5 volume trading strategies for trend and counter-trend.

The most important thing in trading against a trend is the ability to take risks. A decision to go against a crowd often means to be crushed by the crowd. It is not without reason that the Where to Find Trades diagram of David Weiss (from his book Trades About to Happen: A Modern Adaptation of the Wyckoff Method) contains all types of trades (flat and trend ones), except for the ones that are against a trend.

Nevertheless, the strategy of opening trades against a trend exists as a method of trading. Here’s what you need to know about it in brief:

• The previous price action means a strongly pronounced trend. The price is on a tear and goes into the sky or falls into the ocean bottom. A trader assumes that the price moved from the real asset value too far and a ‘sobering’ rollback would emerge very soon;
• Upward waves start to lose strength and downward waves start to gain strength when a rollback starts in the current up-trend. The opposite is also true: downward waves start to lose strength and upward waves start to gain strength after a long fall;
• Monitor the profile. A profile, which looks like the letter ‘p’, is formed before a downward rollback more often than on average. A profile, which looks like letter the letter ‘b’, is formed before an upward rollback;
• An entry signal could be sent by the indicator data (for example, a colour change at the delta) or by the price/cluster action (for example, a breakout of the extreme point of the previous bar or breakout of the POC level);
• Analyze the situation on the basis of facts in order to catch the beginning of a fluctuation which has prospects to develop into a significant wave;
• Keep the reward to risk ratio in your favour – not less than 2:1.

In the chart above, we considered the price and volume action in the AAPL stock market with the aim to find an entry by the strategy against an intraday trend.

But let’s look at this chart from a different side.

• buying on the bar with the green arrow is an action by the strategy of a bullish breakout for overcoming the resistance, which was formed by tops 2-4-6-8-10;
• if we assess the situation on a longer timeframe, we use the same trade to buy the stock by the strategy of trading on rollbacks within an ascending up-trend, which took place during the previous month.

It is the same multi-level market matrix. Let’s continue discussing it and we consider now the just stated strategies: on a breakout and rollback.

Events of June 17, 2019, gave a trader a possibility to enter into buying on a rollback after a bullish breakout of the time balance. Let’s consider this situation in a 10-minute chart.

Technically, to increase accuracy, you should look for an entry into a long on shorter periods. Say, you can use a green splash on a delta and/or breakout of a high of minute bars for buying.

As a variant, it could be posted in the area of your former balance (1), for example under POC. In principle, the market shouldn’t come back there, since everybody already realized that it was ‘too cheap’ there. Take profit is for renewal of the highs.

Let’s not limit ourselves with one market only when we consider the strategy of trading on a rollback. Let’s talk about entering the sells after a bearish breakout using another market/period.

This example is for active traders. It shows the course of trading on June 26, 2019, on a fast 30-second period and a setup for entering into shorts by the strategy on a rollback was fast in coming.

1. We marked the initial balance, which was formed immediately after opening the session, with number 1.
2. Wave 2 is confirmation of the fact that the traders arrived to an agreement that the price is too high and the real value of the stock is somewhere lower at the moment.
3. It was already ‘oversold’ at the bottom of wave 2 (under the round level of 200).
4. That is why the correction movement number 3 was started.
5. The bar marked with arrow 4 sends a signal about a probable end of the correction. Why? First, a splash of volume with a bright positive delta. Second, the supposed correction wave 3 length (65 ticks) is not much longer than 50% of the impulse wave 2 (109 ticks). Third, the volume of the supposed correction wave 3 (704 thousand) equals 50% of the impulse wave 2 volume (1.4 million).
6. Taking the above facts into account, bar 5 looks like a signal for a well-thought-out action. The delta turns red, marking the beginning of the perspective downward wave.

Let’s assume that we:

• sold at 200.40;
• posted a stop behind the POC of balance 1 – 200.70;
• posted a take at the renewal of the low of wave 2 – 199.90.

Reward to risk ratio is 80 : 30 = 2.6.

Everything worked dynamically. A setup was formed during 1 hour after trading started. The take was activated 45 minutes after the entry.

Logic. Trading on a breakout is a strategy of trading in the trend markets.

• Either the market starts a supposed trend leaving a range;
• or it is already in a confirmed trend, …

… a trader buys bullish breakouts and sells bearish breakouts. He believes that the trend will continue. As a rule, the price behaves very fast at breakouts and if you enter a breakout in time and in a correct direction, this trade would soon start making profit, which could be significantly increased later.

Buying breakouts is applied in volatile and unstable markets where the asset price has a tendency to change in one direction during a long period of time.

• What are the signs of a trend market?
• How to work in the market by the strategy of trading on breakouts?
• How to identify a breakout entry point?

Let’s consider some examples.

Let’s consider a trend market of the Amazon stock. It is a day period. The coverage is March-April 2019. As we can see from the moving average dynamics, the trading is going on with the ascending tendency.

