response, and the stock
price falls further, but on average volumes.
 In fact the spreads on both of these candles is wide, and when compared to the equivalent spreads in the
waterfall, the volumes should be MUCH higher, so clearly selling is being absorbed at this level. Duke
Energy attempts to rally, this time with a bullish engulfing candle, but the volume is average once again,
and clearly this is not a sign of strength just yet.
 The market then pulls back with two small hammers on low volume. Is this the final phase of mopping up
the selling pressure? The answer is delivered on the next candle with a LOW VOLUME test. The insiders
are preparing the ground. The selling has been absorbed, the market has been tested for further selling,
and the low volume test signals success, Duke Energy is now primed and ready to move.
 The stock moves higher on good volume and is subsequently followed by a gap up day, supported with
strong volume, not a trap up move but a genuine move higher. The insiders are joining in! Then we move
 into a congestion phase, followed by a further gap up and breakout on high volume, and from this move,
the stock price then declines slowly lower, BUT note the volume. It is low! An anomaly! We can be pretty
sure that the
stock price is not going to fall far. After a c fauently folll, if it were, we would see high volume and this is certainly
not the case with below average volumes.
 The final candle in this group was then followed by a bullish engulfing candle, and the following day, with
a gapped up move higher. HOWEVER –note the volume on the gap up, it's LOW. Is this a trap up move by
the insiders? It certainly looks weak, and the volumes following the move higher are well below average.
But note where we are in the overall price action. We are back where we started in terms of price, and this
is therefore an area of potential price resistance given the earlier failure at this level. So we should be
DOUBLY on guard. A gap up move on low volume, and resistance ahead !!

So what happened next?

 Duke Energy stayed at this price level price of $65.75 for several days, before finally breaking above the
resistance area, and then moved steadily higher on steady volumes. Finally, the move runs out of steam,
and volume as always tells the story. Right at the end of this trend we have three ultra high volume bars,
beneath narrow spread candles. Is the market strong or weak? And the answer of course is weak, and we
see the price fall sharply. But once again, the selling volumes are average, so clearly not a major turning
point for Duke Energy which continued higher and remains bullish, for the time being. At time of writing
Duke Energy is trading at $74.41.

Exaple-3
 As we can see from the chart, starting at the far left the SLV had been moving sideways, albeit with a
bullish tone before starting to fall, breaking below the interim platform of support with 5 consecutive down
candles, on rising volume. A signal that the price action was being validated by volume, which at this point
is above average.
 The SLV then drifts sideways for a few bars before we see two narrow spread down candles, the first with
above average volume, an anomaly, and the second with extremely high volume. This must be stopping
volume and therefore buying, otherwise the candle would be wide. Instead it is narrow. This is followed by
the hammer candle, on high volume, signalling more buying in the market. The response is muted with the
up candle,which moves higher on low volume, not a sign of strength, but is followed on the next candle with
rising volume and a wide spread candle, so an encouraging signal. The insiders then test on low volume,
and move higher on solid volume, before weakness starts to appear with a wide spread up candle and a
subsequent failure at the same level.
 What happened next was that SLV then drifted along at this level for some time, before selling off again the
following day.It would be very easy for me to show you hundreds of examples where VPA gives us great
trends and great trading opportunities. It does. But what it also does, is giv c do show ye us sound common
sense logic on which to base our trading decisions, and more importantly to quantify the risk on the trade
itself, which is what trading is all about.
 In this example we are looking at this opportunity as a scalping trader. However, if you were an aggressive
trader, then you may well have taken a position based on the hammer alone. After all, this looks like a
strong signal. However, the following candle suggests weakness at this level. The volume is well below
average, and at this point we would be wondering if this was a wise decision. Any stop loss by the way
would be below the wick of the hammer, with the market setting this level for us. Assuming we continue to
hold, the next candle is much more encouraging, a wide spread up candle with high volume, so a good
sign. No reason to exit just yet.
 The next candle suggests weakness, a shooting star (although not at the top of a trend, weakness
nevertheless with the deep upper wick) and above average volume. We are expecting a reversal on the next
bar, when in fact we see a positive signal – a low volume test which is followed by a wide spread up candle
with above average volume once more, with a further pause before the final leg to the top of the move.
 At this point a more cautious trader would have seen the initial response to the hammer, and taken this as a
sign of weakness, which it is, and decided, based on this signal to stay out of the market for the time being,
and perhaps waited for the second candle, which IS a sign of strength,before entering a position. If so, in
 this case, this would probably have ended as a small profit, a small loss, or perhaps break even. But my
point is this.
Example-4

