Eiger

In both areas there was obviously higher volume that came in at these points. I just think of it as Tom Williams and Richard Wyckoff would view it - if there is large volume then large operators and professional interests are in the market and i want to ride along on their coattails. Both are/were keenly interested in the professional trader.

You are able to identify lots of the VSA indications. Nice job. The next step is to put these together a little more coherently and frame the market. Here are some ideas to consider: Background - 60-min chart: Note the area circled in black. It is at the top of the trend (though we know it is at the top only in hindsight). Compare this to the area circled in green. They look very similar, don't they? There are very key differences, however. Take a close look at the bars in the green circle area. Whenever price dipped lower, it immediately rebounded. In most cases, volume came in on these bars (green arrows). Professional money was buying anytime the market dipped lower. We know this from the volume. Lower prices were being rejected. The background was very bullish at this point. Now, look at the black circle area. Although it looks similar to the casual eye, it is very different. Note that wide spread bars are no longer dipping lower, closing higher. They stay on the lows and volume comes in. This is supply present. I noted this weakness in the ES a couple of days ago. Larger interests were unloading into the buying until the buying was finally exhausted. Also on the 60-minute, the circled area is a distribution area and represents a "cause" of selling in that area, the "effect" of which is likely to be lower prices to some degreee. That degree can be estimated via S/R levels and a point & figure chart. We are seeing that cause unfold now. So, the overall background is down. But there will, of course, be rallies intraday, but short-lived "bear traps" designed to attract buyers. Taking long positions with this background in mind are best kept to limited objectives. 15-min chart: You identified some stopping volume at 1 on your chart. The very next bar was a Test, and the bar after that was unable to fall lower, so the odds were good for a rally. 5-minute chart: The stopping volume on the 15-minute chart was climactic on the 5-min at 1 with a Spring following at 2. So, we are looking at a rally of some degree. Price drifted up in a small uptrend with higher bottoms, and then tested (T) before going up. At Q, the market rallies above the climactic bar at 1, an indication demand is in control. In the green circle area note that each time the market dips lower, it closes back on its highs -- this is the same behavior we saw in the green circle area on the 60-minute chart. The market is always repeating itself, it is just that the intensities always vary. Note also that price is holding it's gains on top of the last congestion area (resistence then turns to support now). So, we are bullish. Price rallies through the green circle congestion at R and then hits some supply at A. We know it is supply because of the volume and rather poor close. The very next bar (#3) is a Test, falling lower than the low at A and closing on it's highs on light volume. This test respects the new support level and indicates that the supply seen on A isn't significant. I like these indications for entry. Next bar is up. Bars 4 & 5 are up on good spread, but the high volume and poor close show supply. This is the highest volume since the rally began and indicates a portential climax at this point and danger to the bulls. Bar 6 is No Demand further adding to the weakness now emerging. But the bar following 6 dips lower and has a good close and the next bar, 7, is a Test, so we can anticipate higher prices, which follow. At S, we again see heavy volume and a poor close, then a large spread down bar with sustained volume closing on its lows. This is a 2-Bar UT and completes the weakness we began to see about a half hour earlier. Although aggressive, I like short entries on UTs and 2-Bar UTs. Keeping in mind that the overall background is still bearish (60-min chart), longs should not overstay their positions and we can anticipate more follow-through to the downside tomorrow. Hope this is helpful, Eiger

Although there are no tops in the background, you do have trendlines indicating an overbought position and a break of the demand line. Drawing lines is important in framing the background

That's it -- too bad that was cancelled.

Can you show why, from the perspective of the background, that this was a choice short?

Glad it is helpful. Best to ask on the VSA III or Pure VSA threads.

I got interested in the markets after the 1987 crash after a very bullish run. The Wall $treet movie seemed to mark the end of that era, sort of as a closing chapter. There was a short-run series about a trading firm that ran about 8 or 9 years ago (?) that I thought was pretty good. It was about a new firm started by a young guy who wouldn't work for his father's firm (classic conflict). The only actor I remember was Stanely Tucci, who played a sort of cunning but devious character, and did it well. Anyone recall the name of this?

