Eiger

Sledge, On a daily continuation chart there had been a down trend since December, or so. To me, this looked like it ended in a Selling Climax. It then broke the down trend by going sideways through February with successful tests and, in the process, built some cause to go higher. It had a spring (another sign of strength), and then some impulse movements up with volume generally expanding to the upside and receeding on reactions. In this process, it decisively broke the resistance from late January. All of this is bullish. So far, on the daily, I don't see any buying climax or significant crowning over at the top. Those, of course would be signs of the bear (and, for a compatriot who also likes to go short, you know what these look like ). The one thing I worry about for longs is the last reaction (from your chart). It is a bit larger than i would want to see, basically wiping out all the gains made on the last rally. I don't think it kills the strength in the background, but it is what Wyckoff referred to as a "critical area, where it seems a feather can tip the balance in either direction." It's no surprise, then, that it can be seen as bearish as well as bullish. The danger now is that Cable drops lower here. I think the danger point is the support line at B-A. It could spring this (penetrate below,but then quickly rally and close well above), and that would be very bullish. (I don't think VSA calls these springs; they may refer to them as tests or maybe shake outs.) It can also rally from here, and then as JJ says, look for a Test in a Rising Market. You had some demand come in on the hourly chart you had put up, so a rally is a good possiblity. What I would not want to see is a deep penetration of B-A and/or a close below that level. That would turn me bearish. Hope this is helpful, Eiger

I was seeing it more bullish, but I really don't know this market, so probably not correct. This is a critcal area, though. If it can't rally away from this area, it would be weak, in my judgement.

Because if you are in an uptrend and price is approaching the Demand (support) Line, you should be seeing a recession of volume and narrowing price spread - this is what is normal in an uptrend. It might be helpful if you think in terms of Effort vs Result. In bullish moves, volume (i.e., effort) expands to the upside and retracts to the downside and you should see price (i.e., result) act accordingly. This means you should see with wider spreads and expanding volume as price advances (indicates demand) and narrowing spreads and lower volume as price reacts (indicates lack of supply). When you see price approach the Demand Line with increasing volume and wider spread, it means supply is swamping demand and the support has very good odds of breaking, as it did yesterday. Background is critial, too. Yesterday saw a Buying Climax where price was overbought (at J) after more than 3 hours of trending, No Demand (at K) after the climax, and a "mushrooming" or crowning over at the top - all of these indicated the market was likely to react and all preceeded the breaking of the Demand line. That seems normal, too. Reactions will often end in a selling climax of some degree of intensity at support, especially support on a higher time frame, which is a good place to look for climactic action. This may seem contradictory with the above, but it is about position in the trend and degree of intensity of the stopping volume. The background and context are vital, and we don't have that information in this discussion, so it seems vague. Post some charts about this and then everyone on this thread can help with some answers and benefit from the analysis. I'd like to see what you are referring to, here, so again, please post some charts. We will all be able to learn that way Eiger

I don't follow this, but did see the well developed Wyckoff/SMI story that was unfolding last week and posted the first chart of the daily GBP. It has come down a little more than the ideal, but still looks constructive. Looking at your daily chart (second chart), it is sitting right on top of support (S) that is highlighted by the dotted line. Bar A looks to me like a bit of bag holding, as there was still high volume on that bar and the bar was narrow with a good close. I am thinking that this market is coming back to test the pretty high volume in both the support (S) areas - there seemed to be a lot of activity there. I think B is an important bar. I wouldn't want to see it close below this low. That wouldn't be very constructive. It could dip below this low, however, close back above, and spring the support area. That would be quite positive, assuming volume remains tame. I don't really know this market -- just dabbling here but it looks pretty good. Eiger

Thanks, JJ. I actually didn't know that no demand requires a second bar for confirmation - thanks for that. I did understand that an upthrust is more of a secondary signal and that weakness has to be alive in the background. Since I prefer to short, I have to keep myself in check on those bars I registered for the TG symposium (London webcast), and hope that Sebastian will go over confirmation, when to pull the trigger, and the other fine points of VSA trading. Thanks for the review, I really appreciate it.

Thanks, JJ. Yes, let's focus on VSA Actually, I am hoping some of you will find things missed or errors in my VSA analysis. I really hope you do, as there is no better way to learn.

