Volume ShiftDuring the Futures and Binary Trading session yesterday, I warned everyone to look for a volume shift or divergence on Gold for the retracement of the wide bar that was made after the Rate Announcement.  Since the move had been a major move on the forty-five minute chart, I knew it would take at least one bar maybe two for the market to turn and retrace.

Volume Shift on Gold Using a Higher Timeframe

Using the TradersHelpDesk’s Directional Volume indicator, the volume shift came in around 3:45 pm.  The chart below shows it perfectly.  The last volume bar on the chart shows a red hash mark because sellers controlled the bar (this is also known as order flow transition as the bar went from buying on a high to selling the high).  Additionally, you can also see that the height of the volume bar for buyers was decreasing (portion above zero).  When you look up to the price bar, it closed down confirming the volume shift.  This signals the beginning of the retracement of the wide bar. (Wide bars generally retrace at least 50% about 80% of the time.)

Volume Shift on Gold Higher Timeframe

Seeing the volume shift on the forty-five minute chart, the trader zeros down to the three minute chart.  The average true range stop should be red and price should test this area with diverging buying volume.  In the chart below the strategy highlights one entry and the second arrow shows the secondary entry using volume divergence at the average true range stop.  These entries came in before the Asia session opening.

Volume Shift on Gold from Higher Timeframe

The entry on the first trade (as called by the strategy) was 1124.70 and the exit was 1119.60.  That is a 51 ticks of profit or $510 trading one contract.  Also, notice in the middle of the chart you have the tall red volume bar.  That would be the climatic selling bar.  See how all the red bars after that are losing strength?  Then right at the end you have buyers coming in on the low (another volume shift as buyers are coming in on the low and controlling price).  This is only confirmed when the price bar confirms the pattern, which did occur.  Of course, this volume pattern is only apparent if using the TradersHelpDesk Directional Volume for TradeStation, NinjaTrader or Multicharts.

To understand the volume shift pattern better, download the Volume Price Divergence ebook free.