Thread by @shubham_chennai

#Volume #Price Action (VPA) 101

Five phases of VPA are as follows:

- Accumulation Phase

- Buying Climax

- Testing

- Distribution Phase

- Selling Climax

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#Accumulation phase

Before the insiders can begin to do anything, they need to make sure they have enough inventory, to meet demand.

Once accumulation has begun, the price action follows this typical pattern, where the market is repeatedly moved higher and lower.

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#Accumulation phase

It's all about supply and demand. If the insiders can create the demand, then they need the supply to meet this demand.

The repeated buying by the insiders is highlighted in blue.

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#Buying climax

Towards the end of accumulation phase, the insiders mark prices down rapidly, flushing out more sellers, before moving the price higher later in the session to close somewhere near the opening price, helped higher by their own buying

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#Buying climax

This is repeated several times, with panic selling continuing as frightened investors and speculators can take no more. The insiders are now ready, with warehouses over flowing with stock.

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#Buying climax

The colour of the body of the candle is unimportant. What is important, is the height of the wick, the repeated nature of this price action, and the associated high volumes.

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#Testing #Supply (#Shakeout)

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.

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#Testing #Supply (#Shakeout)

The market is marked lower on bad news, to test to see if this will flush out any remaining sellers. If the volume remains low, this tells the insiders only few sellers were left, & all the selling has been absorbed in the accumulation phase.

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#Testing #Supply (#Shakeout)

The precise formation of the candle is not critical, but the body must be a narrow spread, with a deep lower wick. The colour of the body can be either bullish or bearish.

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#Distribution Phase

The insiders now have a willing supply of victims to whom they happily sell to in ever increasing numbers, but careful never to sell the market too hard. Prices therefore trade in a narrow range, sucking in more buyers on each dip.

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#Distribution Phase

The key driver that is used in the distribution phase is also fear, but this time the fear of missing out on a good trade. Create enough fear and people will sell. Create enough greed and people will buy.

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#Distribution Phase

This is one reason why the insiders dare not frighten everyone too much, as they simply cannot afford to kill the goose (retail investors) that lays the golden egg!

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#Selling Climax

A selling climax appears at the top of the bullish trend, whilst the buying climax appears at the bottom of a bearish trend, and reflects the actions of the insiders, and NOT the public!

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#Selling Climax

The selling climax is the 'last hurrah' before the insiders take the market lower. It is the culmination of all their efforts, and is the point at which the warehouse is almost empty and requires one last big effort to force the market higher.

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#Selling Climax

It draws in those nervous traders and speculators who have been waiting and waiting for the right time to jump in, and can finally wait no longer. They give in to the fear of missing out, and buy.

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#Selling Climax

Here you will see high volume coupled with a candlestick which has a deep upper wick and narrow body, and is one of the most powerful combinations of price action and volume.

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#Selling Climax

This happens two or three times on high volume with the market closing back at the open, and at the end of the distribution phase. Following the selling climax, the market then breaks lower, and fast.

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"To understand the insiders, the investor must learn to think of insiders as merchants who want to sell inventory at retail prices. When they clear their shelves of their inventory they will seek to employ their profits to buy more inventory at wholesale prices."

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From the book - "A Complete Guide To Volume Price Analysis" by @annacoull

END !

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