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Everything posted by Eiger
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In addition to CW's good bar analysis, it is very useful to keep the overall structure of the market (i.e., the bigger picture/background) in mind: Starting from the left: Narrow spreads accompanied by low volume as this market drifts lower indicates a lack of conviction to the downside. Compare this reaction (spreads, volume, distrance traveled, and duration) with the up moves on this chart. There was no conviction to the downside. When the market did move down on wider spread, the volume wasn't there. It also turned around rapidly. This was a Shake Out. (Note the bar following the Shake Out - one bar takes out the price decline of 7-8 bars. This confirms the Shake Out, lack of downside conviction, and indicates strength). Next note that the gains are being held at a higher price level. When price does dip back into the area of the "strength bar," volume is less indicating demand remains in control. At the end of the trading range, price comes to dead center, or Apex. Given the strength in the background, this was a choice location to try a long trade. Price pushes hard up past the trading range. What is farther to the left of this chart? I would imagine it was some sort of congestion area, which would explain the drive up (pushing up through potential supply). Gains are again being held (market is repeating itself). Note how little the market has given up in terms of price here. As CW noted, volume is shrinking on down bars and has generally receeded as the market rests. All of this indicates a further advance for this market. Try to keep the big picture in mind while using VSA. Hope this is helpful. Eiger
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Today was a really good day that proves the principle of always being patient and waiting for confirmation: On a potential Spring, we look for a confirmation in the form of a Test before entering the market long. Eiger
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It makes a lower low on the weekly chart, but the week isn't over yet, so that bar is incomplete. THe daily shows a bullish bar on the potential spring. Yes, the volume data is off and, therefore, incorrect. For some reason, MetaStock/eSignal give incorrect data right after the close on daily bars. Had that been true volume, the setup would be suspect as markets do not like high volume on up bars since there would be much selling in that volume, potentially swamping demand. Unless volume is well below average on a Spring, it is best to be patient and wait for a Test of the Spring. This is why in my judgement it remains a potential Spring. It is not yet confirmed. To help Wyckoff students better understand the spring concept, Bob Evans catagorized three levels of Spring: A No. 1 Spring approaches the support level on increasing volume, has a lot of volume on the Spring bar, penetrates well below support, and has a poor close. These Springs are most likely to fail and begin another leg down. A No. 2 Spring has some volume, modest penetration, and closes well. The No. 2 Spring remains a potential Spring until it has been subsequently tested. A No. 3 Spring has only a small penetration of support, draws only light volume from the market (no supply), and closes well. This does not need a test. A useful way to think about Springs (or any market movement) is to assess the market's repsonse, which Evans's spring guidelines help us to do. In one part of his Studies in Tape Reading, Wyckoff was discussing the tape details of a day in US Steel and how the stock was responding to the buying and selling pressures read in the tape. He wrote: "This study of responses is one of the most valuable in the Tape Reader's education. It is an almost unerring guide to the technical position of the market." Eiger
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I think it is worthwhile to note how the market is unfolding with all this bearish news about Lehman, AIG, & Merrill. I especially like the Bank of America's CEO's statement yesterday: Bank of America Corp. (BAC) Chief Executive and veteran deal maker Ken Lewis said Monday that the world's financial system is "under almost unprecedented stress" So, if this is true, how come the financial sector is holding better than the overall market? The attached chart shows data through yesterday, September 15th for the weekly SPY (top) and XLF (bottom), the SPYDR Financial Select tracking ETF. XLF has led the market down for nearly a year. Look at the huge volume in XLF over the 2nd and 3rd weeks in July and how the market responded. It is the largest vcolume on the chart, a clear Bottom Reversal, and a potential Selling Climax. Thus far (the week isn't over yet), XLF is holding above the July lows while SPY dropped under. Today there was a good rally in the Financials as well as the S&Ps (See attached daily chart). Note that today's volume on the XLF chart is way off. It actually was a little more than yesterday's volume, not abnormal volume as shown on this chart (there is some problem in the charting). Although it is still early (we need confirmation), a potential Spring may be forming on the daily in the S&Ps. Eiger
