VPA – Building The Picture
Here we start to build on the concepts from the previous chapter and begin to look at “VPA – Building The Picture” in action using the three most powerful rejection candles. In addition we explain stopping volume and topping out volume, as we start to build our VPA knowledge into a complete approach to market analysis.
Table of Contents
VPA – Building The Picture
In this article we will move to the next level and explain the various candle and candle patterns that we build into our VPA analysis and education.
I must stress, that this chapter is NOT intended as another book on Japanese candlesticks. There are plenty of those already available, and perhaps you want to check ours available here.
VPA Analysis – Principles
However, before moving forward I would like to explain some broad principles which apply, and which we need to keep in mind in any analysis when using Wide, Narrow and rejection candles.
Principle Number One
The length of any wick, either to the top or bottom of the candle is ALWAYS the first point of focus because it instantly reveals, impending strength, weakness, and indecision, and more importantly, the extent of any associated market sentiment.
Principle Number Two
If no wick is created, then this signals strong market sentiment in the direction of the closing price.
Principle Number Three
A narrow body indicates weak market sentiment. A wide body represents strong market sentiment.
Principle Number Four
A candle of the same type will have a completely different meaning depending on where it appears in a price trend. Always reference the candle to the location within the broader trend, or in the consolidation phase.
Principle Number Five
Volume validates price. Start with the candle, then look for validation or anomalies of the price action by the volume bar.
Testing Supply
- One of the biggest problems the insiders face when mounting any campaign is they can never be sure that all the selling has been absorbed, following an accumulation phase.
- The worst thing that could happen is they begin to move the market higher, only to be hit by waves of selling, which would drive the market lower, undoing all the hard work of shaking the sellers out of the market.
- How do the insiders overcome this problem?
- And the answer is that just as in any other market, they test!
- The insiders want to test, once they have completed the accumulation phase, if the market is prepared to move higher and to begin the selling process in distribution phase.
Testing Supply – Low Volume Test
Testing Supply – High Volume Test
Testing Demand
- The reverse scenario, is where we are coming to the end of a distribution phase.
- The insiders want is to start to move back into an area which has seen high demand (buying pressure) only for the buyers to take the market in the opposite direction.
- Once again a test is employed to make sure that all the demand (buying pressure) has been absorbed in the distribution phase, and this is done with a test of demand.
Testing Demand – Low Volume Test
Testing Demand – High Volume Test
The Selling Climax
Upper Wicks at Resistance/Supply
The Buying Climax
Lower Wicks at Support/Demand
Stopping Volume
Topping Out Volume
Volume in Uptrend
Volume in Downtrend
In the next article we are gonna take a look at last topic of this volume i.e. 6 Principles of Future Trend Direction.