 The market opens gapped down on extremely high volume, a clear signal of weakness. We are starting with
weakness which has been validated by volume. The next candle forms, a small hammer, again with ultra
high volume. Is this stopping volume – perhaps, and we wait for the next candle to form, a small candle
with an upper wick, suggestive of further weakness, and coupled with high volume.
 Clearly not a positive response to the 'stopping' volume. The next two down candles suggest a modicum of
buying on each, with the lower wicks showing some support, but the market continues lower on rising
volume with the penultimate candle suggesting stopping volume once again.
 Finally the last down candle in this price waterfall closes on average volume, followed by the first up
candle of the session. A weak response if ever there was one, with a deep upper wick and narrow spread
with above average volume. This is hardly a market that is preparing to reverse at this point. The next
candle is perfectly valid, a narrow spread up candle with average volume – this looks fine.
 Then we see a repeat of the first candle in this sequence of up candles, but this time, look at the volume – it
is extremely high. This is sending a LOUD signal that the market is VERY WEAK. If this were buying
volume then the market would be rising fast – it isn't, so it must be selling volume.Everyone is selling and
trying to get out of the market before it collapses, with every attempt to rise knocked back by the pressure
of selling. The next candle is even worse, sending an even stronger signal, if any were needed, that
everyone is selling and the market is now incredibly weak.
 Here we have ultra high volume and a market that is going nowhere. The price spread is narrow, and if the
volume were buying, then the market would have risen. The insiders are propping the market up, selling
stock accumulated in the price waterfall, before taking it lower.
 The next two candles give no clues, narrow spreads with low volume, then the market sells off sharply, as
expected, and validated with ultra high volume, as it lurches lower once again. The next candle hints at
stopping volume once again with a narrow spread and deep wick on very high volume. The buyers are
moving in at this level, and this is repeated on the next candle with high volume again on a narrow spread.
Now we should
see the market recover, but look at the next candle. The market attempts to rise, but falls back to close near the open
on above average volume.Not a strong signal. A small hammer follows, on ultra high volume so perhaps there are
more buyers in the market, and based on the volume of the last few bars, perhaps a reversal is now in prospect?
 Three bullish candles then follow, each with a narrow spread, but the volume is flat, so we have a market
rising on flat volume, and therefore unlikely to go very far. The market reverses from this level, and as it
falls volumes are increasing signalling selling pressure once again. The final candle in this sequence is a
very narrow spread doji candle, with high volume, and again we can assume that this is stopping volume
with buyers coming in once more.
 This is confirmed with the next candle which is a wide spread up candle with above average volume, but as
the market rises on the next two candles, volume is falling away. The insiders are not taking this market
far. The market then drifts si chenumes ardeways for an extended period in the session with several
attempts to rally all failing, and with volumes generally falling to low levels throughout this phase the
market duly closes,looking very weak.
 What then happened in the following day’s trading session is that the bearish tone of the previous day was
taken up in dramatic fashion, as the GLD opened gapped down once again on three times the volume of the
previous day’s open.

 Whilst the open was bad news for those traders bullish on gold, even worse was to follow, and candles five,
six and seven were accompanied with volume which can only be described as extreme. Trading volumes on
each candle were in excess of 6 million, with average volumes around 500,000. In other words, panic
selling.
 Even the hammer candle and the associated volume was not sufficient to slow the market momentum and
the solitary wide spread up candle on high volume, failed to follow through, with the market moving into a
congestion phase before rising volumes on the four down candles at the end of the sequence signalled yet
more bearish pressure and heavy selling.

Example-5
 We are now paying attention as with this volume bar, the pair should have risen strongly, and clearly in the
volume bar there is a large amount of selling, confirmed by the deep wick to the top of the candle.
 The pair manage to move higher for a couple of bars, but the warning has been flagged and sure enough
five bars later we see a shooting star candle with high volume. The next candle is also weak, a narrow
spread doji candle with high volume. A potential reversal awaits! The next candle confirms the weakness,
another shooting star candle this time with higher volume still. And what is also important here, a lower
high than the previous candle. This is the time and place to take a short position with a stop loss above the
level of the wick of the first candle.
 The pair sell off and duly start to move lower, and one aspect that I want to highlight here is how volume
helps you to stay in a strong position and hold it in order to maximise your profits from the trend.
 As we all know, markets never move in a straight line, they move lower, then pull back a little, before then
moving lower again. Here we can see this in action perfectly illustrated, and the point I want to make is
this.
 Four bars after the second shooting star, we have a wide spread down candle, and we are delighted. Our
analysis has been proved correct, and we are now in a strong position. Then the market begins to reverse
against us. Is this a trend reversal, or merely a pause in the move lower?
 Well, the first candle appears. The spread is relatively narrow and the volume is above average, so this is
an encouraging sign. In addition, we have not seen any evidence of stopping volume with narrowing
spreads and rising volume, so this looks like a pause point. The next candle confirms this as does the third,
and on the completion of this last candle we can see that we have a market attempting to rise on falling
volume, and we know what that means!
 The next candle is weak, and whilst the volume is below average it is another small shooting star.
 The market moves lower in steps and each attempt to rally is seen in the context of falling volume,
confirming the weakness further which is my point.
 Once you have a position in the market, you must keep revisiting your VPA techniques as they will give you
the confidence to hold and stay in the trend. If you are short the market and it pulls back against you, but
the volume on the upwards moves is falling, then you KNOW that this is simply a temporary pullback and
not a change in trend. Equally, if any pullback has not been pre-ceded with signs of stopping volume, then
the buyers are not in the market at that level and any reversal will not last long, so you can continue too
hold.
 Equally, if you are long the market the same applies. In an up trend the market will pull back against you.
If the volume is falling on these pull backs then you KNOW this is simply a minor reversal lower and not a
change in trend, particularly if you have seen no topping out volume.
 Finally as we can see on the right hand side of the chart, stopping volume finally appeared, with the market
moving into a congestion phase with the selling pressure dropping away to below average. The pair
completed this phase of its journey and we exit.