Think of the background as a combination of market actions that all point in one direction. In the UT example, I drew a basic graphic to illustrate how to look at background. Starting from the left-hand side of the chart, we have a rally that leaves a print of an "Old Top" or resistance level. Although volume is not shown, were the volume high at the old top, we would note that as well as a potential Buying Climax. We then look at how the market reacts. In this graphic, Lower Lows are put in - weakness. Again, volume is not shown, but if the volume increased on the reaction, that would add to the developing background of weakness. Now we see the market rally. As depicted here, it is rather "lackluster," meaning that volume is relatively low and the spreads are narrow - the market is struggling to advance higher -- more weakness. When we get back to the level of the Old Top, price is unable to sustain a close above the resistance of the old high. This represents an UT and is even more weakness. Aggressive short trades might be taken on the UT, or more conservative short entries would occur on a No Demand following the UT, indicating a lack of interest in higher prices by larger traders, which again, is more weakness. The idea is to read the background as a continuing story with the triggers being the UT and the ND. In this example, the background is the combination of: An old top that forms resistance High volume at that old top indicating a climax Lower low on the reaction Increased volume to the downside lackluster rally - low volume, poor spreads UT and rejection of higher prices Hope this is helpful, Eiger

A few thoughts, FWIW: First, (and maybe most importantly) don't be so hard on yourself. We all seem to have a natural tendency to condemn ourselves when things don't go to our liking. But, I have yet to see where this has truely been helpful for anyone over the long haul. Drop the labels of "fool, dumb," and "abysmal." They just aren't helpful, no matter how frustrated you may feel. Think of it this way: You would never talk to a friend in this manner. Wouldn't you be much more kind and more supportive to your friend in a similar situation? You can do the same when talking to yourself. Trading is a very difficult business that takes time to learn and longer to master. Since you are in a learning mode with simulation, adopt the attitude of learning. If you don't learn from mistakes how will you ever get good at this? You'll just keep repeating the same things over and over. So, it's helpful to be curious about what "goes wrong" so you can learn (again, self flagulation doesn't help in this important regard). Also, be curious when things "go right." Understanding why the trade works well is just as important as understanding why it doesn't. Indicators like Keltner Channels can be very useful, but you will also be well-served in your use of indicators if you understand a bit about market action. In your chart, price had fallen through support and made a lower low -- this is the first indication of a potential downtrend. It then put in a lower high (another strong indication of lower prices) and was unable to show much of a rally before falling lower. Your short-term moving average was also rolling over. All of these things indicated lower prices. They were all there on the chart at the time (see attached chart), but you haven't yet trained yourself to see these things. Being "sure" of your analysis is one thing, but we can never be sure of what the market will do next. The market is constantly changing. Analysis is rather static. It is a very big help to be able to read the market in-flight. It requires a willingness to change our analysis as the market changes. This willingness, of course, brings us back, full circle, to our attitude, which starts with how we treat ourselves. It is all very related. Hope this is helpful, Eiger

Follow-up As anticipated, the market fell back to the low of the day, though there wasn't enough supply present to take it lower. Again, this is using the background, including the various levels of obvious support & resistance along with the notion of anticipation rather than prediction as a way to view the market. Hope this is helpful, Eiger

That's interesting, James. Was Gekko the inspirational figure there, or was it Bud?

See this thread: http://www.traderslaboratory.com/forums/f151/helpful-ideas-for-newcomers-to-vsa-5944.html#post64769

