📝Introduction

In this article, I want to introduce the future subscriber to the tools I use for analysis. We will not be drawing straight lines, diagonals, various arrows, and zigzags here. Why? Because all this 'drafting geometry' is a consequence, not a cause. Accordingly, it carries significantly less informational load. We will work with the 'cause.'

🕵️What is Volume Analysis?

A double auction is constantly taking place in the market. Market participants buy and sell at market prices, as well as leave limit orders for buying and selling. The price of the instrument moves only due to the actions of 'market' buyers or sellers, while 'limit' participants also contribute. Let's examine this in more detail with examples.

  • The buyer placed a large limit order to buy. The market seller sold and sold but could not fully fill it. As a result, the seller 'weakened,' and the price went up.

  • The buyer placed a large limit order to buy. The market seller sold and sold and ultimately managed to completely fill the buyer's limit order. As a result, the buyer 'weakened,' and the price went down.

Of course, in practice, everything is a bit more complicated. But it is precisely volume analysis or footprint analysis that allows us to understand who dominates at any given moment. With this analysis, we can look inside the candle and see how it was formed, comparing the efforts of the buyer and the seller. This is the reason for price changes, not 'drafting geometry.'

📋Volume Anomalies. What are they and how to work with them?

Let's consider the emergence of a volume anomaly (hereafter VA) with a simplified example. A 'struggle' is taking place between the market seller and the limit buyer; during this struggle, we record unprecedented trading volume values over a certain period. Our task is to understand whose volume it is and in which direction it is positioned. For example, if after a spike in VA the price goes up, we can conclude that there is significant interest from the buyer at these price levels. Please note that my goal here is not to teach how to apply volume analysis; I am trying to outline in general terms what it is.

🟨Symbols. Volume Anomalies.

I track several types of volume anomalies simultaneously. They differ in size and period of occurrence, leading to varying significance. In the screenshot above, they are all presented. I will list them in order of decreasing significance:

  • yellow diamond - the largest and most significant volume anomaly,

  • green square,

  • pink (fuchsia) circle,

  • white triangle - the smallest and least significant volume anomaly.

These anomalies are tracked across various timeframes. It is important to understand that a white triangle on the H4 timeframe carries significantly more weight compared to the same triangle on the 5m timeframe.

🔺Symbols. Market Inefficiency

Now let's analyze what I mean by market inefficiency. In the screenshot above, we see red and green triangles; let's consider the criteria for their appearance:

  • A red triangle appears with an abnormal seller delta located in the upper shadow of the candle,

  • A green triangle appears with an abnormal buyer delta located in the lower shadow of the candle.

In creating these criteria, I was guided by the desire to notice the market efforts of one side that led to a result within the candle and a certain period. For example, a green triangle may indicate that a significant market purchase occurred in the last 7 days (relative to the last 7 days), due to which the considered candle closed above the price of the anomaly's occurrence, forming a tail. Again, the older the timeframe, the more 'authoritative' the anomaly.

🟧Zone of Increased Interest

On any chart, there are areas that can be said to generate increased interest from both sides of the market. Here, a higher number of trades occur. Such places indicate a balanced struggle between the buyer and the seller. On my charts, they are marked with orange squares.

🔚Conclusion

I briefly tried to explain the essence of volume analysis and footprint reading. These are far from all the tools I use, but they raise the most questions as they appear unidentified at first glance.

If you found it informative, join my channel. There will be a lot of interesting content here.