My take on today, FWIW. This is the 10-minute ES Chart: A – An up bar closing midrange on an increase in volume. This looked like supply, but the market had just broken above the Globex high and the next bar is up. B – Fairly wide spread up bar closing midrange. Volume has receded. This again looks like supply may be entering the market, but the next bar disconfirms this. C – Test on volume less than the previous two bars. Tom Williams points out that a Test following weakness indicates strength, and that is what occurs here. Next bar rallies higher. D – Another up bar closing midrange. Volume is lighter on this push up. Again, it could be supply coming in, but we know better by now E – Test on volume less than the previous two bars. Expect another rally. F – This is a No Demand bar, but given the strength of the market, it is a “polar bear in Hawaii” and can be discounted. Next bar rallies higher with a proportionate increase in volume confirming the No Demand should be ignored. G – UpThrust closing on the low and back within the range of D on a sudden increase in volume. Supply and weakness begin to enter here. Reverse Trend Lines are drawn from D & G, with a parallel from the low after E. H – Down bar on low volume indicates a Test. Despite the weakness at G, another rally can be anticipated. I – On the rally, I is No Demand, so like F, it is discounted. J – An UpThrust closing on its low on significantly increased volume. Market is in an overbought position. This is supply. K – No Demand where we would expect it – after supply at an overbought level. L – I am not sure what you call this bar, but it is a definite change in behavior. This is the first time since the open that the market has fallen on a substantial increase in volume. In his book, Tom Williams says that bearish volume increases on down bars and decreases on up bars. The rally following L shows decreased volume on up bars. Also, Tom Williams says that increased volume and wide spread as you approach a support line, signals that it will be broken, which eventually happens here. M – No Demand where it should be. N – Market falls to N where some demand comes back in at N indicated by the midrange close on heavy volume, as well as the bar before (down bar on significant volume), and then slips down to O on heavy volume. It looks to me as if there was buying at the end of the day in the area of N & O (down bars on heavy volume).

Yes, put some up. We can all learn from them. One thing I am not too swift on is failed tests. If someone sees one, please post it. I'd like to learn more about it. Eiger

Not that I know of. The NYSE Tick is a running calculation of NYSE stocks trading up or down from their last trade. It only calculates during the RTH when the NYSE is open. There is also one for the Naz and Dow (TIKI), but again, only when the exchanges are open.

Yes! This is what i thought/hoped this thread was all about Great analysis, CW. I think the bar immediately after A is also pretty important. It is an up bar, and as CW said, it indicates there must have been buying on A. Look closely at the volume on this bar. It is ultra high and nearly the same as A. If that was selling, we would have had another bar like A. Tom Williams refers to this is "bag holding." It means the herd is in panic and is unloading (whatever this market is?), and like the postman with his bag open, the professional $ is taking all offers. One other clue to this bar is that the low doesn't dip much below bar A - big $ is eagerly buying. Thanks for the post, CW. Eiger

