For gold traders and gold investors, the daily chart for the precious metal has delivered some simple and clear examples of the power of volume price analysis, and how it can help us not only identify reversals and turning points, but also help us to stay in a position – which is the hardest part of trading success, bar none.

If we return to the US presidential election, whilst equity markets were reeling and then rebounding,  the reverse reaction was occurring for gold (GLD, quote), with the daily candle closing with a candle that could best be described as dramatic. If one were to draw this as an example of weakness, one might be accused over exaggeration, yet here it is on the daily gold futures chart for, with the extreme volatility self evident, as the price action on the day first rocketed higher, only to reverse equally quickly leaving the extreme and extended wick to the upper body. A clear signal if ever there was one. The associated volume was equally extreme, and indicative of only one thing – extreme and heavy selling. This demonstrable example is classic of volume price analysis in action – extreme in this example – but nevertheless, powerful in execution with the price of gold (IAU, quote) duly moving firmly lower over the next few weeks, and to touch a low of $1124 per ounce.

This is a large move in any time frame, and as the trend lower develops, so we can see volume starts to decline near the bottom of the trend lower, and whilst some of this was indeed seasonal, some would certainly have been as a result of selling diminishing overall. This move was also helped by strong bullish sentiment in the dollar (UUP, quote), which duly reversed in early January, which has lead to the second, less extreme example, of volume price analysis in action.

Here the trend higher starts gently and modestly, as we move into the new year, but as the trend develops, note the rising volume which is supportive of the move higher, and reinforcing this is a genuine move and one we can either join, or one we can remain in with confidence.

This is what we expect to see if a move is genuine, in other words rising volume in a rising trend, and we can then be assured the move is authentic and not a fake move. The big operators are participating here in the trend higher, before the move runs into resistance in the $1220 per ounce area, which is yet another facet of the volume price analysis story.

Anna Coulling is a trader with over 16 years’ experience and founder of AnnaCoulling.com