The terms “fakeout”, “bull” or “bear trap” are often used by traders who are still learning what to make of all of the indicators that they have overloaded their charts with; providing a convenient scapegoat where TrendSpider’ Charting Software would serve them much better. There are often subtle signs of market direction on most charts; if you know where to and what to look with. On the TrendSpider platform the “where” is provided by our Anchored VWAP / Volume by Price and the “what” by our proprietary Raindrop Charts®.
In this case study, we will look at how aggregated volume in Raindrops® can signal trend reversals; with the Anchored VWAP and Volume by Price, marking target areas for entries and exits by examining a comparison of the Daily and Weekly Chart on the $QQQs.
$QQQ Daily vs. Weekly Chart
This is a daily vs. weekly raindrop chart of the Nasdaq ETF, QQQ. In this case study, we will go over some warning signs over the last couple of weeks that suggested there may be a reversal in the trend coming for the short-medium term timeframe. The main things to focus on here are supply and demand shown by the anchored VWAP and anchored volume by price as well as the Raindrop charts showing the volume profile of both the daily and weekly candles as the trend started to exhaust.
- This number represents the start of both the anchored VWAP and volume by price at the start of the continuation in trend back in May. This is when the “status quo” changed and a bottom was put in before making new “all-time highs”. The anchored VWAP shows the volume-weighted average price from that reversal point and the anchored volume by price shows the distribution of shares since the reversal. These areas become important levels below once the trend reversal at the top starts to breakdown.
- This number shows the recent breakdown on the daily raindrop chart through the ascending wedge trendline. A raindrop chart is a volume-weighted candle that allows you to see the volume profile for the day with a single candle rather than having to go to lower timeframes to see where volume aggregated for the day. In this case, the fact that a “bulge” of volume was below the trendline on the raindrop during the breakdown suggests a lack of buyers to absorb any supply above that previous support trendline.
- This number shows confluence between the anchored VWAP as well as the next volume shelf below around $345 or so. A volume shelf is simply an area that shows a conglomeration of volume bars at a price zone using the anchored volume by price. If the price continues to move down, there is a lack of liquidity below shown by “3” above the anchored VWAP (blue line). You can tell a lack of liquidity below from the volume bars not sticking out far to the right which shows not many shares have transacted at these levels from around $354 down to around $345 (the next shelf).
- This number shows a red weekly raindrop during the second week of July right at the 1.618 Fibonacci extension. This is significant because the weekly candle closed green, but the raindrop closed red. The raindrop close is based on the second half of the week’s VWAP being lower than the first half of the week. This is a new type of divergence that is incredibly powerful!
We hope that this case study illustrated the power of using TrendSpider’s “volume-weighted” Raindrop® Candles with Anchored VWAP and Volume by Price to spot trend reversal and profitable entry and exit levels. TrendSpider’s aggregated data indicators are game-changers that everyone should have on their charts; at the least, try them out for free for 7-days here.