Thursday was a good day for Springs. There were two that occurred. I love these trades when they set up. FWIW, here's what I saw. On the day before, the S&P market had a trend day down. Unless we are breaking out of a daily consolidation area where the market is likely to trend for a few days in a row, the day after a trend day usually sees testing and consolidation, at least in the morning session, if not all day. I thought that there were a couple of good indications that we would see some testing and consolidation. First, Wednesday ended the day at the bottom of the trend channel in an oversold position. The NYSE Ticks had hit quite low levels in the late afternoon (-1,100 to -1,200), also indicating it was pretty oversold. The last few down bars on the 5 min chart on Wednesday had ultra high volume, suggesting demand was coming back into the market (“strength, when it appears, comes on down bars.”). Earlier, there was a Spring on the daily chart, followed by the big rally fueled by the FOMC rate cut. So, it didn't seem likely that we would be starting a new downtrend with such strength in the background. Even though Wednesday was a trend day down, I was seeing it as a potential Test of the daily Spring. Spring #1 On the 5-min chart, bar A was an average spread down bar closing midrange. It sprung the early morning support area just to the left. Two constructive aspects of this spring were 1) the small penetration below support and 2) the close well above support. Also, the next bar was up and the volume was less on this up bar. I have found that lighter volume like this is usually better. I think Tom Williams refers to this as a “vacuum.” It indicates that there is no real supply at this level and allows the market to rally nicely. Had there been larger volume, and price was unable to rally away from the danger point, the spring likely would have failed and we would see more downside. Wasn’t that a nice rally? There was a trading range to the left and Tom Williams makes the point that high volume on up bars is usually unliked, except when they are pushing the market through resistance, as here. I like to keep a 3-min chart with Ticks (not VSA, but I find it helpful) that is day session only along with the 5-min chart that includes the overnight data. The day session chart can be helpful around the open. At bar A on the 3-min chart, price dips under Wednesday’s low and volume recedes on the low. You can also contrast the Wednesday afternoon volume generally with the volume around Thursday’s open. I end the day session only chart at 4:00, so you don’t see all the volume, but you can see that spike of volume (70K contracts on a 3-min bar-yikes!). There were actually more heavy volume bars and this was ultra high volume, as mentioned above. You can also see that Ticks didn’t come close to Wednesday’s low ticks. They held higher, indicating that there was no selling left at this level. There was a nice Test at 1. Spring #2 The second Spring came at about 12:40 – lunchtime seems to be more active lately, or is it just me? The morning rally and the reaction holding as it did suggested to me overall bullishness in the background. In the immediate background, the down bar at E (5-min chart) looked like stopping volume and the market then rallied. I thought this added to the strength. On the 5-min chart, the volume at F was less than E, but the penetration was lower than at A and the close just reached above support. The next bar closed near its open, which wasn’t all that great. I think there was still supply that hadn’t been drawn out of the market. The Ticks seemed to suggest that, too, as there was no divergence that we often see on a Spring. Volume was less, and although it took a while to rally, there were several tests: one three bars after F, one at “t”, and another at G (3-min chart) indicating that supply was drying up. As I say, Springs are one of my favorite trades. They aren’t 100%, but when there is strength in the background, they usually work quite well. Hope you find this is useful. Eiger

It seems like nearly every post I have made recently draws a response about time frame. Some seem to want to argue about time frame and promote their position on it. There is a vigorous advocacy of the 1-minute bars. Apparently so vigorous that you doubt your own wisdom. That is not a good thing for a trader. The time frame you choose to trade from is your decision, no one else’s. Please understand that I don’t really care what you choose. I have nothing invested, nor do I want to invest in whatever time frame you choose (sounds silly to even say that, doesn't it?). What I mean to say is that it is your choice, and it is a personal choice based on a variety of factors that are strictly personal to you. Don’t let others (including me) unduly influence you. I found from my own experience that the small time frame is not helpful to my trading. As I said earlier, we have more of a tendency to “see” something that isn’t there on small time frames. Because the time frame is small, if what you see is a misperception, it will quickly disappear and cost you money. You run the real risk of getting whipsawed a lot. Sebastian Manby says he uses a 15-min chart to help reduce the whipsaws. The other major problem with the small time frame is you miss a lot of what is there. Again, Sebastian Manby said earlier that you don’t get meaningful VSA indications like no demand on a 1-minute time frame. So, if you are interested in developing proficiency in VSA, well, I would think about what he is saying. He is a master. We were discussing absorption, which was missed on the small time frame chart. When Wyckoff discussed absorption, he did it with a DAILY chart. He analyzed the NY Times Average from late 1930 to late 1931, and it is a brilliant analysis full of chart reading techniques. But he did not use a 1-minute chart, and to my knowledge never used a 1-min chart. Ask yourself whether or not the advocates of the small time frame talked about absorption. Nope. Totally missed it. In fact, if you look at the blog, there was discussion about where to take a short position during this time! Same with the Spring on March 19. The blog took a short position in the midst of strength, yet later said that from a Wyckoff view, traders would have gone long on that day. Why go short, then? Because of the fundamental problem with the small time frame – you have a very strong tendency to miss the forest while hugging the trees. Should the 1-min chart be condemned, then? I don’t think that at all. Sometimes it can be useful. I was confused about price action and a 1-min chart would certainly have been helpful. No doubt about it. If you are trading in and out for small scalps, you probably need a tick chart. But, this is about VSA, not scalping. On balance, I personally have found that it is more a liability than an asset. That was all I said and it sure seemed to rattle the cages, didn’t it? One more thing raised is the notion that the 1-min chart lets you see the flow of the market. I don’t buy that. You do not need a 1-min chart to read the flow. In fact, Wyckoff developed a wave chart as a way to read the flow of the market. He was very focused on the wave movement of the market and always talked about how the market moves in waves. When the waves start to change in length and time, you can anticipate a change in market direction. You definitely do not need a 1-min to read the waves. Although not strictly VSA, if interested we can talk about this useful aspect of Wyckoff. Zeon, you may find the 1-min chart suits you well, and that is terrific. If you can trade well with it, then use it. But you need to come to your own conclusion on this. Don’t take what I say or what others say as gospel. It ain’t. Think about this: a little while ago I posted about a potential Spring in the Naz. That was immediately countered with a triangle pattern and an opinion about the downside. Do you remember what you had said? Compare that with where we are now. Go with your own counsel, man. You know more than you may think you do. Eiger