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A similar experience happened to me. I spent $5,000 plus another $1,000 in travel expenses to attend a 2-day seminar on "profitunity." I was going to learn the inside secrets on chaos theory as applied to the markets! What a waste. Just a rehash of indicators, Elliott Wave, and dated psychology. What was worse is that I proceeded to trade it and lost over $30k. What is even worse than that is that I decided I wasn't knowledgable enough in Elliott Wave and hired an "expert" consultant to teach it to me. That was another $3,000 plus phone bills. What is worse is that I then proceeded to trade this and lost another $25k. At least you are smart enough to recognize when you are duped. It takes some of us a while before we understand that part Like others have said, we all seem to have to go through this, unless we are very lucky and have some decent mentoring early on (it is one of the many values of a site like this - Thank you, James). After I got over the pain of the losses and the humiliation, and rebuilt my trading account by working a night job, I vowed that I would "show those ***kers" that i could learn trading. I made my mission to beat them, even though they would never know. Probably not the best attitude to adopt, but it did channel the anger I had (and I had a lot). It helped. Whenever I felt like giving up, I remembered how I was taken and how I didn't believe in myself enough. That restoked the fire and kept me going. In some ways, I think that if it had been easier and less painful, I wouldn't have gotten to be a decent trader. So, FWIW, I don't think you were stupid at all. You were just pursuing a dream and willing to go way out on a limb and borrow money to harness that dream. I'd say you have the deck stacked in your favor, but it takes a fair amount of effort. The past, as they say, is dead and never to be resurrected. Don't dwell there. It is what you do next that's important. Eiger
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Chicago blues shouldn't be missed. Buddy Guy's Legends is a great club. It's on South Wabash Ave. The view from the top of the Sears Tower is worthwhile seeing. If you like architecture, Frank Lloyd Wright's Oak Park is nearby. The Navy Pier is pretty cool. Michagan Ave has lots of stores, Water Tower Place, the Water Tower, Drake Hotel, and the Hancock Center. Chicago is a great city; you'll find lots to do there. Eiger
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Great post CW. Can you explain the significance of the body of the wide-range candle and what makes it such a potetnially important location? VSA talks about coming back into the area of high activity (the wide range bar in general) and testing the high volume, but it doesn't say much more about it. Is there anything that can be added from candelstick theory? Thanks. Eiger
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A trader asked me about an ultra high volume bar and the bar that followed on a stock/ETF chart. I thought this could be helpful to other traders and, thus, am posting it here. I see a fair number of posts about high volume bars that are confusing to traders trying to apply VSA prinicples. When they see high volume, they immediately want to make a countertrend trade (e.g., if high volume comes in on the downside, they want to take a long position and vice versa). Usually, traders get their hats handed to them for taking such trades. It doesn't take too many of these trades for traders to lose confidence in VSA. It is not the fault of VSA. The trader simply didn't take the time to look at the background ... ---- You asked about CMED and the bar on 8-13-08. It was a down bar, ultra high volume, and closing near its lows. I marked this bar and its volume on the daily chart with red arrows. The next bar was up. You asked if this is a strong bar. In a word, the answer is No. This market is not showing strength here, but weakness. I’ll try to explain why from a VSA/Wyckoff perspective. Let’s first take a look at the monthly chart. It is always a good idea when trading anything to look at a couple of time frames higher than the trading time frame. In my trading of the 5-minute ES, I look to the 30-minute and even the 60-minute charts first, to see what the larger background, trend, and S/R areas are. I want to be taking trades in line with the larger background, or, if I chose to go counter the background, I know I will not be able to hold the trade for very long. When trading off the daily chart, you can start with the monthly, then go to the weekly. Monthly Chart So, the monthly is interesting. From mid-2006 or so, it was in an uptrend. The high was reached in February 2008 at 1. Note the close is near the lows and below the prior month’s bar – bearish. If you look at all the other monthly bars in the uptrend you see this has the widest spread compared to any other bar. It is also the first bar since the rally beginning in 2007 to close poorly. Volume was high, but not ultra high. That bar told you that there is weakness in this stock. The market reacts, then rallies on a very wide spread up bar on high volume at 2. The volume would lead us to question this bar (markets don’t like high volume on up bars), but the spread is wide and the close is good. Next bar is down on reduced volume – no significant selling pressure, so expect higher prices. The market doesn’t go very far, however. At 3 we have a repeat of 1, but this time on more volume. Bar 3 is an UpThrust on ultra high volume. It is saying that the weakness or supply seen at 1 is now dominate. Selling is