 Clearly the market is NOT ready to rise just yet and the selling pressure continues as we finally enter the
buying climax phase. However, as the pair attempt to rally the first candle we see is a narrow spread up
candle with a deep upper wick, hardly a sign of strength, on high volume. The pair are not ready to rise
just yet, and the following two candles confirm this, with very low volume. The second of these is
particularly significant with a wide spread and ultra low volume.
 The AUD/USD pair then roll over again and back down into the congestion area, which I have marked on
the chart with the two yellow lines, and this is the ceiling of resistance that we would now be monitoring,
along with the floor of support below.
 Any break above through this resistance area would now need to be supported with good rising volume. It
doesn't have to be 'explosive' volume,and in many ways it is better that it isn't – just steady and rising. If
this were a gap up breakout, as we saw in earlier examples, then we do expect to see volumes well above
average, and even ultra high if the move is dramatic. But for normal breakouts through an area of
resistance, then above average is fine.
 The pair then develop a nice even trend higher, with some pauses along the way. This trend lasted for over
nine months before finally running out of steam with a selling climax developing.
 I now want to move into the world of futures and back to my NinjaTrader platform. The first chart is the 5
minute on the YM E-mini futures contract, an extremely popular index futures contract for scalping, and
derived from the Dow Jones Industrial Average in the cash market.
 There are two versions of the index, the 'small' Dow and the 'big' Dow. This is the small Dow with each
index point worth $5, whilst the big Dow is $25. I ALWAYS recommend new traders to any market to start
with the smallest instrument, so if you are new to index trading or indeed the futures market in general,
start with the mini Dow.
 The reason I wanted to show this example is really to focus on the open of the market. As I explained
earlier, these contracts now trade virtually 24 hours a day, and therefore the open of the physical market is
not the surprise that it once was, as this will generally follow the trend of the electronic contract, which
will have been trading overnight following the close of the exchange.
 Example-6

 What do we see here? First, we have a gapped up open, so the electronic contract must have ticked up from
the physical close of the day before,which you can see here. Volume is high and a nice wide spread up
candle closes the ce cickefirst five minutes of trading. The big operators are
joining the move. The next two candles are down, but the volume is falling, so we do not expect the market to move
far, and indeed the lower wick on the second of these candles, is a clue that this is simply some early profit taking on
the gap up open, and that the buyers are in control.
 From there, the market moves steadily higher. There are no signals of a reversal, just a steady rise, with
minor pull backs, but each time we see a little wave lower, then this is balanced by a wave higher in the
 volume trend, which is what I was trying to describe earlier. You do have to be a little flexible in how you
view volume in a rising (or falling) trend. What is interesting here is if we compare the first 'wave' with the
second 'wave' in terms of the buying volumes. Volumes on the second wave in the up move, are slightly
lower than volumes in the first wave, so we may begin to think that perhaps this move was running out of
steam, and possibly time to exit the trend. However, there is nothing particularly frightening in any of the
subsequent price action, and indeed as we can see on the right of the chart, the down candles have very low
volumes. But interest appears to be waning and we need to be vigilant.
 The move higher after the first few candles of the open would also have given us confidence as the index
broke above the initial resistance area created at the open. This is only a secondary resistance level, but
nevertheless another 'confidence builder' for us in taking a position in this market.The same applies at the
right hand side of the chart as the market moves into a congestion phase, and coupled with the general
decline in volumes, this may prompt us to exit at this stage.

