Page 60 - A Complete Guide to Volume Price Analysis: Read the book then read the market

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.

It is very easy with hindsight to look back and identify tops and bottoms. 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.

Fig 6.11 Typical Price Action And Shooting Star Candles

If we take the left hand side of the schematic first. The market has been trending higher, when a shooting star candle appears on the chart, perhaps
it even has above average volume. Does the appearance of this candle signify a major reversal of trend or simply a minor pause and pullback? The
answer is, based on this candle, we do not know.

Al C wignify a mal we can say for sure, is that we have seen a bullish trend develop in the previous sessions, and now we have some weakness.
We know that the signal has some validity, as it has appeared after the market has been rising for some time, and this is one of the points I was
trying to highlight earlier. We have to consider all these signals in the context of what has gone before.

In this case we had a nice bullish trend developing, when a shooting star candle appeared with above average volume. The chart now has our full
attention. What do we do? Do we jump in and take a trade?

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, and
once 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