Go long eurusd now based on the headlines?
What headlines are you reading?
The google link I put in is not the same one that ended up in the post…hopefully this link will behave…
Euro: CURRENCY:EUR market news - Google Finance
I don’t think you’d just “go Long”…lol…here’s a bit more from the book:
How you use this information is up to you, of course. You might
use the actual headline as an exit strategy and wait for a higher probability
entry (see “Determining a Bias” in Chapter 6). Or, if a headline occurs
when other information indicates that a change in trend is a high probability
(COT, consecutive periods in one direction, and so forth), then acting on
the signal is probably warranted. In any case, understand that this is a risky
trade outright. These headlines appear after a sharp move in price when
conditions are volatile. Also, if the market is at a multiweek/month/year
high or low, then there is no simple answer to the question “Where do I
place my stop?” unless of course you are familiar with the wave principle
(see Chapter 7). Additional timing tools such as pivot points can also
be used.
yeah, great film with Arnie, lol.
I’m going to deviate a little from ICT’s methods to incorporate a bit of VSA into it…Volume Spread Analysis…which I’ve been reading up on lately while waiting for ICT to slowly recuperate (and I was getting a little impatient…lol).
Now I know that there is a lot of skeptism with respect to forex’s volume and that it means nothing about the volume of trading because there is no centralized exchange to keep track of all the brokers, and therefore VSA can’t work in Forex.
However if tick volume captures & measures each time price changes, and price pretty much changes the same on all brokers, it is good enough for the application regardless. Many brokers get their feeds from similar sources so it does give a bit of regulation in my mind, although it may be beneficial to be with a broker that gets their price feed from a popular source.
Anyways, we shall see.
To start off, volume is viewed as the activity or energy of direction of price.
The spread is the range of the price bars from high to low being narrow, wide or average…(not to be confused with bid/ask spread).
Then an analysis is made by comparing the activity (volume) to the spread of the price bars, and also where they close. Bars are simply referred to as an [B]up close/wide spread/low volume [/B]bar, or a [B]down close/narrow spread/high volume bar[/B], etc.
The comparison of the current bar’s volume spread is also made to prior bars which is called the [B]background.[/B]
Certain combinations of volumes, spreads, & closes indicate strength or weakness. If we see strength in the current bar & background then we look to buy. If we see weakness, then we look to sell.
What has this got to do with Smart Money you may ask? Quoted from a book titled "The Secret Science of Price and Volume " the author says…
By following the direction of the highest (tick) volume, a trader is actually
following the “ smart money. ” Smart money is well capitalized and, therefore,
has the means to produce the most (tick) volume. And, smart money produces the most money by being correct in the market. Therefore, if you
can follow the direction of the highest (tick) volume, you can follow the smart
money.
I took the liberty of adding the word tick in from of volume to adapt it to forex because the principles are supposed to work the same. There are some simple rules that I will put forth in my next post, and hopefully with some chart examples. It does center around testing prior areas of support & resistance levels.
Hi Sweet Pip,
Would it be possible for you to show an example of actual bars? - “Certain combinations of volumes, spreads, & closes indicate strength or weakness. If we see strength in the current bar & background then we look to buy. If we see weakness, then we look to sell.” I could really use a visual and would really appreciate it. Thanks!
Hi SweetPip,
Glad to see you bring this topic to your thread.
I’ve been applying VSA to my entries during the past month, and I’m really pleased with the help it provides along with SMT filtering good trades from the bad ones.
I have an observation though, regarding levels of strenght and weakness,
I might be wrong, I’m very new at this topic, but I have observed that regarding Forex, we won’t be looking for low volume in order to sell.
Instead, high volume at a resistance level could indicate not only distribution of the base currency, but accumulation of the second currency, and this will give us the strong retracement we’re looking for.
I’ve seen that low volume at resistance areas tend to lead to trend continuations.
High volume can also mean trend continuation, but that’s where price patterns come into play.
I’m mainly looking for pin bars to complement volume signaling a reversal.
I thought that pin bars could point a reversal by themselves, but pin bars with little volume tend no to work, or at least that’s what I’ve observed by backtesting some of them.