I use MetaStock with an e-Signal data feed. I use MetaStock primarilly because I use a couple of indicators that were built on this platform, plus it is easy to transfer data from text and excel files in and out of MetaStock. A lot of MetaStock people also use AmiBroker, which is a (much) less expensive option, and they seem to really like it. The TradeGuider software looks interesting, but I have never used it. There is a lot of charting software out there -- all seem to have both pros and cons. Applying Wyckoff and VSA doesn't require indicators. So, unless you wanted to go with TradeGuider, you probably don't need much more than a basic package. The e-Signal data feed comes with charting software, which I also use and is OK. The charting software is certainly adequate for Wyckoff and VSA applications. On commodities (including index futures), however, they have an odd convention of being one day behind in the volume, so it is always off by a bar. This only occurs on the daily chart, not the intraday. But it still can be vexing at times, so i am not sure I could recommend e-Signal whole-heartedly. (I always think about Tom Williams's comments in his book about how the exchanges really don't want us to have the volume data because it is so important. They continue to lag the data and vendors like e-Signal continue to support this.) The stock data is good, though. TradeGuider says they are coming out with a less expensive data feed that will run on MetaStock, so I am waiting to see what they develop. Maybe someone here knows of an alternate data feed that will also run on MetaStock? I do know about Rueters, but I don't know of any others. In any event, I'd be interested if someone knows of another data provider. I'll respond to the first part separately. I hope this is helpful, Eiger

These situations can be confusing. What you are seeing here is aborption. Unfortunately, you can't really see it with the 2-min chart. I've attached a 5-min chart of the past few days. The area you outlined is boxed in blue. It actually was a little larger than what you have drawn, and the 5-min chart shows this more clearly. The absorption area is highlighted by the green box. VSA teaches that previous resistance areas and areas of active trading will still have locked in traders - traders with poor postions under pressure looking to get out at break even. Sometimes, big money will rocket price through these areas via wide spreads or gaps. Other times, they will absorb the offerings. Yesterday was a trend day down. As a general rule in the S&Ps, the afternoon high (red circle) of any trend day down will be resistance the next day if price comes back into that area. We saw that today at about 11:30, though price did not (and this was a clue that the opposition formed by the resistance would be broken) react very far. On the FOMC day, there was also a fair amount of trading activity in this same area, both before and after the announcement (red oval). The dashed line highlights the area, and if you go back a little farther, you will see that price traded in this general area on previous days. As price came back up into this area again, whatever was offered by traders was absorbed by the CM or big money. How to tell it is absorption? Resistance on the left side of the chart needs to be there. You noticed the declining volume. That is one good clue. You also see rising supports or higher lows as the absorption area progresses. A third clue is that price holds it gains well. Price was holding well (on top of the support of the 11:30 highs), and did not have much of a reaction. Anytime price did dip within that range, it did not draw out any supply (increased volume), so no one was interested in taking price lower. Sometimes, you will see a slight increase in volume at the very end of the absorption area. This didn't happen today, but when that does happen, it usually occurs on the last few bars and those bars typically close mid-range or higher and their lows are almost always higher. At the very end of this absorption range, there was a little shake-out, seen by a wider spread down bar with almost no appreciable increase in volume. It was then followed by a nice reversal bar that indicated absorption was completed. Sometimes you will see absorption before breaking out of a Supply Line. There is always some form of resistance. I hope this is helpful. Eiger

That's a nice analysis. It gives the flip side of what happened at the same time in the US Stock markets. Were you trading this, or were you using it to read the other markets? Bar B is interesting. It looks like it went up to try to test the highs at A, and then price was soundly rejected. Then, even more volume on C and it slips lower and only regains about 1/2 of B. I like your thoughts about D being unable to hold its gains. I often discount these bars because of the level closes, but thinking about going into new high ground and closing back at the previous bar is a useful way to see these. Thanks. Eiger