At the suggestion of one of the contributors to the VSA threads, we thought it would be a good idea to have a thread for some basic info on VSA to help those just getting started in VSA. I'll start it with a couple of suggestions. Others should chime in as well. Just as important, newcomers are encouraged to post what they are finding helpful in learning and understanding VSA. ------------ Here are a couple of ideas to get started: 1. Read Tom Williams's Undeclared Secrets That Drive The Stock Market. This is the basic text and has a true wealth of information, both about how the markets work as well as how to read the charts. This is fundemental to understanding VSA. 2. Understand the background conditions of the market you are trading before putting on a trade. Although VSA is about reading the current bars on your charts, a fundemental error I see traders new to VSA commit time and again is to look at a few bars on the right edge of the chart and trade off that. You will definately lose money trading this way. VSA is more about understanding the background and using the individual bar indications to trigger entry/exit. Always look first to the background conditions that exist on your chart. If you don't understand what the background is telling you, just be patient and don't trade until you do see something that makes it clear. ------- This is a start. Again, others - including the new folks -- are encouraged to add to this. If the thread turns into a useful list helpful for the newcomer, I'll stick it to the top of the forum. Eiger

Sorry, I don't use Ensign.

Follow-up on using the Background I mentioned over the weekend in my last post above that supply was present at a confluence of resistance and that a gap down on the open today leading the market lower was something we could anticipate. The market did gap lower at the open, indicating further weakness. A patient waiting until the market retested the last swing high of the overnight session led to a nice UT on the 5-minute chart and good short entry. I would now anticipate the market moving down first to today's low and (assuming demand to be absent at this level) then to the obvious support level at A. Framing the background in this manner helps you trade better today. Seeing weakness appear in the background, anticipating different likely scenarios, and then seeing one of those scenarios take place allows you to pull the trigger on a choice trade when you see the VSA setup occur. Simple, straightforward, and profitable. Hope this is helpful, Eiger

Some ideas on Background Keep in mind that you want to frame out the market and then anticipate what price and volume may do. Never predict. When you anticipate likely scenarios and you later see a scenario unfold you are better prepared to take appropriate action. (Also, note the plural of scenarios - this I important because if you have only one scenario, you are predicting ) Hope this is helpful, Eiger

I have always understood tick volume (in general) to reflect actual trades and not withdrawn bids/offers, but then I don't trade FX, so this is new for me?? When I traded commodities futures years ago I do remember seeing a study done comparing tick with true volume in commodities (grains, I think) and having a correlation of about 85-90%. In addition to currency futures and emini futures, there are currency ETFs with good liquidity and, thus, good volume. Eiger

You are quite right. Some of the best traders using VSA I have met trade FX with VSA. Many of the posts on the VSA II thread detail the use of VSA in the currencies.

Very similar. You can think of a climax as stopping a trend and stopping volume as stopping a move. I think Wyckoff would have called stopping volume a 'minor climax.' In any event, one of the characteristics of both is a sudden expansion of volume.

Springs are one of my favoirte trades. I have studied and traded them for a long time and have a pretty good grasp on their characteristics. Because of that, I usually don't wait for a test for confirmation. Many times springs will just take off like it did here. So, how would you know whether a spring has high odds or not. Your chart has all the characteristics I look for in a spring: First, the background. Here, the market is in an uptrend. It has made higher highs and higher lows. Springs do not work well in a downtrend. I never take a spring when the trend is down unless a clear SOS and a base (cause) have occured. When I see an uptrend in place, I start thinking pullbacks and springs. Note that once again, the all-important background is always the first consideration. What is particularly nice about this spring is that there was a reaction back to support on relatively light volume. This is a choice setup; I really like this look. It is described in the Wyckoff texts as a Jump Across the Creek, and then a Back Up to the the Edge of the Creek. The creek represents supply and the jump across the creek indicates a sign of strength. The market will frequently come back to the edge of the creek and test, as it did here. Testing in this context means not on a single bar as in VSA, but coming back into the area of supply (red curved line) aand testing it to make sure no additional supply is there which would thwart an up move. Volume on the reaction was lighter than the rally. The bar before the Sping was telling. That bar looked ominous, closing on its low and closing lower than the closes of the last four bars. Volume did not increase substantially, however, and the spring bar dipped lower, turned around, closed on its highs, and volume came in. If you were watching this bar develop real time, you would have seen the volume come in as the bar rallied up - this is demand off the bottom. The spring bar is also a bottom reversal in VSA terms, so it had that going for it, too. The final piece to this is that the spring bar was powerful enough to come right up to the minor supply line of the reaction. Any further advance in price would take out this line, which occured shortly thereafter. Regarding switching how the chart displays the bars to look for confirmation -- I personally wouldn't do that. This is akin to committing "confirmation bias," or looking for indications you normally don't look at to support a decision. It is better to either study springs until you are completely confident in trading them without a test for confirmation or specifying that a spring must be confirmed by a test and if a test does not occur, just let the trade pass. Either is perfectly fine. If your criteria includes a test and a test does not occur, so what. A trade was missed. No big deal. There is always another good trade coming just around the next corner. If you note on the chart after rallying aggressively off the spring, the market moved up above the last high (HH) making another new high, rested, held its gains, and gave a nice VSA Test for entry (green arrow). Hope this is helpful, Eiger