It seems reasonable to post stops in the ‘no supply’ area. In principle, a strong market does not have a tendency to come back to that point where a deficit of sellers has already been confirmed, if we exclude manipulatory movements in the ‘stops kick off’ style, which we observe on April 15.

Hold your position as long as possible while the market shows by its behaviour that it is strong. Move stops upward, but watch out manipulations. Register the profit when the market would show obvious signs of a reversal.

Trends last longer than you can imagine. Tom Williams

The article turns out to be very big, that is why the next chart will be accompanied with minimal comments.

It is a cryptocurrency market (how to make money on cryptocurrencies); the data is from BitMEX (a fast timeframe and selling during a day on July 9).

1. The balance of demand and supply formed some range with a bell-shaped profile and POC = 12,700.
2. It looks like an effort of the buyers to push the price even higher (growth of the volume on a positive delta), but what did it result in?
3. The sellers reversed the price immediately. We received the information that the market “does not want to move up” from the balance. So, we get an idea for selling short.
4. This splash of buys didn’t result in growth. It means that the sellers are locked in bad positions, which is one more coin into the bank of a game on a ‘bearish breakout’.
5. We post a sell order under support level 5.

Look at the market action before it entered balance 1. There was some growth there and the buyers proved their predominance at the level of 12,000 and higher. This fact determines the tactics of a fast take profit, since the recent growth, most probably, hindered the development of a descending wave.

Let’s assume that we:

• sold at 12,630;
• posted a stop at 12,730 (above the POC and weakness point 4) – 200 ticks (the price increment on BitMEX is USD 0.5);
• posted a take on 400 ticks – just 2 times more than the risk – at 12,430.

As you can see, our tactics worked and we took a fast profit.

We agree that the article turned out to be long and rather difficult for perception. But we hope it will be useful for readers. We didn’t consider the context, commission payments and other things in our examples. We wanted to show the logic of decision making by traders by different strategies.

Let’s consider one more (the last one in this article) chart as a conclusion. It is the Facebook stock market with a very fast period. 1 bar with clusters is equal to 75 ticks.

The chart below shows a local peak in the FB market on Wednesday, May 29, 2019, trades.

Points 1-2-3-4-5 form growing lows-highs, which means that the trend is ascending. Let’s analyze traders’ activity:

• The growing wave 5 has an extremely high volume (even if we exclude one major buy, which resulted in an abnormally high bar in the bar chart).
• Wave 6 accumulated the volume of 118 thousand, which is two-three times more than on 2 previous descending waves 2 and 4. It tells us about the selling pressure, which enters the market.
• The next up-wave 7 (the volume is only 59K) tells us about weakening of the buyers’ pressure. Note the green arrow. The demand ‘exits’.

The bar, which is marked with a red arrow, starts a new downward wave, which has a perspective to develop into significant sizes and reach local lows of the previous day at about USD 183. This bar is the place for opening sells by the strategy of trading against a trend, noticeable by points 1-2-3-4-5-6.

Note a crooked red oval. It shows as if there is absence of trades at several levels. A sharp movement with ‘empty’ clusters could be explained as a method to ‘lock’ the traders, who were waiting for an upward breakout and whose buying activity formed an implicit bell-shaped profile (a crooked black curve), in loss-making positions. The profile often forms the ‘p’ shape during reversals, but everything happened too fast in this case. The downward movement should ‘squeeze all juices’ from the buyers of peaks – emotional and financial.

Let’s assume that, if trading against a trend, we …:

• enter into a short at 184.20;
• post a stop behind peak 5 – for example, at 184.70;
• post a take at the level of the local low of the previous day 183 (the chart above doesn’t show activity of the previous day),

… then the reward to risk ratio would be 2.4:1. We should note that the goal was reached within 15 minutes and the market set the day’s low at the level of 181.50 in 3 hours after the selling point.

We’ve just described the logic, by which an intraday trader, who works against a trend, would open a short.

But if we look at the previous session on May 28, we would notice that the price formed three local peaks during a day (not shown in the chart): 184.70, 184.66 and 184.54. Thus, the resistance level of 184.65 was marked. The trader, who works by the strategy of reversal from the level of the previous day’s resistance, can increase the selling pressure together with the counter-trend seller (whose logic we described above).

The seller of bearish breakouts will join them a bit later (when crossing the support, which was drawn through lows 2-4-6).

As you can see, different traders, who work by different strategies and on different periods, may enter the market nearly simultaneously. And all of them will enter into shorts. They can enter in opposite directions in a different situation.

In reality, thousands of strategies with a multitude of periods produce an endless flow of signals for buying-selling.

One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute. William Feather

The main conclusion of this article, which we would like to make, lies in the following.

Whatever strategy you use in trading – act on the basis of facts. Justify your moves using the price (price waves) and volume analysis, progressive instruments (deltas and profiles) and different types of charts. Practice and improve your skills. You will notice after some time (it does take time) that “this is it! it will break now!” – you will see it all. You will enter a perspective trend without any doubt why you do it, while a beginner trader will be in doubt.

Best of luck and do not forget to press the like button!