Chapter Nine

Volume At Price (VAP)

In a bull market it is better to always work on the bull side; in a bear market,
on the bear side.
Charles Dow (1851-1902)

At the start of this book I made the statement that there is nothing new in
trading, and that volume has been around for over a century. It was the iconic
traders of the past with their tape reading skills who laid the foundations for
today's VPA traders.
Well that statement is not entirely true, as in this chapter I want to introduce
you to one of the latest developments in volume studies, which takes volume
and Volume Price Analysis to the next level. This is called volume at price,
or VAP for short. Now we have VPA and VAP – very neat really!
So what is volume at price and how does this differ from our studies so far
using Volume Price Analysis or VPA. But first, let me introduce a simple
concept which I hope will help to explainVAP, and once again we return to
our wholesaler of goods, who has a warehouse with one product to sell. As a
wholesaler, (and indeed anyone selling anything) he or she is always looking
to maximise profits from each sale, and one of the easiest ways to do this is to
'test the market'.
This is something companies do all the time. A product will be marketed at
one price, and the volume of sales recorded. The price will then be raised or
lowered and the resulting sales recorded and monitored. Obviously, if the
wholesaler can sell at a higher price and still maintain the same sales volume,
then this will increase profits automatically, with no fall in volume.
At some point, the price will reach a point at which volumes do fall, as
buyers now perceive the product as over priced, and simply stop buying. The
wholesaler then simply drops the price lower, and sales volumes should pick
up again.
On a simple bar chart, this price action and volume would be reported on a
chart which would look similar to that in Fig 9.10 below.

Fig 9.10 Sales Volume vs Price

Here we have a chart of volume and price, with price on the X axis and
volume on the Y axis. As you would expect, as the price increases, then the
volume of products sold falls. This is not always the case, but generally so in
most markets. The point here is that we now have a 'map' of volume against
price. In other words, we can now see visually how the volume has changed
as the price changes, and this is what Volume at Price is all about. In a
normal volume bar, all we see is one bar, but within the price action there are
many different levels of price. All we are seeing in our single volume bar, is
the total volume associated with the price spread of the bar. What this volume
bar does NOT reveal, is the levels of buying associated with the different
price points, exactly as in our simple example above. If we swing this chart
through 90 degrees, then we have a perfect representation of VAP as it would
appear on our chart, as we can see in Fig 9.11

Fig 9.11 Sales Volume vs Price – Rotated

Now perhaps you can begin to see how the principle of volume at price really
works, and in many ways the term itself describes the methodology. What we
are looking at here, is the volume at the price. In other words, we can see the
volumes associated with each price level as the market moves higher and
lower. What we have is a volume histogram of the buying and selling
volumes associated with each price point. We can imagine this as a dissection
of the single volume bar that we use in Volume Price Analysis (VPA). Here
the volume bar records all the volume of activity associated within the period
of the bar and the spread of the price action.
With VAP, what we are doing is taking that volume bar, and cutting it open
to reveal where the concentration of volumes actually occurred. After all, if
the concentration of volume was at the bottom, then this is more likely to be
buying volume rather than selling volume. Conversely, if the concentration of
volume took place at the top of the bar rather than at the bottom of the bar,
then this is more likely to be selling volume. Volume at price gives us a
different perspective on the more traditional volume bar, revealing as it does,
the concentration of buying and selling, at the various price levels, which in
turn gives us an alternative perspective, not only in terms of momentum, but
also in terms of support and resistance.
And, as far as I am concerned, this is the KEY point.
The way to use this methodology is as an enhancement to the classic VPA
approach, and NOT to replace it in any way. As you will discover shortly,
volume at price gives us a very different perspective, as it provides an insight
into the concentrations of buying and selling areas, which to me means
support and resistance. As we have already discovered how to identify these
areas using price, and price action, VAP then gives us an additional tool to
use, which gives us a visual representation of these areas on the chart. If you
remember back to the previous chapter, I referred to support and resistance as
invisible barriers, natural barriers if you like – well now, with volume at
price, these barriers are actually revealed on our charts.
However, we must remember, VAP is a supporting technique to VPA, NOT
the other way round. Whilst VAP is powerful and gives us a three
dimensional view of the volume and price action, it does NOT replace
traditional VPA, and never will in my view. So please use VAP as a tool with
which to identify price congestion along with support and resistance zones,
which you can then confirm with traditional analysis using VPA.
Let's look at some examples and the good news is that this indicator, is
generally available free on most good charting packages. All the examples in
the remainder of this chapter are taken from my NinjaTrader trading
platform.