Example-7

 Fig 10.20 is another very popular futures index for scalping traders, the ES E-mini which is a derivative of
the S&P 500. However, it is extremely volatile and of all the indices, is the most manipulated by the big
operators, which is what I wanted to show here. In this example we are looking at a 10 minute chart, and
here we have a complete daily session, sandwiched between a day either side.
 Working from left to right, as the trading session comes to an end we can see the extremely high volume
bar in red, standing like a telegraph pole above all the others. The big operators are clearing out of the
market preparing for the following day. This ultra high volume is associated with a shooting star candle, a
sure sign of selling, followed by an up candle with very high volume, which goes nowhere. The big
operators are selling into the market and struggling to hold it at this level. Finally, the session ends with a
small doji on average volume.
 The following day, the market opens at much the same level as the close of the night before, with a classic
trap up move by the big operators, a wide spread up candle on low to average volume. Compare this
volume with that of the up candle of the night before following the shooting star candle. The price spread is
much the same, but the volume is substantially lower.
  This is a TRAP up move, and one that was prepared the night before. It is a classic move that happens all
the time, particularly at the open of a session, and you will see this time and time again in the futures
markets and the cash markets. The insiders, whether they are the operators or the market makers, love to
trap traders into weak positions, and this is the c thd the ceasiest time to do it, when traders are waiting for
the market to open, eager with anticipation, and jump in making emotional trading decisions, frightened to
miss out on a nice move higher or lower. Then the selling starts, and down it goes! Easy really, and given
the chance we would do the same! It goes without saying that volume is the ONLY way to see these tricks in
action – watch out for them and you will see them ALL the time, in every market, and in every time frame.
 Finally, and just to prove the point, on the third day on our chart the market opens gapped up, but look at
the volume – it's high, and well above the volume of the previous day, so this is a genuine move, and the big
operators are buying into the bullish trend higher.
 Moving to yet another platform, a different market and a different type of chart. So far, all the charts we
have considered in our volume analysis have been based on time, but many traders, myself included like to
trade tick charts for some markets. If you have never used such charts to trade, then I would urge you to
consider these as part of your trading education, for one simple reason.
 When we trade on a time based chart, for example a 15 minute chart, every bar or candle on the chart is
created in 15 minutes. By contrast when we trade on an 80 tick chart, each candle will be created
according to the time it takes to complete. In other words, the time taken to build each candle will depend
on the energy and activity in the market. It is, yet another way to consider volume or market activity. A tick
on a futures chart essentially records an order, but that order could be for one contract or a hundred
contracts. However, the point with a tick chart is this. If the market is very active and there is a great deal
of buying and selling, let's say after a news announcement, then each 80 tick candle will form very
quickly,perhaps in just a few seconds, as there are hundreds of orders flowing through the market in a very
short space of time, each of which is recorded as a tick.
 Therefore if we were watching a tick chart following the release of the NFP data, then the candles would
form as though being fired from a machine gun – they would literally print on the chart at high speed, but
each tick candle would take a different length of time to form. So in seeing the speed of creation of the tick
candles, we are also, in a sense, seeing inside the market and the 'volume' or activity that is associated with
this buying and selling frenzy.
 This is something you will NEVER see on a time based chart, since each candle is defined by the time frame
of the chart. On a tick chart it is not,and this is a key difference and why many full time traders and
professional traders only use tick charts.
To put this into context for you, imagine a tick chart in the following scenarios.
 First in the example above, the open of the New York trading session and an NFP data release. Each 80
tick candle would form in seconds and perhaps in milliseconds. Now imagine the same chart overnight in
Asia, where perhaps we are overlapping the close of one market and the opening of another. Then the time
taken for each candle on the chart might be 30 seconds, perhaps even a few minutes.
 And the point is this. With a tick chart, you see the activity visually with the speed the candles are created.
With a time chart, you never see the activity, just a price moving higher or lower as the candle forms. This
is the difference between tick and time based charts and is why many traders prefer to trade on tick charts.
With a tick chart, we are seeing 'inside the market' and it is reinforcing our volume analysis. cme s why
After all,volume is really nothing more than 'activity' which is what we see visually with a tick chart.One
important point about tick charts is if the volume is also represented as ticks, all we would see would be a
series of 'soldiers' of equal height,with each one representing 80 ticks or 80 transactions. In order to
overcome this problem, most platforms will provide the option of selecting either tick volume or trade
volume when setting up a chart, and this is certainly the case with another of my trading accounts. Here we
simply select trade volume when setting up the chart, rather than tick volume, and we then have volume
reported in trade size, which gives us our variable volume bars.

Example-8
The session for the Coffee contract as shown in Fig 10.21 opened with a weak move higher before rolling over and
sliding lower, but as you can see, with very little selling pressure at this stage.
 The market is moving lower, but the volume is falling so this is not a market that is going far.Then we see
the large operators moving into the market. Volume spikes higher and continues to rise with the market
which marches North in nice,even wide spread candles. However, on the 9th volume bar, we see our first
sign of weakness, ultra high volume and no price action to match. The candle spread is wide, but judged
against the candles and price action that has just pre-ceded it, the reaction from the market should have
been much stronger. This signals weakness and the large operators are starting to struggle, although there
is only a small upper wick on the candle at this point.
 The market then goes into consolidation with above average volume and narrow spread up candles with
wicks to the upper body, confirming the initial weakness first seen in the trend higher. The market then
rolls over and sells off on high volume, and the attempt to recover, is marked with rising prices and falling
volumes, a further sign of weakness. This is duly confirmed again with the price action at this level marked
with a shooting star candle, the catalyst for the price waterfall which followed.
 It is interesting to note, even though I did not add this example for this particular reason, but the recovery
from the price waterfall appears to have occurred with little evidence of buying volume or stopping volume.
This in itself is suspicious. After all, this is a significant fall, and despite being a fast intraday chart, we
would still expect to see high volumes at the bottom. Therefore could this action be a further extended trap
up move higher on low volume? Not quite and this is where we always have to be careful.
 The volumes in the move up were so extreme they tended to distort the volumes elsewhere during the
session, and in fact scrolling forward, the volumes at the bottom of the price waterfall were well above
average, but distorted by the volumes in the bullish trend. Nevertheless, this coffee future did sell off the
following day and never moved higher during this session. Therefore, this is always a point worth
remembering. Whatever the instrument we are trading, we must try to have an idea of what is considered to
be high, low and average volume. So that when these extremes of volume do appear, they do not distort our
view of what follows in the remainder of the trading session.
 Finally, to round off this chapter I would like to examine one of the most widely followed indices around
the world, and that is the Dow Jones Indu cow s cstrial Average. The Dow 30 is considered to be, by the
media, who know very little if anything about the financial markets, a leading benchmark of the US
economy. It is not, but never mind, and it simply gives me a topic for another book!
 I wanted to end this chapter with this index, as it really makes the powerful point, that VPA works in all
time frames for all instruments and for all markets. Here in Fig 10.22 we have the weekly chart for the
 DJIA and really for those investors amongst you reading this book, this is precisely the sort of time horizon
you would be considering for longer term investing in stocks, of which the primary indices will be key.