swamping demand. So, from the monthly chart, weakness is apparent. Weekly Chart On the Weekly, the picture becomes clearer. The areas of 1 and 3 from the monthly are carried over. On the weekly, bar 1 is the largest down bar with the greatest volume since the mid-2006 rally. This was a clear SOW where supply was swamping demand. On the rally from June 2008, note that the up bars labeled A are No Demand – volume is low as the market tries to rally. Compare these with the up bars in the rally from June 2007 – for the most part, up bars in this rally were on increased volume, on down bars, the volume dried right up. Not true on this rally. The down bars at B and 3 had increased volume, especially at 3. At 3 you have a 2-bar UpThrust/Top Reversal. This is decidedly bearish. Two bars later is a No Demand confirmation of the weakness. So there is weakness starting at the high for this market at 1, and it carries over through the recent weeks at A, B, and 3. In VSA, we know weakness in the background doesn’t just go away. There is nothing bullish on this chart that I see. Further, the November 2005 high (marked C) had been penetrated (March – June 2008). This should have acted as support and the market rallied away from this area if it were bullish. Instead, we are now penetrating it again. Finally on the weekly, we have a potential trading range forming between the points at 1 and 4. We are in the middle of the trading range and not the best place to take a trade. Odds favor at least a test of the lower end of the TR at 4 by this analysis. Daily Chart On the Daily chart, there is an Island Reversal at D – not VSA or Wyckoff, but this market gapped up on a narrow spread into the old top and supply area of 3, then gaps down the next day on an increase in volume and wide spread – very bearish. The heavy volume on 8-13 was not stopping volume – the bar closed on its low. You want to see the bar on ultra high volume like this close mid range or better to cbe considering stopping volume. The next bar was an up bar but still on very high volume. Markets do not like high volume on up bars – it was just mostly selling to anyone who would buy at that point. The market drifts lower. Note the red dashed line. This is called an Axis Line. Markets tend to trade and rotate around these lines – you see them on all time frames and markets. This one is around the 41 level. It began with the demand at E, traded back down thru it, and then at F the market was held here to absorb supply for a brief time, and rallied above it. But it fell back through, and at G, was repelled once again until a month later it rallied back above it. It served as support again at H, and now we are at the 41 axis once again. It may give a small bounce here for a short period of time, but with all the weakness in the background, I would expect the axis line to eventually be broken and the market trade lower. Well, this has been a study in multi-time frame chart reading and how to frame a current market. As you can see it is pretty logical. You can learn how to do this for yourself by a serious study of the Undeclared Secrets that Drive the Stock Market (T. Williams) and the Wyckoff Course, especially Wyckoff’s analysis of the late 1930-1931 market. ----- Background is vitally important, no matter whether we are trading on a 5-minute chart or the daily. When you see high volume come in, don't automatically assume the trend is going to change. Look at the background. Assess the larger time frame trend. Check for nearby S/R levels. Assess the stride. Anaylze the spread and close. Wait for confirmation. Hope you find this is helpful. Eiger
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Or it could be that not many went long today because everyone is still bearish and short. Attached is the daily S&P Cash with the NYSE Total Volume. Although volume was less than the past few days, it is high relative to the last month and one-half. Look closely at the volume, though. What is making all this volume this week? Perhaps its just everyone returning from summer vaction? Or, perhaps we are seeing informed interests stepping in and buying? Tomorrow has a lot of news that could move the market. If news allows professionals to move it to the upside, there are a lot of shorts that will have to cover ... Just a few thoughts that probably won't happen. But, on the other hand, it could turn out to be an interesting next couple of days. We shall see Good trading everyone. Eiger
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I have been focusing more on the openning minutes lately for clues to how the day will unfold. Assessing the waves is always a helpful practice in this regard. Yesterday (Sept 9) was pretty telling. The day before (Sept 8) began with selling, but by the close price had rallied back into the middle of its range on the day. At the end of the day, there was selling seen on high volume up bars closing in the middle (these are noted with an S on the attached 5-minute ES chart). Note the very narrow range and high volume on the last S. The market was being capped at this level. The next day opens with the first two bars (marked with 1) down on heavy volume. The third bar off the open was also heavy volume and an up bar closing in the middle. All of these bars indicate supply. Note the red line shows a wave down larger and steeper than the reaction waves from yesterday afternoon's rally. This is a sign of weakness in