Fig 9.12 Microsoft (MSFT) – 15 Minute Chart

The chart in Fig 9.12 is a 15 minute chart for Microsoft, and as you can see,
traditional volume bars are presented at the bottom of the screen, whilst the
volume at price indicator presents the volume distribution on the Y axis
vertically, as I explained in my first example.
Now throughout this book I have tried to explain and reinforce the concept of
support and resistance. It is the breeding ground for trends, it is where they
are created and fostered and from which they ultimately break free, and the
beauty of volume at price, is that these areas of price congestion are now
painted on the chart visually for us. Therefore, let me explain this chart in
broad terms, and highlight what is perhaps obvious, and more importantly,
what is not so obvious, at first glance.
And before moving to this example, let me just explain the significance of the
colours in the VAP bar. Just as with a conventional volume bar, we have red
and blue on the chart which reflect whether the associated candle was up or
down. In a VAP bar we have the same, and what each bar represents, with the
two colours, is the number of up or down candles associated with that phase
of price action. If there had been more up candles than down then the fulcrum
of the bar would be more blue than red. Conversely, if there had been more
down candles than up, then the fulcrum would be weighted more red than
blue. This in itself gives us a perspective on the balance of ‘buying’ or
‘selling’ at this price range.
Moving to our example, in simple terms, there are four phases of price
congestion here, one at the bottom of the chart which continued for an
extended period, two in the middle, which were both relatively short and one
at the top in the current trading range. The chart covers a 5 day period
approximately. What does VAP reveal? First, it defines these regions for us
on the chart. Each area of price congestion is marked by the volume
histogram which then gives us a sense of the importance of each region. As
we would expect, the most dense area of volume is in the first area of price
congestion, with two volume bars denoting the significance of this area, one
above average and one extreme.
The area of congestion above this level is modest by comparison, with only
two volume bars of any significance, both of which are well below average.
A very minor area of price congestion indeed.
Next we move to the third level and here we see more sustained volumes at
this level with two above average volume bars denoting an area of price
congestion which is significant. Finally, we move to the current price area,
where we can see one extreme volume bar. What can we deduce from this
analysis?
First we can see immediately which of those areas are likely to be significant
in the future in terms of resistance and support. When these areas are
revisited during future price action, then these levels will become our
invisible barriers, and from visual volumes we can judge the likely level of
support or resistance. Obviously, time also plays a part here. The longer a
market is in a congestion phase, then the higher the concentration of volumes
we expect to see within the price range. It goes without saying that if the
market pauses for days or weeks, then all this volume is contained in a
relatively narrow price range, which in turn will be reflected in the VAP
histogram on the left hand side of the chart.
However, whilst this is perhaps an obvious statement to make, what is more
revealing as always, is when we bring in the time aspect of the volume and
price relationship. Let's take a look and see what VAP is telling us here.
The chart is over a five day period, and the first phase of price congestion
lasted for three days. What we see here is what we expect, some high volume
bars confirming a dense region of price congestion. All we can say about this
price region is that it is significant, and had we been trading, then on the
breakout we would have been very comfortable with the volume histogram,
confirming a strong platform of support below with the market breaking
higher. Equally in the future, if the market reverses to test this region, once
again we can say with confidence that there is a strong platform of support,
which will take some extreme volumes to penetrate and break.
Moving to the next area of price congestion, which in this case only lasted for
a handful of bars, a few hours at most, before the market broke higher once
again, and moved on. This is a secondary area of congestion, and instantly
recognisable as such with our VAP volumes. These are below average, and
only two are of any significance, so if this region were tested in the future, it
would not take much effort to penetrate this level, either from below or
above.
Finally, we come to the third and fourth levels of price congestion on the
chart which are the most revealing. The first of these lasted 14 price candles
(approximately 4 hours) whilst the second lasted the entire session of a day.
However, look at the associated volume bars and compare these to the price
congestion that lasted for 3 days. The most recent price congestion phase at
the top of the chart, which lasted a day, has almost the same concentration of
volume as in the first area of price congestion, which lasted for three times as
long – 3 days.
What is the volume telling us about this congestion phase of price? And once
again, as with all volume analysis it is in comparing one with another that the
anomalies are revealed giving us the validation we are always searching for
in any analysis of price using volume, and in this respect VAP is no different.
In this example in Fig 9.12 we have an intraday chart, with the congestion
phase at the bottom of the chart giving us our benchmark against which to
measure other areas of price congestion and their significance.
Whilst the second phase of congestion is, as we would expect, with below
average volume bars in a short phase of sideways price action, the next level
above, our third level, is already starting to ring the alarm bells. And the
reason is this.
Because here we see a price congestion phase, over a short period of time,
but with above average volume bars and spread over a deep area of price. So
an alarm signal is sounded. From a trading perspective if we were holding a
position, this would give us the confidence on the break out higher, that this
was a significant area of price support and we could therefore continue to
hold the position with confidence.
Then we arrive at the fourth level on our chart at the top of the price action,
with the congestion phase marked with ultra high volume on our VAP, and
additional high volume bars in a very narrow trading range on our traditional
volume bars. Clearly the market is weak at this level and the volumes are
heavy, and likely to be selling in this region. After all, on volume of this
strength we would expect to see the market move higher but it hasn't, instead
it has remained range bound.
In case you think this was a chart deliberately 'hand picked' to reveal the
power of VAP, nothing could be further from the truth. It was the first one I
happened to select when writing this chapter, and indeed, you may find this
hard to believe, but as I was writing, the market opened, and the Microsoft
stock price fell like a stone, down $1.40 on the open.
Fig 9.13 Microsoft (MSFT) 15 Minute Chart – After Open