Back to the markets. The last two days have been constructive in the S&Ps. As we were discussing a few days ago in the Naz, it looks like a Spring is occuring at a critical point in the market. Of course, we can just fall down lower from here But, for fun, here is a possible scenario we can watch out for. If this has been a Spring, then the next step to anticipate is a test. This either comes in the next day or so, or after a Jump Across the (minor) Creek, and then a test. Following that, if successfull, a Jump Across the (major) Creek. If that occurs, then we can anticipate the all-critical Back Up to the Edge of the Creek or last Point of Support, and so on. Again, this is simply one of many possible scenarios that the market may take. Right now, the news is pretty bad, so the timing seems right. The key to following this is to take it one principle at a time and let the next principle confirm. So, the potential Spring needs to be confirmed by a Test. A JAC needs confirmation by a test (BUEC), etc. It will be fun to see how it all unfolds. Good trading! Eiger

Nothing. But, it can help you become aware of your response to market action and then make changes where needed. One of the reasons we have such a difficult time holding on to winners (which seems so simple) is because of the way we think. Our minds get in the way of what we need to do as traders. Most all of us need to work on the mental side of trading (and then there is the emotional side ... ). The Mark Douglas book is a good place to start and has a lot to offer. Eiger

The odds may be favoring a Spring on the daily ES & NQ charts.

The point I was making is that it has little to do with person idiosyncracies. People, on average, have a difficult time letting profits run. It is refered to as the "disposition effect" by psychologists. Our decision-making processes may have evolved in this way. Evolution may have favored those who secured the "one in the hand" over those who sought "two in the bush." Evolution or not, we seem to be mentally organized in this way, which works well most of the time, but not so well in trading. Thus, we as humans have a very strong tendency or bias in taking profits quickly. It has little to do with personal attributes. Eiger

It's more complicated than that. Humans aren't really very good at handling risk; it doesn't come naturally. As a result, we as traders have to fight natural tendencies to cut gains short and let losses run. It is one of the things that make trading so difficult and keeps many from success. Eiger

The UpThrust is in an uptrend, and not a valid signal. You have to see an UpThrust after weakness. There is no weakness on that chart. When you have weakness in the background (Buying Climax, distribution range, or a down trend), it is an excellent signal. It is an upthrust, but in the wrong context. It thus has little meaning, as far a signal goes. It's what they call a "polar bear in Hawaii." The End of a Rising market had some volume, but I'll bet not ultra high for that market. Also, it has a wide spread. You really want to see ultra high volume on a narrow range bar into new high ground. Close doesn't seem to matter. These are pretty rare. The idea is that buyers are attracted because the market has hit new highs (big news, everyone sees it). But, with the narrow range, the market is being capped and selling is swamping demand. More than one or two day's worth of data is needed to have a valid ERM signal. Hope this helps, Eiger

Hi Ed, I personally found that I got whipsawed quite a bit trying to trade off that small of a time frame. Sometimes it is helpful, as in Db's recent post. There you see the demand, where on the 5-min chart it looked like supply. Most of the time for me, however, the 1-min chart appears better than it is. It took a long time for my mentor to convince me that the 1-min was too ephemeral (I was very stubborn ). I kept thinking that the finer time frame let me "see" more and give me better entries and exits. But I finally learned that, for me and my trading, a higher time frame is much better. Others may have a different experience, and that's great. Eiger

Not necessarilly. A SC is very nice background, but not a defining characteristic of Springs. They come in many flavors. In this example, note the rally before the Spring - potential strength. The Spring itself had stopping volume on it, and was climactic action - more strength. You also had near support and, as you pointed out, the first bar of the AM session as some support. I would view the near support as more important, though. There were two swing lows just prior to the open that also could have been tested by the spring. These aren't shown on your chart. Then, a test confirming that supply seen at L has dried up. Eiger

I'm not quite sure what bars you are talking about. There was a nice Spring today (Bar L) on the 1:25 PM bar (Eastern Time). A nice dip down with a very good close. Lot's of volume though, so it got tested. You can see how the Secondary Test (Bar M) came back into the high volume area at L. The ST was the place to go long. Eiger

Thanks, Db. That's a good use of the 1-minute chart. I tend to stay way from it because I begin see way too many "set-ups" that then evaporate. But I see your point about this. Thanks