Some more great volume price analysis examples for index traders over the last few days, following last week’s sharp reversal in sentiment, and here we are spoiled for choice as I could pick any one of the three sisters (NQ, YM, or ES).
But let’s look at a couple starting with the YM Emini and followed by the ES Emini on the daily timeframes. In both cases I have annotated the chart with candles 1 to 5 to make the analysis easier to follow.
Day one saw the index move sharply lower, but with some late support as shown by the depth of wick to the lower body of the daily candle. However, day two continued with risk-off sentiment in the ascendant closing with a wide spread down candle—but look at the volume. It is lower than on day one, which suggests the market makers are no longer participating in the sell off. This is therefore anomalous when compared with other candles of the same size earlier in the year, so we are prepared for a possible reversal on the horizon which arrives with candle three.
This is a classic hammer candle with the market makers stepping in on high volume and buying, all described by the candle and confirmed with volume, and on day four the recovery gets underway and into a V-shaped rally, which is not always the case.
Generally, we might expect the market to move sideways with further absorption by the market makers, but here, this occurred on day four as denoted with the deep wick to the lower body of the candle and consequent strong signal of more to come, which was duly delivered yesterday.
However, note how the volume between days four and five, has fallen, and this is now a sign of weakness ahead so do not be surprised to see the market wallow in the short term.
The same analysis can be applied to the daily chart for the ES Emini with an identical pattern of price behavior on candles 1 and 2, with the only difference in the case of candle 3, the hammer closed with a positive body as opposed to a negative one.
Once again on candles four and five, note the volume falling away once more signaling a potential pause point as a result. Finally, this raises another important point when day trading index futures, and that’s the importance of having the related indices open at the same time as the index being traded, not only for an alternative perspective on the price action, but it can also confirm or negate whether intraday sentiment is consistent across other risk assets.