Example-9

 Even just a quick cursory glance at this chart tells us where the major buying occurred. It is so obvious,
and proves the point about VPA. Your eye should be drawn instantly to those anomalies, of either extreme
highs, extreme lows, or concentration of volumes in certain areas. From there, you then dig deeper and
take a more forensic view at the macro level. This is a classic chart with the market rising, then rolling
over a little, before rising further, then rolling over again with the classic rounded tops.
 The market makers came into the market strongly over an eleven week period (the yellow box), and then
continued to stock up over the next six to eight weeks at this level, so the market was consolidating in this
region for 4 - 5 months. This is the length of time that accumulation may take, and no move will be made
until they are ready.
 The question everyone is now asking, is how much further can this market go, and the answer is to look at
the volume. Since the accumulation phase, the index has climbed steadily on average volume with no
particular extremes one way or the other. For a major reversal to occur, we need to see signs of a selling
climax in this time frame, and this is certainly NOT the case at the moment.If and when this does appear,
then as VPA traders we will see it instantly, whether on the monthly, weekly or daily chart. Volume
CANNOT be hidden from view, and no matter how hard the market makers try, and they do have tricks to
hide large block orders, most of the daily trading volumes are free for all to see.

Chapter Ten

Putting It All Together

(The market does not run on chance or luck. Like the battlefield, it runs on probabilities and odds.)
Example-1
  The chart in Fig 11.10 really explains all we need to know about price congestion and how it relates to the
volume breakout when it arrives. As we can see the chart covers an extensive period with 70 candles in this
phase.
 The initial entry into the congestion phase is marked by a pivot low which gives us the floor of our price
congestion, and two bars later a pivot high is posted with above average volume. The GBP/USD is weak
and not ready to move higher with the pair then falling on declining volume, so
weakness, but not a trend that will be sustained. And the reason should now be obvious - falling prices and falling
volumes. Volumes then decline in general moving between buying and selling, and as the market moves sideways in
the congestion phase, we see two further pivot highs posted,followed by a pivot low.
 These are followed by a whole series of pivots, both at the ceiling and the floor of the congestion, and as I
explained earlier when we were examining this concept, you do have to think of these levels as rubber
bands and not as rods of steel.
 We can see in this example that the pivot points (the little yellow arrows), are not all in a straight line. The
market is not linear and technical analysis is an art and NOT a science, which is why volume software that
attempts to predict changes in trend can be unreliable. This analysis has to be done manually.
 At this stage, as the price continues to trade within the ke ws has tocongestion, we are waiting for the
catalyst, which will be the signal for any breakout. And on this occasion was provided by an item of
economic data in the UK. From memory I believe it was the RPI release. However, the actual release is
unimportant. What is important is the reaction on the price chart.
 First, we have a breakout which moves firmly through our ceiling of resistance, which has now become......
support. And if you remember what I said in the chapter on breakouts – we MUST wait for a clear close
well above the congestion phase, and the first candle here delivered this for us. A nice wide spread up
candle. Second, we have to check that this is a valid move, and the good news is the breakout has been
validated by the volume.
 As this has been an extensive area of price congestion, any break away will require substantial effort which
is what we have here with buyers taking the market firmly higher. Can we join the move here? This is what
we have been waiting for. We have a market that has been in congestion, waiting,and gathering itself, when
finally the catalyst arrives and the market moves on high volume.
 Furthermore, we now have a deep area of natural price protection in place below, and our stop loss would
be below the level of the last pivot low.Time has also played its part here, with cause and effect coming into
play. Remember, this is a 15 minute chart, so an extended phase of consolidation and congestion, and
 therefore any consequent effect should reflect the time taken in building the cause. In other words, the
trend,when it breaks, should last for some time. We just have to be patient, and wait!
 Finally, there is one further aspect to the breakout, which again I mentioned in an earlier chapter and it is
this – the volume has validated the news.The market makers have confirmed that the data is good news for
the UK pound, and the market has responded. Volumes pick up once again as the market moves higher and
away from the congestion phase, and to return to my salmon analogy, another trend has been spawned.
 This is the power of the congestion phase – it is the spawning ground of trends and reversals. In this case
the ceiling was breached, but it could equally have been the floor. The direction is irrelevant. All we wait
for is confirmation of the breakout, validated with volume, and then trade accordingly.