it's own right and comes from Wyckoff. In his Tape Reading Course, Wyckoff advised traders to carefully watch and compare the swings of the price movement. He said that when the down waves became longer in size or duration, or when the up waves shorten in length or duration, or both, the odds of a change in trend are good. I outlined the waves in yesterday's rally in purple. You can see the up waves had shortened and the first down wave of the day (red line) had become greater. Another helpful tell of supply was that the heavy volume on the last up wave of yesterday produced the smallest up wave in the rally. Very heavy effort with little result. The increased length and accelerated stride of this down wave (in red) combined with the heavy volume to the downside on this wave, the high volume up bars from yesterday afternoon and the shortening up waves from yesterday, all indicated that the odds were good for further downside movement in price. Confirmation or lack of it would come on the next up wave. The rally up was quick, but the volume fell off sharply on the rally. The spreads begin to narrow as we approach the old top from yesterday afternoon. At 2, volume increases, but the close is poor - this was also a very good clue of more supply. Were this market going to rally through and above yesterday afternoon's high, it would not have had such a poor close on such high volume. Bar 3 was a Top Reversal/2-bar Up Thrust and this began the decline. Two No Demand bars at 4 & 5 indicated further downside to come. A study of the waves and the effort (volume and spreads) on those waves at key areas of support and resistance can be a big help in trading. Add the VSA indications to highlight the strength/weakness and for triggers for entry/exit and the charts become clear. ------- Another aid to assessing the waves is shown by the blue line graphic in the left side of the chart. This measures the length of progress of the waves. You can clearly see the shortened progress made by c compared to b and a. You can also see clearly that the red down wave took out all of the progress made by waves b and c, highlighing its significance as a SOW. Hope you find this useful. Eiger
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Not taken as a criticism. You are probably right and you can distinguish between a No Supply and a Test, I just tend to lump them together. From my experience trading, the close really doesn't matter. Most important are the low volume and narrow spread. Both characteristics indicate a lack of activity, which is what we are looking for in a down bar. Also there must be strength in the background; otherwise, they are ignored. Eiger
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Hi Winnie, Nice to see you back Springs vs Tests Springs are not really a VSA term, but come from Wyckoff. Bob Evans, the director of the Wyckoff Stock Market Institute during the 1940s-1960s, created the concept of the Spring. It is one of my favorite trades when it sets up properly, which i will talk about. My trading mentor also loved Springs and always said, "You could make a good living just trading Springs." In many ways, it is like the reverse of the Up Thrust. A Spring dips under the low of the last low and closes back above the low, either on the intial dip or within a bar or two after that. You should see the market rally away from the danger point (the lows) soon thereafter. Although many Springs are tested, some rally immediately. Like the reverse of an UpThrust, Springs both test the supply under the lows and clear the stops of weak longs. A Test is a dip back into an area of high volume showing supply has dried up and the path is clear for a rally of some degree. ------ The attached chart is the 5-min ES and shows: a Spring, the test of the Spring, and a couple of Tests (not too shabby, eh? ) The market prior to A is in a downtrend. A - At A we see climactic action. Volume expands markedly and suddenly. Price has accelerated, and at bar A, the close is above the middle. Next bar is up. B - The Spring. Price dips under the low at A and then closes above that low. Next bar is up. Note that the volume is less on the Spring (at B) than at A. You want to see lower volume on the Spring. The lower the volume, the stronger the Spring and the greater the odds that it will rally immediately. On this Spring, however, volume is still a bit high (above average) indicating some supply remaining at this level. This Spring also has a fairly wide spread, indicating activity. C-D - Because of the above average volume on the Spring, the market tests the Spring. The small reaction from C-D shows narrower spreads (compared to those at A & B) and much less volume, i.e., volume does not expand much as the market moves lower. The bar at D is a Hidden Test (it dips under the low of the last bars in the reaction and closes above and near its high). E - Just to make absolutely certain, the market makes a Test at E. Tests are always down bars (best when they close mid-range or better) and have low volume. Note the volume at E is less than average. E has dipped back into the high volume area at A & B and shows no supply left on the mark-down. The market immediately rallies vigorously. As a general rule-of-thumb, tests are considered to have significantly low volume when the volume on the test bar is less than the previous two bars, as it is here at E. F - Another Test occurs at F. This is classified