High volume nodes (also know as volume clusters) are the key to catching market reversals early. Not all reversals are identified by high volume nodes but a high percentage of them are. If you aren’t currently looking at high volume node in trading, then you really should start.
The interesting thing about high volume nodes, is that they do NOT represent an increase in trading activity.
Let’s say that your market is trading 1000 contracts a minute. 5 minutes go by and there’s 5,000 contracts traded but no high volume nodes. Then in the next 5 minutes we see a cluster of high volume nodes – but we only traded 5,000 contracts. Volume was the same but this time we got high volume nodes. How is that possible?
High Volume Nodes Explained…
A high volume node occurs when there is an exceptional amount of volume traded at one price. For example, on Crude Futures, we may see on average 30-50 contracts trade at each price before the market moves to the next price. Then we see a price where 500 contracts trade at a price. What’s happening is that trading is continuing but price is no longer moving. The overall amount of volume doesn’t have to increase, it just means that the market is no longer reacting to buying or selling.
In a move up, buying might continue but traders with sell limit orders will add more sell limit orders as buyers trade at that price. These sell limit orders ‘absorb’ the buying and prevent any price movement upside. This process of adding more contracts is often done with an ‘iceberg order’, where the order automatically refreshes after a certain amount has traded. It’s a way of ‘sneakily’ hiding how much you want to sell at a price. The reverse happens in a move down.
High Volume Node video – Crude Futures
In this video, we take a look at a couple of different types of high volume nodes that cause reversals. We look at headfakes (false breakouts) and the way that news driven moves typically end.
Not all reversals are initiated with high volume nodes – but so many are, you owe it to yourself to learn about them!
If you don’t currently feel “connected” to your market. That your market isn’t really talking to you. That your trades feel like guesswork. Than your decision to stay in or get out is an arbitrary one, then start with drills. Do a few hours a day and soon you’ll feel connected to the market like never before.
For more on common sense approached to trading, and our free “Order Flow Foundation” course with 10 hours of video content…
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