Anna Coulling's Volume Price Analysis (VPA) is a powerful tool for traders, regardless of what timeframe you like to trade on. With almost a decade of trading experience, this continues to be the only book that I personally recommend to traders of all skill levels. VPA is rooted in solid technical analysis concepts that have been tried and true since the early days of Jesse Livermore. They are concepts that I personally use on a daily basis for index trades and stocks in play. Here are five key lessons from Coulling’s approach that will help you become a better trader:
Volume is Key
VPA places a heavy emphasis on trading volume. According to Coulling, price movements are most significant when accompanied by substantial trading volume. This means that significant price changes with low volume may lack the conviction needed for a strong trend. Traders should focus on volume spikes and divergences to confirm price movements.
Valid volume versus anomaly volume - Key concept for verifying a move
Understanding Candlestick Patterns
Coulling emphasizes the importance of reading candlestick patterns in conjunction with volume. By analyzing candlestick patterns like dojis, hammers, and shooting stars in the context of volume, traders can gain valuable insights into market sentiment. Bullish patterns on high volume can signal strong buying interest, while bearish patterns on high volume may indicate strong selling pressure.
Market Manipulation and “Smart Money”
VPA highlights the concept of "smart money" or institutional traders who can manipulate the market. Understanding their actions can provide an edge in trading and improve your probability of long-term success as a trader. Look for signs of accumulation (institutional buying) or distribution (institutional selling) through volume analysis. Sudden spikes in volume can often indicate the involvement of smart money.
Accumulation schematic - Big Picture
Volume verifies the buying before breakout
Patience and Confirmation
One key lesson from Coulling's VPA is the importance of patience and confirmation. Traders should wait for strong volume confirmation before entering trades. Rushing into a trade based solely on price movement can lead to false signals and ultimately getting trapped on the wrong side of a move. Waiting for volume to validate a move can help reduce the risk of getting caught in a false breakout or breakdown, plus, it will dramatically improve your accuracy as a trader.
Risk Management is Paramount
Coulling stresses the significance of risk management in trading. Always set stop-loss orders to limit potential losses. VPA can provide valuable insights, but like any trading system, it's not foolproof. Proper risk management ensures that traders can stay in the game for the long run.
In conclusion, Anna Coulling's Volume Price Analysis offers valuable insights into the world of technical analysis and price action trading. This is a book that I highly recommend to all traders - If you are in the Trader’s Thinktank, we have a free copy available for you. By focusing on volume, understanding candlestick patterns, and being aware of market manipulation, traders can make more informed decisions. Patience and risk management are crucial components of a successful trading strategy. Incorporating these lessons from VPA can help you navigate the complexities of the markets with greater confidence and a more profitable system.