The volume momentum shift nets 77 points on Dow Jones after a retracement to the ATR on the forty-five minute chart. While the trade setup was actually from the forty-five minute chart, we confirmed the volume momentum shift on the lower timeframe for lowering our risk and confirming the higher timeframe setup.
First, the forty-five minute chart was showing the volume momentum shift using the TradersHelpDesk’s Directional Volume indicator after price had approached the ATR stop. This was the same area that resistance had been found before (white dots on the chart below). It was clearly evident that buyers simply could not break through this area with enough momentum to keep price up. The Directional Volume indicator showed that as the high was made, sellers were entering. This is also known as the volume momentum shift as buyers have transferred to sellers.
As the momentum shift was appearing on the 45 minute chart, we began watching the three minute chart. The ADX was overbought but we were waiting for the Directional Volume indicator to show the magenta peak would appear and push price down. We get the first magenta dot but no volume divergence appeared. We knew to wait as the volume divergence is a pre-cursor to the true magenta peak. A few bars later, the volume momentum shift appears and we entered a short at 15957.
As the trade progressed in our favor, we moved the stop down. We knew that we had an area of potential support at around 15,844. As price moved down, the stop was also moved down. Finally, we were stopped out at 15,880. The trade made 77 points or $385 per contract.
Because this trade was generated off the higher timeframe, the profits were larger. The forty-five minute chart did not give us the perfect entry, which is why we knew to zero down to the three minute for confirmation of the entry and to lower risk. Plus, the Directional Volume is critical in identifying these shift between buyers and sellers (or vice versa) because no other volume indicator displays this information in such an easy to read format.