This article is intended for those who are new to volume analysis and may interpret market situations in a simplified way due to their lack of experience. Beginners can make the following mistake: “A big buy on the chart → a large player is bullish → I am also going to buy.”
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At the beginning of studying volume analysis, a trader learns:
Beginners often have the illusion that making trading decisions is quite simple – just spot a large positive delta on the chart, which indicates a big player, and follow their buying logic.
But it is not that simple.
Having noticed large volumes, you need to ask yourself basic questions:
For example, let’s consider a simplified cycle that occurs repeatedly on any exchange, whether for stocks, cryptocurrencies, or any other asset.
Below is a diagram of a bullish trend (the opposite is true for a bearish one).
The arrow above shows the price increase, the numbers indicate:
In both cases, you can see prints of large buys on the chart.
However, in the first case, it indicates the activity of a big player, which may serve as a rationale for your own purchases that align with their intentions.
In the second case, you may follow the herd instinct or succumb to the FOMO effect, which is the fear of missing out on potential profits. Either way, trading is risky.
The following chart will help you better understand what we are talking about. This is a footprint from the futures market for the DAX stock index.
Numbers indicate:
And this is how the sales of large players (1) and the mass of retail traders (2) look in the context of a downward movement (an example from the Binance Futures exchange):
In trading, you constantly face different dilemmas:
The solution to the problem of duality in volume analysis is not to focus specifically on single prints but to form your own judgment based on the larger picture.
When analyzing large volumes, consider the context of their appearance. As Tom Williams, creator of the VSA, said: “It can be either a polar bear in the Arctic or a polar bear in Africa.”
If you want to gain a better understanding of how to use VSA for footprint analysis, check out this series of articles:
The examples below will give a better understanding of how to analyze high volumes in the general context of the market.
This is a timeline of one bullish day from the euro futures market. This is a footprint showing horizontal volumes inside each 5-minute candle. The delta indicator has also been added to the chart.
The chart reflects the trend diagram described at the beginning of the article.
Numbers indicate:
Another case is from the euro futures market, but this time it shows a V-shaped day.
To summarize briefly:
Another case of the footprint, the daily timeframe and the futures market for the S&P 500 index.
The chart shows a bullish reversal in fall 2022:
The article does not raise issues of risk control and money management. But that does not mean they can be ignored. Do not let a wrong decision lead to irreparable losses – no trader can be right 100% of the time.
Believing that volume analysis is the key to making money on the exchange easily and quickly is a mistake and can lead to falling victim to an illusion.
A trader who studies trading volumes using footprint charts, etc., increases the amount of important information available for analysis. But at the same time, the number of options for its interpretation also increases due to numerous probabilities:
To draw more accurate conclusions when analyzing volumes, we recommend not focusing on individual patterns but always keeping in mind the overall picture of the market.
It is also useful to practice volume interpretation skills using the Market Replay functionality available in the ATAS platform.
Download Free Trial ATAS. It is free. During the free trial, you will get full access to the platform’s instruments and will be able to appreciate all their benefits in order to make a purchase decision. Moreover, you will be able to continue using the program even after the 14-day trial period is over, but only for cryptocurrency trading.
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Information in this article cannot be perceived as a call for investing or buying/selling of any asset on the exchange. All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform.
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