The cool thing is that high volume pin bars seem to be the ones starting the quick drops in currencies. Really nice entries with almost no drawdown.
So in conclusion, speaking of volume in Forex, I think we should be looking for high volume activity regarless of wether it’s a support or resistance area.
Do you agree with this? 
Yes I think high volume is important too. The Asian session definately doesn’t have that…lol…no wonder it’s been so difficult for me. :eek:
Here’s an hourly of the GPBUSD. I highlighted in green circle the last big support area to the left 142.50 area, and then again today where it revisited or tested that area again. Notice the different sizes in the spread of the bars, and their volume.
Now here’s a segment of the same book…
The first rule of volume analysis at swings deals with a very important concept: percentage relationship. We do not focus on the amount of the volume, but rather the comparison — on a percentage basis — of the volume versus a previous swing high or low.
Here is the rule:
It is not the amount of the volume that is important at previous swing highs or lows, but rather the percentage relationship compared with the previous high or low. These volume percentage relationships will determine if the market will pass through or reverse at these previous highs or lows.
Let’s go one step further:
To get a buy signal, a test is needed of a previous swing low and the volume must shrink by 8 percent or more, and then close back above the previous low. This condition will trigger the buy signal. A test means breaking the previous swing low to prove the point.
To get a sell signal, a test is needed of a previous swing high and the volume must shrink by 8 percent or more, and then close back below the previous high. This condition will trigger the sell signal. A test means breaking the previous swing high to prove the point.
These volume percentage relationships work on all time frames: 60 minutes, daily, weekly, or monthly. I might add that the higher the percentage decrease in volume on the retest of a previous high or low, the more reliable and stronger the signal will be for a reversal. That makes sense because if the energy is significantly less than at the previous high, there will also be less force, which means a safer trade for a reversal.
That looks like what happened here, but it looks like a weak reversal to me, and I wouldn’t be surprised if it tested it again…and if the volume is greater, I may take it as a breakout sell instead of bounce buy. 
Hi PipsaDaisy…like your screen name :)…mine stems from the Sweet Pea flower.
I will try to get some visuals happening in that regard but can only do that in the later Asian session time when I’m home from work. I’m still sorting it all out in my mind too and still have more reading to do, but the little that I have applied, whether correctly or not, seems to be positive.
The rest of this week I’d like to finish reading some of the material I have, and then we have a long weekend and I’ll be going boating, so next week I’ll be able to put more focus on posting up some charts with analysis.
Hi everyone, I’m new to this forum. Babypips seems like it is an amazing resource to learn from. So what is this “smart money” thread all about?
Here is an image showing average volume. I don’t know if it’s useful. The pattern shows up best on 15M, on higher time frames you loose too much detail and on lower you get too much noise. When looking at VSA maybe it would be useful to have an idea of average volume so you can spot deviations from the norm.
Also for VSA analysis, check with Petefader he seems to be an expert on that.
Hi Trader2000,
another newbie here
Some of the basic ideas behind this thread are explained in this other thread:
This link takes you to an index by Clint with links to the relevant post in the thread. After reading them come back to this thread by Sweet Pip and enjoy
Regards
Hi Sweet Pips,
funny thing you bring this subject to question now, as i’ve being wondering in the last 2 weeks about how volume and variation on price might be useful when determining a market action.
My first take was consider volume and price action as a sort of linear momentum. In physics linear momentum is defined as p = m*v where m is the mass of an object and v is its velocity (speed), so i thought there could be a similar momentum in forex using volume instead of mass, and spread (high-low) or price variation (close-open) instead of speed. Notice spread or price variation occur in a given candle, so we can consider we have a N pips change in a period of 5, 15, 30 minutes giving as the average pips speed of change.