Hi Sevensa, Thanks for posting this. I am glad you did -- it's a big help. FWIW - For volume, I have always used a standard deviation function off the 20-period SMA of the volume. Even though our data is not normally distributed, the standard deviation function gives us a pretty good sense of the probabilities of the volume bar. We know, for example, that about 68 percent of all individual volume bars should fall within one SD of the mean. When the volume hits or exceeds 2 SDs,we know it can be significant (either producing an impulse move when pushing though a trading range or stopping/climactic volume). An upper Bollinger Band applied to the volume or a SD function both do the same job. Hope this is helpful, Eiger

Thanks for posting this. It would be a very useful paintbar application. It is interesting that you post this now as I just sent a check out today to open an account at TradeStation. I haven't used TS for quite some time, but when I did, I thought it was quite good. So, I would find this helpful as well. It would also be useful to color code the price bars as up (higher close than previous bar's close), down (lower close than previous bar's close) and level (same close) -- see example in the chart in the first post on this thread. If no one picks up on this in a day or two, I'll copy it into the coding forum and make the request there. Thanks, Tas - it's a good idea. Eiger

Since the VSA II thread now has over 2,200 posts and 128,000 visits, it seemed time to start VSA III. To get us rolling, here is quick VSA look at how the market unfolded this morning on the 3-minute time frame (S&P e-minis). The market opened higher than yesterday’s close, fell off over the first 15 minutes to A, and then tried to rally. B – the rally to B did not bring out demand, and the bars at B were weak, closing on their lows. C – A very weak bar with an increase in spread and volume to the downside. Supply came into the market here. D – No demand on the first rally after weakness appeared and a good short. E – Volume drops off as the market moves lower into the area of yesterday’s close. F – A bottom reversal on good spread indicating demand. G – the market tests the lows of E/F and is unable to draw supply. As it begins to rally, it tests again at G1. H – An increase in volume with a good close, but the spread narrows – caution for longs. J – Down bar, on wide spread and high volume shows supply has reentered the market. J – No Demand followed by a small hidden upthrust. K – Again we come back into the lows and find no supply and the market rallies. T – Tests occur below the resistance at I indicating a rally and a break of I. L – small bottom reversal/key reversal bar which tests for supply by dipping lower one last time before moving up to close on its high. M – Break through the resistance at I and a rally into the noon hour. Note that the volume falls off as we move into the noon hour and come into the morning supply at A. Hope this is helpful, Eiger

The VSA II thread has had over 2,200 posts and 128,000 visits. It is the most visited thread on the TL Forum. All who contributed to this thread since it began in February 2008 deserve congrats for their willingness to share information, their creativity shown in applying VSA, and for helping others struggling with the often not-so-easy-to-grasp concepts of VSA. This willing attitude combined with solid content has helped make VSA II the most popular thread on TL. For those interested in seeing how to apply VSA in many different market situations, spending time with this and the VSA I thread will pay good dividends in your understanding of how to read markets and, hopefully, your trading. The thread has, however, become quite large, and probably unweildy. So the time has come to move on to VSA III, which you will find here on the VSA forum. I'll shut this down for now, and encourage all interested in VSA to look to the new VSA III thread. Link to VSA III: http://www.traderslaboratory.com/forums/f151/volume-spread-analsysis-part-iii-5915.html Eiger

Very nice work, Frank.