The Market Lens Through Volume and Candlesticks

Although my trading is very orderflow-focused, I would consider my style more of a hybrid between orderflow and price action. I would not be nearly as efficient without the knowledge and usage of price action and candlesticks. I’ve spent countless hours studying not only how they’d open and close (strong, doji, hammer, etc.) but also bar patterns (2-bar continuations, 3-bar reversals, etc.) I also utilize price action concepts in a completely fractal way, from the daily timeframe all the way down to the 1 minute timeframe.

In sequence, it goes: daily → 1hr → 15m → 5m → 1m (Heikin-Ashi).

It sounds like a lot, I know, but at this point, I get what I need from any timeframe above the 1 minute with just a quick glance. Let’s break it down:

The Daily Timeframe

Without any orderflow, bar-by-bar analysis on the daily timeframe could be as simple as this:

• Was it a strong move all the way from open to close?

• Did we open strong, but close weak? Vice versa?

• What kind of candle did the market end up printing?

When it comes to the daily timeframe, all I’m looking to do is combine these three things:

1. What kind of candle(s) did we print prior to the current session?

2. What kind of VP structure was built within the it?

3. Based on how the candle opened and closed, what does it mean for the inventory placed within the candle?

Pull that photo up onto another tab and let’s do a deeper dive into some examples.

Bar #1:

We see an extremely bearish down candle that encompasses quite a large range. By adding the volume profile to it, I notice these things:

• The entire move down had no imbalances.

• This was not only supply flooding the market — they chewed through a lot of bid-side demand on the entire way down. The sell-side interest heavily outweighs the buy-side interest for the time being. Nothing could stand in their way.

• The bar closed at the lows with a volume node still building and the range still actively transacting. There’s not much of a tail in volume. We can infer that this down move is not finished yet — the market is still actively looking to sell.

As we can now see in hindsight, the next day is also a continuation down day in the market.

Bar #2:

This bar isn’t just a very strong, bullish bar. It’s also an engulfing bar, encompassing the entire range of prior day and closing strong on the upside. With volume in consideration, here are some things to notice:

• The downside of the bar, which is also a test outside of prior day’s range, is a low volume tail. This shows a lack of interest.

• As the bar closed at the highs, it built two very high volume nodes, still closing within the uppermost node.

• Much like the example from bar #1, this tells us that the buying is likely not finished and that upside continuation for the next (or current) session is likely.

As hindsight would have it, the next day opens up, tests the range of the strong buy-side volume and holds it for the continuation higher.

Bar #3:

This one is particularly interesting. One of my favorite candles to interact with — a reversal candle. The daily bar opens at the high of the prior, very bullish, bar, but ends up closing incredibly weak. A bearish hammer down. The volume structure within it is quite interesting. Here’s a closer look under the hood, through the lens of volume:

• The volume structure has 3 nodes, with the biggest node at the bottom where it closed.

• At some point, the market did drive higher, forming two distributions above the closing node. These two distributions tell us that there were two real attempts at higher prices — two batches of long-side inventory build-up that fell offsides and ended up being underwater.

• Through this lens, we can speculate that the market has shown its hand. That upside prices are currently unsustainable, demonstrated through two actual attempts from buyers to build interest, ultimately just to end up being offsides and at risk of liquidating.

• Up until this bar, the buyers in the market were being rewarded. There wasn’t enough supply to satisfy the demand. Each distribution, built higher, saw continuation. This would be the first instance of it being otherwise. The speculation here would be that, perhaps, the market had finally found a range where there would be enough supply to meet the demand. Although, with the way the day closed, the speculation might even be that there was now more sell-side interest than buy-side interest.

Offsides participants can’t be trusted — they’ll flip on you faster than you can decide where to place a stop. Once the market sees this kind of weakness, things can get really interesting. This is where people run for the exit, and nobody does it faster than the offsides participants. The longer they go unrewarded, the nastier the move against that inventory. The market is actively watching one side go unrewarded, and eventually, everyone will be on the same page. Whether it be a liquidation or a short squeeze.

Bar #4:

After bar #3, it’s pretty clear now that volume is struggling to build higher. Instead, it’s finding that the market is only interested in transacting lower, and lower. The prior candles were not only bearish bars, but all had closed at the lower edge of the value. Now, bar #4 closes as a doji down —showing absolutely no interest in any prices above the day’s value area. One must now consider these factors:

• This is now the 4th consecutive day of the buyside up top losing their ground.

• As volume has only transacted and found interest lower, at what point does all of the buy-side inventory, that has been at risk, puke?

The market is actively indicating that nobody is willing to buy any higher prices. It has only one job left do: to go price-seeking and find a fresh, willing bid. And so it does — the next day is yet another liquidation day.

Bar #5:

This bar is the result of repeated, failed attempts to find a sustainable offer down at the swing low. As the market spiked higher, ultimately closing a very strong bar with majority of the volume and business conducted at the very highs, it’s safe to speculate that the inventory placed downside is out of the game — it’s time to look for longs. Here are some ways to do so:

• As the market spiked, the volume structure left a large imbalanced range. This shows us where the market found absolutely no interest on the sell-side. It simply went offer-less and ripped right through the range.

• Considering the information above, we can look to potentially be buyers inside of that range. Let the market find its way back into it as those prices are revisited (re-advertised) and simply let the market tell you how it feels about it.

• Does it build volume/interest within the range?

• How long can it sustain trade inside of it?

• Does the sell-side fade away and lose interest once again, in the same range that nobody wanted to offer on the way up?

In hindsight, we can see that the market only pulled back to the half-way mark of that bar, where it left a nice tail due to the lack of interest from the sell-side to do business in that range, resulting in a move back into the main balance and through it. That tail is the market’s hand — we still do not have any interest in doing any business down here.

The 5 Minute Timeframe

Before discovering orderflow, my most utilized input was the 5 minute candlestick chart. I started my trading journey scalping 5 minute candles, studying not only how they’d open and close (strong, doji, hammer, etc.) but also bar patterns (2-bar continuations, 3-bar reversals, etc.)

The only squiggly lines (besides VWAP), that I use are the 9 EMA and 20 EMA — exclusively on the 5 minute timeframe. I’ve found that the market commonly finds its way back to this 9 EMA quite often. Knowing this, I’m able to reference them to ensure that I don’t get into any trades too early or too late. If the EMAs begin to slope in either direction, I will generally be looking to get alongside of the current market direction if/when it returns to the EMAs — no sooner than that. They serve as a useful temperature check, so to speak. Patience is the game here.

With time and experience, I’ve settled rather comfortably within this timeframe. It will never leave my charts. I’ve developed the intuitive aspects and have seen the many nuances within it, that it just speaks to me in a very clear, concise and familiar way. So much so, that I also utilize the NQ footprint on a 5 minute timeframe.

The 5 Minute Footprint

This is where we start to really get fractal. As you can see, my footprint is unlike most. It looks almost like my daily chart. I’ve decided to forgo the bid x ask prints in favor of just displaying volume inside of the candlestick visual. I prefer the footprint with a 2-tick compression. I’m tracking the delta underneath each bar with a delta profile visual on the right side of the bar. I utilize this footprint in a similar way that I would my daily chart.

Here are some annotated screenshots of some of my favorite footprint setups.

Example 1

Example 2

Example 3

Make It Make Sense

When something just seems make to perfect sense, it really speaks to you. Usually when this is the case, the concept can be applied effectively in a fractal way. This harmonic balance between the concepts of orderflow, auction market theory and price action is where I thrive. It’s what just makes total sense to me and relays the information in a way that gives me the confidence to execute on what I’m seeing — and to be able to be deliberate in my choices.