as a Test in a Rising Market, but has the essential characterisitics of a Test: down bar, narrower spread (compared to the bars on the rally from E), and volume less than the previous two bars indicating no supply is coming in (as the market runs into the small congestion area to the left). In this Test, the close is a little above mid-range, as well. The next bar is up Keep in mind that Springs, like Tests, should be considered only when there is strength in the background. Here, we had the strength of the Selling Climax. Another clue that this Spring would turn the market was the length of the rally between A & B. I often look for the longest and/or largest rally in the downtrend to indicate the end of the downtrend. Wyckoff noted this characteristic as a sign of strength in his tape reading course. ---- So, on one chart we have the stopping action of a Selling Climax, a Spring to clear stops and test for supply below the low of the SC, a test of the Spring because volume was a bit high (so there was some remaining supply found), a Test, and a Test in a Rising market. Hope you find this useful. Eiger
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I couldn't agree more. Motorway has a true understanding of Wyckoff. And, he is not trying to sell you "his" version of it or be your guru. I have never met him, but I do have enormous respect for his understanding of Wyckoff and his ability to discuss and articulate the method in the context of the current markets. People interested in the Wyckoff method would do themselves a big favor by studying Mr. Motorway's work. Here is a link to his Wyckoff thread: http://www.aussiestockforums.com/forums/showthread.php?t=10020 There are many other Motorway posts on individual stocks on the Aussie Stock Forum that are also quite worthwhile reading and that you can find with a search. Eiger
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The main accumulation for this stock was likely started sometime prior to February. The resting periods and reactions seen on this chart could be additional accumulation. In a typical stock scenario, the range from mid-June to july would tend to confirm a larger accumulation area (that I would expect to see prior to February). In point & figure charting terms (which is highly useful in identifying accumulation/distribution), this confirmation would be called a "stepping stone count." It is a concept that comes from Wyckoff, and can be quite useful in trading. Accumulation is the specialty of the professional trader. Accumulation means to buy as much stock as possible without putting the price up against your own buying. At some point, the available supply of stock will be exhausted and accumulation will be completed, allowing for the mark-up phase and higher prices because resistance (selling) into higher prices has now been removed. Accumulation occurs sometime after a bear market has occurred and where price is at a point viewed as attractive to professional traders. Although professional traders are buying on the start of the rally (as we can see by the increased voilume and wide spreads of the price bar), accumulation does not start there. Their purpose was to mark price higher, not accumulate stock. As a general rule, high volume on up bars indicates the potential for supply to be swamping demand. (I'll do a separate post on this later.) In this case, the high volume and wide spread indicates a rapid mark-up through the overhanging supply of the trading ranges to the left. We can know this because of the background of the trading range to the left and the low volume on the most recent reaction. Even though there has been a shaking out, there are still trapped longs holding on. This rapid advance is designed to push price up and through the levels of the resistance to encourage those trapped longs to hold on and not sell into the buying -- the professional traders do not want to be accumulating more stock at high prices; it is too expensive for them and, therefore, bad business. Tom Williams laid out the steps for anayzing a market in his outstanding book, The Undeclared Secrets of the Stock Market, as follows: Determine the phase of the market Assess the relative volume Assess the activity on that volume Determine the direction and movement of the current price action Note that the very first step in market analysis is evaluating the phase of the market. This is what we call the "background" in VSA, or market context. Those who seem to consistently fail to understand VSA consistently miss this step. They go right to the price action (which is not even the second step!) Always look first at the background and phase. Here we have a bullish mark-up phase and a low volume reaction within that phase in July. The next logical movement we can expect would be a drive to higher prices. We can see that unfold next with higher volume, wide spread up bars closing on their highs, moving price up, through and above the old tops in April & May. Hope this is helpful. Eiger
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Hi CW - great to see you back! Where have you been? We all missed you. Re: Tests. The best tests are actually down bars, i.e., the close is lower than the previous bar. They can be inside bars, and the close is less important than the low, low volume we want to see as the market is marked down. This indicates no selling pressure. You are right, the ideal Test closes mid-range or better. Welcome back. I look forward to your posts. Eiger
