Let's move back to the 13:55 bar for a moment. We see in this bar both retrace (within the channel) and reversal (break out of the channel). When we see such an event unfold, we first need to understand in what context we currently find ourselves. In this example, we find ourselves involved in a lower volume (lower volatility) period of the day (prior to 13:55). As such (again, prior to 13:55 PM) Volume doesn't appear to drive price one direction or another. Rather, Price feels as if it is almost drifting upward within the channel (Kelly Green). At 13:55 PM, we start to see increasing pace with respect to Volume and Price movement. As a result, Price breaks through the right side trend line (Again, Kelly Green). However, Pace again begins to slow down with the advent of the 16:00 PM bar. We see both Volume and Price Volatility decrease. Since we know decreasing red volume marks a retrace within an up channel, we know that we must still find ourselves within a Point Three formation. Since Price just exited a Point Three Uptrend (Kelly Green) we begin to look for another (more accurate) measure of the uptrend. As price comes up off the low of the 16:00 PM bar, we immediately start to think, "This must be the real (or new if you prefer) Point Three Channel!" and we draw in our lines (Olive Green). If one cannot 'see' this on the ES, the YM provides ample warning prior to the close of the 16:00 PM bar on the ES (within the 14:04 bar on the YM, price breaks upward). Since the YM leads the ES, one can 'know' in advance that we have a Point Three on the ES.
With respect to how significant Volume needs to be for me to determine Price planned to continue to head lower, you are looking at the wrong bar. The 16:00 PM bar showed a deceleration in Pace (Volume) and Volatility (Price). Had we (on a PRV basis) seen increasing pace and volatility, we could have anticipated continuation and expected Price to continue to head lower. Instead, we viewed a signal for change, and since Price was headed lower, we expect Price to turn, just as it did.
Now, it is important to note the following. We have no idea how long we can expect the new direction to last (after we received the change signal). However, we do not need to know. As long as we see continuation (increasing black volume and / or price remaining with the channel) we know to Hold until the next signal of change.
I hope you find the above information useful.
- Spydertrader