With that in mind i tried to check if there is any relationship between forex movements and a momentum defined by M = V*S where V is the volume and S is the spread or the price variation. I found there’s not a linear relation as price sometimes change with litle volume involved while other times high volume seems to get stuck into a small price range (i.e. dojis with high volume). So there must be other factors involved. Besides, while mass has inherent inertia, forex volumes has not, other than the psychological influence on how we perceive the market trends. In other words, in forex volume (ticks) is proportional to the number of transactions already done, and this means once they are done they don’t further affect the market other than the way we traders perceive its influence in what is going on.
So lately i was thinking i might consider volume as a sort of thrust or energy behind the market instead of a sort of inertial mass, when i’ve read your post and noticed i rather should read the book you mention and find some other references before trying to re-invent the wheel 
I’ve found this other source if you want to check it out:
http://www.tradethetruth.com/pics/mtmv3.pdf
I look fordward to read your forthcoming comments on this subject. Thanks for sharing your thoughts and keeping this thread alive
Regards.
Edited: Now that i’ve read more of the previous linked document i have to add it is basically a “subtle” advertising of a trading software, but stills includes some interesting points on how market makers act.
That link doesn’t work
It’s linear not lineal. Just being picky. Maybe you should consider force = D/DeltaD(m*v)
but anyway all sillyness aside… There can be a big move in price on small volume, it depends on how big the trades are. Lots of little trades can move price or a few Big trades. I remember one night during Tokyo session there was a huge spike and an institutional trader said to me oh that’s just some banker moving a $billion around.
I’ve tried looking at volume but it just seems too subjective to me. I’m sure it works for some though. And somewhere I’ve got a PDF on it if any of you want it let me know and I’ll upload it
Hi TalonD,
i’ve corrected the grammatical mistake. Thanks for telling as english is not my native language and i tend to make mistakes like that when the english word is similar to the spanish one.
ITOH I’ve checked the link and it works for me. Anyway if you are interested try to copy-paste the URL:
www.tradethetruth.com/pics/mtmv3.pdf
I would appreciate a link to the document you mentioned, as i have the feeling there’s more on volume and price range than it’s usually explained; it could be a newbie issue though
Regards
Jimbo
Hi Jimbo,
The link you provided is to that book “Master The Markets” which is basically the same as “Undeclared Secrets That Drive the Stock Market” but without the TradeGuider Software promotion.
In the book(s) it likens volume to power, and price to a car. You can see that a car is moving uphill, but when you look at the power which is low, you can only deduce that the car is not going to move uphill much longer or very far. What the car is moving on is momentum.
Just like ICT wrote too about market structure, you’re learning how to read the market.
The other book I have is here…
4shared.com - document sharing - download The Secret Science of Price and Volume.pdf
That 4shared website is great for finding all sorts of ebooks on trading!
Thanks Sweet Pip,
for what i have read until now on that “Master the markets” book it seems to me it makes a lot of sense, even while it sounds to me a bit too much of “conspiration theory” by market makers lol
I’ll read Secret Science of Price and Volume as soon as i finish that other one.
See you around
Jimbo
Reply With Quote
Hi Sweet Pip - I love sweet peas, too! 
No rush w/anything. Enjoy your free time when you can! Just got back from a weekend away myself. And thanks for posting that great link 4shared.com - what a BONUS!
Here are a couple of PDFs that deal with volume spread analysis. Well for some reason they won’t attach so I’ll try again later
Hope you find a way to attach them soon, as i’m lost with that VSA stuff.
I’ve been wondering why there are so few usefull indicators based on volume if comparing with those based on price, when it is widely understood that offer/demand imbalance is the cause of price variation.
I’ve being programming a few indicators based on volume (most of them rubbish) and i’ve found some interesting things, like for instance what you see in a RSI indicator based on what i call “effective volume” (the partial volume that causes the price variation between open and close).
Here is an image showing a comparison between standard RSI and my “RVSI”. They are similar, but the small differences may help in finding clear signals, like that divergence in the image.
I’m sort of stuck with this, but anyway i have the feeling there’s something important about volume i’m missing.
Regards
Jimbo
Here’s a sweet little VSA indicator I just found yesterday…it literally spells out the relationship between the spread & volume.
And attached is a pdf accompaniament to what the text on the screen means…
VSABASICS[1].pdf (665 KB)