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Using VSA, you can generally see the odds for a rally to take place. Your stock is very readable. VSA works well in both EOD or intraday time frames, as well as higher time frames. The initial rally on your chart into mid-March showed good expansion of volume on the rally. Individual down days in this period showed volume immediately recede, confirming strength. From mid-March into early April, the stock held its gains and volume receded. There was probably an old resistance area to the left (not seen on this chart) and the stock was absorbing any residule supply before moving up. There was a choice Test at the very end of this period. In June-July, after moving up well on rallies, this stock reacted. Note the daily spreads on this reaction were larger than the spreads on the prior two reactions. However, as the stock reacted with larger daily ranges, the volume told a different story. It was drying up. This was a Shaking Out of traders who got long on the earlier rallies by the professional traders. This was followed by a very nice rally with daily bars having wide spreads and volume expanding well indicating this is a true breakout for higher prices. (After shaking out and aquiring whatever stock could be acquired by driving the stock down, professional traders did not want to have to buy from traders with poor positions who had gotten long at the top of the April and May rallies, so they pushed the stock up very rapidly, encouraging those traders to stay long.) After price broke above resistance, it gave an immediate Test and confirmed the bullish behavior (the first down bar in the rally). At the very end of the chart there is some supply coming in, so you would expect another reaction here. How the stock reacts would tell you the odds for future behavior, but through the end of this chart, this stock still looks overall bullish. Each market and each time frame has its own individual characteristics. Things tend to unfold more slowly on the daily than the 5-min chart, for example. Nevertheless, VSA is equally applicable to the daily and to the 5-min charts, as you can see. Hope this is helpful. Eiger
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Trend Day Down again today. When we get used to countertrend trading and fades, it can sometimes be challenging to shift to a trend day mode. The background, early indications after the open, and a series of VSA indications gives us a nice structure and methodology to stay on the right side of the market. We were already in a down trend (see 60-min chart) with no indication of demand on the higher time frames. The market opened below yesterday's low and gave clear indication it was having difficulty rallying much above it during the fist 45 minutes after the open.. 5-minute ES: A - An Up Thrust into the conjestion area just above yesterday's low. Note the inability to rally over the first 45 minutes. B - Volume picks up substantially at over 94,000 shares. This is quite a bit of voleume on a 5-minute bar. Is it stopping volume? It can be, but look at the 60-minute chart. There is a good support area along the 1260-63 line. The heavy volume we see on the 5-minute chart is the result of professionals pushing through that support coupled with trapped longs bailing on their trades and break-out traders adding to the liquidation. Although we see some Shortening Of the Thrust after bar B, closes are on the lows and new lows are made - hardly bullish behavior. (You can compare the market behavior following B with that following the other sudden high volume bars on this chart. Even though we are in a downtrend, the subtle signs that the market would attempt a rally or rest after D and H were there. Of course, a better comparison can be made with sudden high volume that turns the market on other days). With a break of significant support on heavy volume and a downtrend already in place, the odds were good for continuation to the downside. C - An up bar, on narrow spread, volume less than the previous two bars after a series of lower lows and lower highs -- a lovely No Demand. Next bar is down (Up Thrust). T - Appears to be a test - but there is no strength in the background, only significant weakness. D - High volume down bar on wide spread, next bar is up and this knocks the market sideways, Note the inability to rally. There is no demand for the upside going into the noon hour. An UpThrust at E caps the rally. Next bar is down. The small rally that follows E is on low volume and shows no demand. F - Although the volume had dropped off over the noon hour, you can still see that up bars were No Demand or on very low volume as the market drifts lower. G - Even over the lunch hour when volume is low, the market shows an increase in volume as it breaks the old low at D, signifying further weakness. The No Demand that follows confirms. H - As usual, a sudden increase in volume turns the market and we have the longest rally of the day. It lasts a little over an hour and struggles to reach the high of the sideways movement/very weak rally at 2:00. The market finishes this rally with an Up Thrust at I, next bar is down, followed by a further reaction to close on its lows. Eiger
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A useful way to learn VSA is to annotate charts every night. There are many examples in this thread. Doing this over many different types of days will help you quickly get the feel for the charts and chart reading. Eiger