Example-2

 As we can see the pair has been rising, but the market moves lower as shown by a wide spread down
candle. This is followed by a narrow spread down candle with above average volume, and signalling
possible buying on this reversal lower. The market pushes higher on the next candle, a wide spread up bar,
and posts a pivot low as shown with the small yellow arrow. We are now looking for a possible pivot high
which will start to define a potential period of congestion.
  This duly arrives two bars later, and the pivot high is now in place. Now we are watching for a potential
congestion phase, and further pivots to define the trading range. However, on this occasion, the next
candle breaks higher and moves firmly away from this area. The potential congestion phase we were
expecting has not materialised, so we know this was simply a minor pause in the trend higher, as knd co the
pair move up on good volume.
 Two candles later, another pivot high is formed, and once again we are now looking for our pivot low to
form and define our levels of any congestion phase. In this example the pair do indeed move into
congestion, with low volume, and on each rally a pivot high is posted which gives us a nicely defined
ceiling. However, there are no pivots defining the floor. Does this matter?
And this is the reason I wanted to highlight this example to make the point, that in fact it doesn't.
 A pivot is a unique combination of three candles which then create the pivot, and this helps to define the
region for us visually. Pivots also help to give us our 'roadmap' signals of where we are in the price
journey. But, sometimes one or other does not arrive, and we have to rely on our eyes to define these levels.
After all, a pivot is simply an indicator to make it easier for us to see these signals. In this case the pivot
high forms, but there is no corresponding pivot low, so we are looking for a 'floor' to form.
 After four candles, the market moves higher again and posts a second pivot high, so we have our ceiling
well defined, and this is now resistance.The next phase lower made up of three candles then stops at the
same price level, before reversing higher again. We know this pair is not going to fall far anyway, as we
have a falling market and falling volume. Our floor of support is now well defined by the price action, and
it is clear from the associated volume, that we are in a congestion phase at this level. And, my point is this.
 When using any analytical method in technical analysis, we always have to apply a degree of leeway and
common sense. Whenever a market moves into a region of price congestion, it will not always develop the
perfect combinations of pivot highs and pivot lows, and we then have to apply common sense as here,
bolstered, of course, by our volume. At the start of this congestion phase, we have a very good idea that we
are entering a congestion phase, simply from an assessment of the volume. The volume is all well below
average (the white dotted line) therefore we already know that we are in a congestion phase, and the pivots
are merely aids, to help define the price region for us.
 Therefore whilst pivots are very important it is the volume which will also help to define the start of a
congestion phase, and the pivot highs and lows are there to help to define the floors and ceilings of the
trading range. If one or other is missing, then we simply revert to using our eyes and common sense.
 The analogy I use here is when sailing. When we are sailing our boat, we have two forms of navigation. A
GPS plotter which does all the work for us which is nice and easy, and the old fashioned way using a map,
compass, time, tides and way points. In order to pass the exams and charter a yacht, you have to learn
both. And the reason for this is very simple. If there is a loss of power on board, then you have to be able to
navigate using a paper based chart. The same principle applies here.
 We can define where we are by using volume and price visually from the price action on the chart. The
pivots are simply there as a quick visual guide, to help identify these price combinations quickly and easily.
 Returning to our example in Fig 11.11, we now have the floor defined by our price action and the ceiling
defined by our pivot highs. We are now waiting for a signal, and it duly arrives in the form of a hanging
man, one of the candles we have not seen in earlier examples, and suddenly the volume has jumped higher
and is well above average. The market br kThes weaks lower and through the floor of our congestion phase
with a wide spread down candle. We now know that, on this occasion, the price congestion phase has been
developing into a trend reversal, and is not a continuation of the existing trend.
 It is here that we would be looking to take a short position. The market pauses and reverses higher but the
volume is falling, and in addition we see a second hanging man candle, suggesting more weakness in the
market. We also have the comfort of knowing that above us we have one of our invisible barriers of price
congestion.
 What was the floor of support, has now become the ceiling of price resistance as the market attempts to
recover, and this is why congestion zones are so significant to us as traders. Not only do they spawn the
trend reversals and breakouts, but they also give us our natural barriers of protection which have been
created by the market. Where better to place any stop loss than on the opposite side of a congestion region.
 The resistance region holds, and the market sells off sharply with a beautiful price waterfall. However, as
the bearish trend develops, so the volumes are falling away, and we know as VPA traders that this trend is
not going too far. And sure enough, after seven hours of downwards movement, it bottoms out and moves
into….......another congestion phase at a different price level.
 Ironically, here too, we have a phase which is once again marked by pivot highs, but no pivot lows.
However, the volume and price action tell us exactly where we are in the price journey. We simply wait for
the next phase to start, which it does, several hours later. Again, how do we know?Volume gives us the
answer. The breakout has been associated with above average volume, which is what we expect to see, and
off we go again.
 I hope that from this example, which spans a period of four days or so, you can begin to see how everything
comes together. I did not particularly select this example, but it does highlight several key points that I
hope will reinforce and cement the concepts outlined in earlier chapters.Reading a chart in this way is not
difficult. Every market moves in this way. They trend for a little, then consolidate in a congestion phase,
then continue the trend or reverse completely. If you understand the power of VPA and combine it with a
knowledge of price congestion, then you are 90% of the way there. The rest is practice, practice and more
practice, and it will come.
 Furthermore, you will then realise the power this gives you in your own trading and how it can deliver
financial independence to you and your family.It does takes a little effort, but the rewards are high, and if
you are prepared to study and learn, then you will enjoy the thrill of being able to forecast market price
action, before it happens, and profit accordingly.
 I would now like to revisit a very important concept, that I touched on earlier in the book. It is a
cornerstone of my approach to trading. Again, it is not unique and can be applied to any market and any
instrument. Neither is it unique to VPA. What this concept does do, is give you that three dimensional view
of price behaviour, as opposed to the more conventional one dimensional approach that most traders take.
The principle advantage of this concept is that it allows us to assess and quantify the risk on a trade.
 This concept involves using multiple time frames to analyse price and volume. It allows us to qualify and
quantify the risk of any trade, and assess the relative strength or weakness of any trade, and so its likely
duration. In other words, multiple time frame kle . The prs will reveal the dominant trend and primary bias
of the instrument under consideration.

