Page 93 - A Complete Guide to Volume Price Analysis: Read the book then read the market

Fig 9.12 Microsoft (MSFT) – 15 Minute Chart

The chart in Fig 9.12 is a 15 minute chart for Microsoft, and as you can see, traditional volume bars are presented at the bottom of the screen,
whilst the volume at price indicator presents the volume distribution on the Y axis vertically, as I explained in my first example.

Now throughout this book I have tried to explain and reinforce the concept of support and resistance. It is the breeding ground for trends, it is where
they are created and fostered and from which they ultimately break free, and the beauty of volume at price, is that these areas of price congestion
are now painted on the chart visually for us. Therefore, let me explain this chart in broad terms, and highlight what is perhaps obvious, and more
importantly, what is not so obvious, at first glance.

And before moving to this example, let me just explain the significance of the colours in the VAP bar. Just as with a conventional volume bar, we
have red and blue on the chart which reflect whether the associated candle was up or down. In a VAP bar we have the same, and what each bar
represents, with the two colours, is the number of up or down candles associated with that phase of price action. If there had been more up candles
than down then the fulcrum of the bar would be more blue than red. Conversely, if there had been more down candles than up, then the fulcrum
would be weighted more red than blue. This in itself gives us a perspective on the balance of ‘buying’ or ‘selling’ at this price range.

Moving to our example, in simple terms, there are four phases of price congestion here, one at the bottom of the chart which continued for an
extended period, two in the middle, which were both relatively short and one at the top in the current trading range. The chart covers a 5 day period
approximately. What does VAP reveal? First, it defines these regions for us on the chart. Each area of price congestion is marked by the volume
histogram which then gives us a sense of the importance of each region. As we would expect, the most dense area of volume is in the first area of
price congestion, with two volume bars denoting the significance of this area, one above average and one extreme.

The area of congestion above this l [ ab onevel is modest by comparison, with only two volume bars of any significance, both of which are well
below average. A very minor area of price congestion indeed.

Next we move to the third level and here we see more sustained volumes at this level with two above average volume bars denoting an area of
price congestion which is significant. Finally, we move to the current price area, where we can see one extreme volume bar. What can we deduce
from this analysis?

First we can see immediately which of those areas are likely to be significant in the future in terms of resistance and support. When these areas are
revisited during future price action, then these levels will become our invisible barriers, and from visual volumes we can judge the likely level of
support or resistance. Obviously, time also plays a part here. The longer a market is in a congestion phase, then the higher the concentration of
volumes we expect to see within the price range. It goes without saying that if the market pauses for days or weeks, then all this volume is contained
in a relatively narrow price range, which in turn will be reflected in the VAP histogram on the left hand side of the chart.

However, whilst this is perhaps an obvious statement to make, what is more revealing as always, is when we bring in the time aspect of the volume
and price relationship. Let's take a look and see what VAP is telling us here.