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Tests. Valid Tests occur after a Sign of Strength (SOS) - always. This is an axiom in VSA. There are several Tests on the attached chart. Note that this is only one trading day. There are other valid and profitable ways that Tests reveal themselves. In VSA we look for a Test after a SOS. Typically, a Test occurs on a narrow spread. The narrow spread indicates a lessening or lack of professional trader activity, which is one characteristic we look for. The "best" Tests have a close at mid range or on the high, though admittedly, the close is the least important aspect of the Test. Always, Tests are a DOWN BAR; never an Up bar. (The way to tell the strength of the market is ALWAYS on a down bar, never an up bar.) Also, Tests occur on LOW VOLUME. Low volume is the most important characteristic as it shows that professional traders have a lack of interest in the downside. The best Tests occur on volume that is lower than the prior two bars. In the attached chart, D is a clear SOS. Two bars later at E, there is a nice Test. Note that the bar is a down bar and that the volume is less than the previous two bars. The market rallies well until F when there is a potential indication of weakness. However, the next bar is a Test, indicating no supply by the professional traders. Later, at H, we see another Test-like bar. Tests show that supply is no longer evident in the market. The Test paves the way for higher prices. We look for confirmation on the next bar which should be an up bar. Not long ago, Sebastian Manby did an excellent video on Tests which is quite worth reviewing. He goes into very good detail on the Test and provides you with a complete course on the subject. To summarize, Tests: occur after a sign of strength. are a mark down of the market by professional traders into areas where supply (high volume) occurred earlier, or occur in rising markets. occur on a narrow spread and very low volume are followed by an up bar When this ideal combination of events occurs, the odds of higher prices is very, very good. Eiger
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Hey James, Thanks for posting this. I wasn't aware of Suri before this. I like his approach and also the article - great review of the Trader Vic 2B set-up. I hope he does come onto the board. We can all learn something of value from him. Thanks again! Eiger
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Excessive volume on up bars indicates demand is present, but so is a significant amount of supply. When volume is excessive on up bars, it usually means supply is swamping demand. In the chart referenced, D had excessive volume. It is the largest volume on the chart and the bar closes near its low after meeting an old top or resistance area to the left. This was a clear indication that supply or selling was swamping demand at that point. The market then reacts. On the push above D & I, volume expands as the the market pushes through the potential overhanging supply at the old tops (D & I). The spreads also expand and closes are on the highs. The professional traders are pushing price up and through the resistance of the old tops at D and I. Volume is strong, but, unlike D, not excessive. In writing that post, I suggested comparing the volumes at D with the later pushing through D & I to distinguish between an excessive and a healthy expansion of volume in combination with the spreads, closes, and overhanging resistance (all must be taken into account). Tops at D & I were broken on the healthy expansion of volume, and price later came back at K and then M to test the heavy supply seen at D. Thinking that "... there should be a big volume" will get you into trouble quickly. Volume should expand on up waves and taper off on reactions in an up trending move as it does in the referenced chart. However, excessive volume on up bars is always suspect. Excessive volume is very often a tell or sign that the professional traders are transfering stocks or contracts to the public, and that, therefore, the market is about to change direction. With a little study, you can determine what is healthy expansion vs. excessive volume in the market you trade. Keep in mid that on a quiet, low volitility day, excessive volume will be of a much lessor intensity than on a high volility day like a trend day or a day following a trend day. In other words, it will take much less volume to turn the market on a quiet day than on a very active day. This is what I think Tom Williams means when he says that VSA indications come in different intensities. Thus, it pays to study volume characterisitics on quiet and active days and to have a way to detewrmine early in the day whether the current day is going to be more quiet or more active. (One simple way to do this is to compare the volume over the fist hour or so of the current trading day with the first hour volumes over the last 2-3 weeks. You can also make similar comparisions in the futures indicies with ticks, trin, breadth, look at intermarket relationships (more complex), etc). You can learn more about volume and spreads in Tom Williams's excellent book, The Undeclared Secrets of the Stock Market and in the material put out by TradeGuider, much of which is free (see their charts of the week). Hope this is helpful.
