Page 23 - A Complete Guide to Volume Price Analysis: Read the book then read the market

Fig 3.12 Lower Wick Example

Taking the lower wick example first, the price bar opened and almost immediately sellers were in the market forcing the price lower, and
overwhelming the buyers. Perhaps within the move lower, there were pauses and brief attempts to rally, which would have been seen perhaps in
faster time frames, and a key part of trading. However, in this session, as far as we are concerned, the sellers remained in control throughout the
first part of the candle’s creation.

At some point during the course of the session, the buyers started to come back into the market, wrestling control from the sellers as the market
price had now become an attractive buying proposition. Gradually near the bottom of the price bar, the sellers finally give up, having been
overwhelmed by the buyers who gradually take control. Now it's the turn of the sellers to be under pressure, as more and more buyers flood into the
market, overwhelming the sellers and taking the price back higher once again, to finally close at the opening price.

But, what does this price action reveal? And the answer is two very important things.

First, that in this session, whatever the time frame may have been, there has been a complete reversal in market sentiment. Why? Because the
selling pressure that was in evidence during the first part of the candle’s creation, has been completely overwhelmed and absorbed in the second
half.

Second, that the sentiment on the close of the bar is bullish – it has to be, since we know that the price action closed at the open, so at the instant of
closure, the price must have been rising, supported by all the buying pressure underneath.

Does this mean that this is signalling a reversal in any trend? The short answer is no, and you will discover why once we start looking at volume,
which will then give us the complete picture. At the moment we are simply considering price action which is only half the picture, but the point I want
to make, is that the wick on a candle is EXTREMELY important, and a vital part of Volume Price Analysis, as is the spread. In this case the spread
was zero, which is JUST as significant as any large spread of the candle.

I hope that the above example has helped to explain what is happening 'inside' the candle with the associated price action. This is a very simple
example, with the price action split symmetrically into a 50/50 window. Nevertheless, the principle holds good. The price action may have been split
into a 25/75 or even a 15/85, but the point is this – the sellers were overwhelmed by the buyers during the course of the session that the candle is
representing.

This now brings me on to another area of volume analysis which we are also going to consider later in the book. I've already mentioned Volume
Price Analysis or VPA several times so far, which is the relationship between volume and price over the entire life of the candle, but what happens
within the life of the candle for example. Where is the buying and selling actually taking place, and this is called Volume At Price, or VAP for short.

Whilst VPA focuses on the 'linear relationship' between volume and price once the candle has closed, VAP focuses on the volume profile during
the creation of the price bar. In other words, 'where' has the volume been concentrated within the associated price action.