 What we have in Fig 11.12 are three charts for cable (GBP/USD). The chart at the top of the image is the
30 minute and is what I often refer to as our ‘benchmark’ chart. In this trio it is this chart which gives us
our bias, and is the one against which we relate the other two. Bottom right is the 15 minute, and the chart
at bottom left is the 5 minute. All the charts are taken from one of my favourite platforms for spot forex,
namely MT4.
 The candle I have highlighted on the 30 minute chart is a shooting star, with ultra high volume, sending a
clear signal of weakness at this level. The shooting star was pre-ceded by a narrow spread candle also with
 ultra high volume, and which gave us our initial signal. But how does this appear on our faster time
frames? On the 15 minute chart the shooting star is two candles, and on our 5 minute chart it is six
candles. I have annotated the chart with the yellow box on each to show you the associated price action.
 Now the reason I use three charts is very simple. My primary trading chart is the 'middle' time frame of the
three. In this example it is the 15 minute chart, but using the MT4 chart settings we might equally have a 30
minute, 60 minute and 240 minute chart. In this trio our primary trading chart would be the 60 minute.
However, in this example we are using a 5, 15, 30 minute combination, so the primary or trading chart is
our 15 minute.
 The 30 minute chart is there as our slower time frame, our dominant or benchmark time frame, which tells
us where we are in the slower time frame trend. Imagine we are looking at price action using a telescope.
This is where we are viewing from some way off, so we can see all the price action of the last few days.
 Then using our telescope we start to zoom in, first onto the 15 minute chart, and then in fine detail to the 5
minute chart. By using the 15 minute chart we are seeing both sides of the price action if you. A slower time
frame helps in gaining a perspective on where we are in the longer term journey,and a faster time frame on
the other side will give us the fine detail view of the related price action.
 What do we see here? First the shooting star sent a clear signal of weakness, and on our 15 minute chart
this is reflected in two candles, with high volume on the up candle which is also topped with a deep wick to
the upper body. And here the point is this. If we had seen this price action in isolation on the 15 minute
chart, it may not have been immediately obvious what we were looking at here.
 It takes a mental leap to lay one candle over another and imagine what the result may be. The 30 minute
chart does this for us, and in addition, and perhaps more importantly, if we had a position in the market,
the 30 minute chart is instantly more recognisable as possible weakness than the 15 minute. So two benefits
in one.If putting two candles together to create one is difficult, putting six candles together is almost
impossible, and yet this is the same price action represented on the 5 minute chart. The market then moves
into consolidation, which again is much easier to see on the slower time frame chart than ke csentedthe
faster ones, and I have deliberately left the pivot points off these charts, so that the charts remain as clear
as possible.
 The next point is this. In displaying a slower time frame above, this also gives us a perspective on the
'dominant' trend. If the dominant trend is bullish on the 30 minute chart, and we decide to take a position
on our 15 minute chart which is bullish, then the risk on the trade is lower, since we are trading with the
dominant trend. We are trading with the flow, and not against the flow. Swimming with the tide and not
against it.
 If we take a position that is against the dominant trend in our slower time frame, then we are counter trend
trading, and two conditions then apply.
 First, the risk on the trade is higher, since we are trading against the dominant trend of our lower time
frame, and second, we are unlikely to be holding the position long, since the dominant trend is in the
opposite direction.
 In other words, what we are trading here is a pull back or a reversal. There is nothing wrong with this, as
everything in trading is relative. After all a reversal on a daily chart might last several days. It is all
relative to the time frame.
 The third reason for using multiple charts is that this also gives us a perspective on changes in trend as
they ripple through the market, this time in the opposite direction. The analogy I use here is of the ripples
in a pond. When you throw a pebble into the centre of a small pond, as the pebble hits the water, the ripples
move out and away before they eventually reach the edge of the pond. This is what happens with market
price action.
 Any potential change in trend will be signalled on our fast time frame chart. This is where you will see
sudden changes in price and volume appear first. If this is a true change, then the effect will then appear on
the primary chart, which in this case is the 15 minute chart, before the change ultimately ripples through to
our 30 minute chart, at which point this change is now being signalled on the dominant chart.
 This is how to trade, as we constantly scan from the slower to the faster and back again, checking and
looking for clues and confirming signals between the three time frames, with VPA sitting at the centre of
our analysis. Even if you ultimately decide that VPA is not for you, trading using multiple time frames is a
powerful approach which will give you a three dimensional view of the market. You can have more than
three, but for me three is sufficient, and I hope will work for you as well.
Example-3
 By watching for these candle patterns whenever the market is in a consolidation phase and preparing for a
move, coupled with VPA and multiple time frame analysis, this will add a further dimension to your
trading. And the patterns I would like to consider here are the falling triangle, the rising triangle, pennants
and finally triple tops and bottoms.