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I find this fascinating. Here is why: This is a post on trading edge posted in the psychology section, but there is no discussion on trading psychology! All the discussion is about stats, expectancies, and technical indicators. Surely these are an essential part of an edge. Do you all think this is sufficient? More to the point, if you think there are psychological edges, what are they? What have you all found useful from psychological perspective that has made the difference in your trading?
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I use eSignal, but the (very) few indicators that I use are coded in MetaStock and MS Excel. I have not found eSignal to be useful in this regard. The three indicators I use are a Wyckoff Wave Chart, which includes certain volume and cumulative volume characteristics of each wave (this is proprietary), a leading stocks indicator, and a NYSE Tick indicator adjusted to the mean of the last 10 days. All of these indicators reflect supply and demand or no supply and no demand characteristics of the market. I trade the S&Ps and these along with standard volume and price are highly applicable to that market. I don't know about other markets. eSignal has great data but I haven't found their programming system to be all that helpful. Explore Excel. There is a wealth of possibilities if you like indicators. Unsolicited advice: Try to focus on understanding price and volume as you explore indicators. Indicators can be very helpful at times, but the real truth is always in the price and volume. For excellent references in this regard, look to the Wyckoff Course and Tom Williams's Volume Spread Analysis. Google Wyckoff SMI, Genisoftware, and TradeGuider and you will find a wealth of material that, if studied and applied well, will help you become the trader you wish to be. Hope this is useful. Eiger
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Don't worry about starting school later than others. I didn't start my doctorate in psychology until I was well into my thirties. I was the second oldest in my class, but it didn't matter. Developing a niche is important, as this is what gives you expertise. Note, though, that as you get more 'developed' in your niche, you become more narrow in your focus and in your knowldege. People who master a subject area become an expert in that area, but have little knowdge, skill, or ability in anything else. This is true in medicine, law, trading, real estate, cooking - any field. One of the great things about college is that you have an opportunity to begin specializing (via a major, such as economics) but also the opportuinity to explore other fields, like psychology, biology, literature, history, etc. What makes this important is that you can begin to see how other fields may compliment and even inform your field -- in other words, you can get important ideas from outside your field. And, this becomes more crucial the more you develop expertise in your niche (and narrow your focus). In clinical psychology, for example, the past 100+ years have been devoted to 'regulating' thoughts and emotions - the basic idea being that if I feel bad, I have to change or get rid of those unwanted feelings; otherwise, I can't be happy or productive. Well, 100+ years of trying to do this hasn't worked very well. About 15 years ago, a psychologist who happened to become interested in eastern religions took the idea of accepting one's suffering and began a line of research. One simple idea from outside the field has spawned an entirely new approach to psychology which is quite robust in helping people to make changes (and is also very useful in performance activities like sport and trading). More importantly, it is turning the whole field on it's head. In my case, psychology and trading are tightly intertwined. I am a trader and also a psychologist. I wouldn't be nearly the trader I am without the psychology. And, because i work with traders on improving their trading performance through trading psycholgy, my trading is critical to my work as a psychologist. So, if you are interested in economics, go persue it. You never know where it will lead. As a well-known US professor, Joseph Campbell, used to advise his students, "Follow your bliss." With respect to the Ivy League - they have a definate advantage, but not every top-level person comes from the Ivy League. In fact, most don't, so don't worry about that.
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Cats anyone? Catwalking.wmv