And here it is! As you would expect the volume at price profiles have now
changed, as we are seeing heavy volumes coming into the market, as
evidenced on both the VAP and also on our traditional volume bars at the
bottom of the chart. This once again demonstrates the power of volume at
price analysis. Not only are we seeing a potential support region being built
visually, we are also seeing this validated in our volume bars at the bottom of
the chart, and when we begin to analyse this with our price spread, a
complete story of price action backed by volume is created. It still defeats me
as to how anyone can ever trade without using volume, and I hope fervently
that by now I have convinced you to at least consider it as one of, if not the
only one of, your analytical techniques. I sincerely hope so.
Just to round off this chapter, let's take a look at some other examples of
VAP.

Fig 9.14 Alcoa (AA) – Hourly Chart

Fig 9.14 is a really interesting chart. It's an hourly chart this time for Alcoa,
but look at the huge volume spike in the centre of the volume at price
histogram. It is enormous, and more importantly is right in line with the
current price action which is in congestion. The market has traded in this
range before, and clearly this represents a very significant area of price
consolidation as evidenced by the VAP. As you can see, in the past few hours
the market has rallied and attempted to breach this level, but failed. And no
wonder, given the volume profile on the left of the chart in the VAP
histogram. At this point we would be moving to our traditional Volume Price
Analysis to look for anomalies and validation, which may well confirm this
view, and suggest that any break out is likely to be to the down side.

Fig 9.15 Proctor & Gamble (PG) – Daily Chart

Now this looks a really nice stock in Fig 9.15 to be trading right now and the
reason is that, as an investor, you would almost certainly have been looking
at this as a longer term buy and hold. It is a daily chart and the chart period
covers around 6 months in total. And, as we can see for the first three
months, this stock was in congestion. However, look at the volumes in the
VAP. One extreme volume bar with another of average volume. Whilst the
congestion phase was long, looking higher up the chart, we see a further
phase of congestion, which lasted for two months, but the volume bars here
are only moderate and above average. This gives us our benchmark as clearly
the support platform at the lower level is a substantial one, so in the event of
any reversal lower, there is an extremely strong, natural barrier in place.
More importantly, when the breakout from this region occurred, it moved
higher on a gap up, which is always a strong signal, and then validated by our
Volume Price Analysis. From there this stock has risen strongly, and
following the second phase of congestion, has moved higher once more.
However, the key thing about the second congestion phase is that the
volumes, relatively speaking, are lower, and therefore this price region may
not offer the same degree of support in the event of a reversal lower. This
helps when placing our stop orders in the market, which are always governed
by our risk and money management rules.
Nevertheless, the point is this. These visual regions created using the VAP
approach, give us vital clues and signals which help us in many different
ways. They help to validate the current price action. They reveal the 'depth' of
support and resistance in key congestion areas, and they give us confidence
on breakouts, when the platform of support or resistance is there for us to see.
If it is strong, then we have additional confidence to take a position, if it is
weak, we may hold back and wait for other signals. Finally VAP reveals the
strength of support and resistance for future price action, which again helps
us to visualise and analyse risk.
Now in the next chapter we are going to examine some further examples
using Volume Price Analysis (VPA). However I would urge you to discover
more about VAP for yourself. The examples I have used here have all been
using stocks, but it is a technique that applies equally well to many other
markets and instruments.
The CME themselves used to provide a facility called Chart -EX which
produced a similar picture for traders in futures, but I believe this is no longer
available. However, as I said earlier, most good charting platforms will have
this indicator in one form or another.