 Let’s start with the falling triangle as shown in Fig 11.13 above. As the name suggests, a falling triangle
pattern is a sign of weakness. We can see immediately from the volume, that we are in a congestion phase,
but in this case the mark kcasattet is also moving lower. Each attempt to rally is seen as a series of lower
highs, and is a clear signal of weakness. If this market is going to break anywhere, there is a strong chance
that it will be to the downside, since each attempt to rally is becoming weaker and weaker in terms of the
high of the candles. The floor of the congestion area is very well defined, and any ustained break below
here will be signalled with volume.
 As with all price patterns, the falling triangle appears in all time frames and on all charts, and we must
always remember Wyckoff's rule of cause and effect. If the cause is large then the effect will be equally
large. In this case we are looking at a 5 minute chart, but this type of congestion will often appear on daily
and weekly charts and is immensely powerful in generating new trends, or reversals in trend, on the
breakout.
  Fig 11.14 is from the daily chart of the EUR/USD, and as we can see the rising triangle is a bullish pattern.
In this example the market is moving higher and testing the same ceiling level, with the low of each candle
slowly rising, signalling a market that is bullish. After all, if the market were bearish, then we would see the
lows of each candle falling. Instead the lows are rising, suggesting positive sentiment in the market, and as
we approach the ceiling (or resistance), then we are prepared for the subsequent breakout, which is
confirmed with volume. Once clear of resistance,the ceiling becomes support, and gives us a natural price
barrier for positioning stop losses as we take a trade.

Example-4
  Here in Fig 11.15 is an example of a candle pattern on a much longer time frame and is from the monthly
chart for Microsoft and shows an EXTREMELY long congestion phase, but look at the contraction in the
price action just prior to the final break out.
 The pennant pattern is so called as it resembles a flag on a flagpole. The pattern is created by a series of
lower highs above, as the market tries to rally, coupled with higher lows below. As we can see on the
Microsoft chart, here we have a stock which is struggling to break higher, yet is not prepared to fall. It is
this tension in the price action which creates this unique pattern. Again as with all these formations, the
law of cause and effect applies, and in the case of the pennant the longer the tension continues, the more
the price action creates what I call a 'coiled spring'.
 In other words, the energy stored and built up in the price action is suddenly released in an explosive
breakout. The problem is, that with this kind of pattern, unlike the previous two, there is generally no clue
as to which way the price is likely to break. Nevertheless, it is a great pattern for trading direction-less
strategies with options, but for trend trading, we simply have to be patient and wait for the break out.
 The last two patterns in this set are reversal signals and ones I am always looking for. The market has risen
or fallen, and is now testing support or resistance. As with the patterns already mentioned, these also occur
in all time frames and on all charts and I want to start with some examples of markets which have run into
resistance and kesirn are struggling to move higher.

Example-5

 Fig 11.16 is an example of a classic triple top pattern from the daily chart of the AUD/USD,
where we can see the pair has tested the 1.0600 level on three separate occasions. This region has
been tested several times over the last few years, but in the last year it has been tested three
times,failing on each occasion. And here there are two opportunities.First a position to the short
side should our VPA and multiple time frame analysis confirm this view. Second, if the market
breaks above this region,then this will build an extremely strong platform of support, if this
ceiling is eventually breached.
The opposite of a triple top is a triple bottom.
Example-6

 In a triple bottom pattern, the market is testing support, and each time bouncing off. Our example of a
triple bottom is taken from the hourly chart for the EUR/CHF (Euro Swiss) currency pair where we can see
a classic formation of this pattern.
 As with the triple top, there are two trading scenarios. The first is a long position, validated by VPA or wait
for a break and hold below the support region, for a short trade. Any follow through to the short side would
then provide strong resistance overhead.
 The good news is that we see all these patterns in every instrument and market. In bonds, commodities,
equities and currencies, and in all time frames.
 These patterns all have one thing in common - they are creating trading opportunities for us by signalling
two things. First, an area where the market is in congestion, and second, a market that is either building a
ceiling of price resistance or a floor of price support. From there will come the inevitable breakout,
signalling a trend reversal, or a continuation of trend, and from there, all we need to do is to validate the
move using VPA, and of course VAP, which will highlight these areas for us visually on our charts.