[VSA] Volume Spread Analysis Part II

[mister ed 10]

Hi Taz, nice hand grenade, thanks for chucking it in.

 

I saw your post a few hours ago, and have been thinking about it since. Sad, I know, but true.

 

I am going to go with the 'muddle through' option.

 

Price movement is a result of manipulation, sometimes,

AND price movement is a result of an auction process, sometimes.

 

The two co-exist, sometimes one is dominant, sometimes another. I will let the fundamentalists (no, not balance sheet/NFP/interest rate type fundamentalists, I mean those who set themselves up in either the MP or the VSA camp) slug it out, I will muddle through.

 

What does muddle through mean? Hmmm, this bit of MP seems to work quite well, I will use it. Hmmm, this bit of VSA seems to work quite well, I will use it.

 

Is this price move, here, now, a result of manipulation? Or is this price move, here, now, a result of the auction process? Ask me later, after I have closed the trade. Right NOW I am occupied with looking at the test and the response. Let me elaborate ... Price moves up, breaks through resistance (maybe a double top). This is the test. Then the price stalls, stops going up, and the volume has dropped. This is the response. OK, so here we are. Why are we here, manipulation or auction? I don't care. What's more important to me is how we got here and then making a judgment on where we are going from here. Up or down? Do the assessment, make the judgment, buy or sell. Now manage the trade until it is closed.

 

I use Wyckoff analysis. The way I use it is to use whatever tool or technique that can tell me about supply & demand, cause & effect, effort & result, and position. I use VSA techniques a lot. I am trying to use MP techniques more as well. Are the philosophies behind each contradictory? Maybe to the fundamentalists (picture white-bearded VSA adherents at the entrance to one cave and white-bearded MP adherents at the entrance to another, hurling invective at each other) they are, to me they can peacefully and profitably co-exist

 

So, is the market manipulated or is it an auction? Yes.

Edited February 29, 2008 by mister ed
clarity

[mister ed 10]

Tom would say that some of those Mutual fund managers with their MACDs and moving average crosses are no better than the herd; a term which is usually associated with small retail traders.

 

Nicely put. A common misconception seems to be that big money is smart money. I would argue that smart money is big money, but big money is not necessarily smart money.

[mister ed 10]

Taz, one thing that occurs to me that I don't think anyone has mentioned yet is that the people proposing that every move in the market can be attributed to the activities of the smart money are the same people selling stuff that purports to spot that smart money activity? Maybe thats just a coincidence or maybe I am a cynical old bastard.

[Bearbull 10]

Taz, one thing that occurs to me that I don't think anyone has mentioned yet is that the people proposing that every move in the market can be attributed to the activities of the smart money are the same people selling stuff that purports to spot that smart money activity? Maybe thats just a coincidence or maybe I am a cynical old bastard.

 

To discover that I am afraid you have to the enter The House of Richard Ney's Disciple, i.e House of Illusion, and be dazzled in the presence of the one who has the Divine gift of deciphering the footprints of Elephants or is it their droppings;)

[BlowFish 10]

Tasuki, I need to re-read your posts later more carefully.

 

At the core the two 'models' of market activity aren't so far different. MP markets move from 'value' to a new area of 'value' Whycoff has markets accumulated marked up distributed marked down. Both provide a credible framework to make decisions in. IMHO its key to develop your own beliefs, that starts by questioning everything and either accepting or rejecting based on your own observations and reasoning. Have you read Jerry (Jperls) threads? Sounds like a more statistical approach may suit you. Having said that it still incorporates volume and simple price action to trigger trades.

 

I do agree with you about all this 'smart money' 'insider' 'evil manipulator' business. Ney is very zealous in this his books he seems to be a one man vendetta against the specialists (they do have a couple of ridiculous advantages <shrug>.) His particular crusade seems pretty specifically against the NY specialist. Joel talks of merchandising and inventory and on reflection he is pretty neutral on who is smart and who is not.

 

Tom talks of selling/buying climaxes occurring on bad/good news and the 'smart money' using these opportunities to buy/cover. A shame he uses the term 'smart' its rather emotive. As DB says 'big' is probably a better bet. Truth of the matter is if you are long xxx bushels of spring wheat you need this sort of event to unload it. One of my favourite books is Reminiscences of a Stock Operator (isn't it every ones?) it clearly describes how players operate when they have large positions to accumulate or unwind. It describes how they will move (test) the market to find liquidity. It describes how they will support a price or even run it up so they can finish there selling. It describes the 'games' professional market operators need to play to achieve there ends. All this in a very 'normal' matter of fact way.

 

Of course when people like tradeguider get involved it obviously suits them to 'big up' the romantic image of things. "With our product, our course, our program, you too can follow in the footsteps of 'the smart money' the guys with inside information the guys that win all the time". Of course the reality is Goldmans chief analyist decides to unwind 20 million citicorp and buy a like amount in notes and euros. Maybe this is smart maybe not. Maybe they will even send a press release to CNBC saying C is upgraded from a strong hold to a buy One things is for sure 20 million shares will go across the tape.

 

Cheers.

[Sledge 13]

Yes, that's what I meant. I'm more concerned with why Sledge did what he did than with what I would have done, at least partly because I don't follow forex.

 

However, Sledge may also have imposed a contingency which he didn't mention, i.e., that if price did not move immediately in the expected direction with no retracement of any kind, then he'd exit the trade. If this contingency were not determined in advance, then more likely he just freaked and got spooked out of the trade.

 

 

 

 

Db-

I think it is fair to say that I did exit the trade because the results were not on par with my goal. Unfortunately, I work a day job and am not able to trade full time (yet) so my wisest course of action is when I am available to trade and get screen time, I have to base decisions upon what I have in front of me.

 

Since the drop did not have the strength I desired, I basically took the profit, instead of having a once winning trade, become a losing trade (which it would have, had I let it run all day long)

 

I think it is more of a trading style. One thing I learned fairly quickly in this business is that you will see many a websites posting people who want to brag about "I scored 230 pips on this trade" To them it is more important to feel as they are some trading guru than it is to have consistancy- and if that works for them, that is spectacular. I have had my share of "Home Run" days- even working for 8 hours while the NY session is in full swing and I am stuck at a desk somewhere being away from my trading platform. But I tend to go for more "base hits" than "home runs."

 

Long of the short is this on this trade:

In 9 hours (all while I slept) I made $400 before going to work.

In working 8 hours yesterday at my day job- I cleared a little over $100.

 

To me it was a good day. My main question was- why did it not drop as expected? Why with such a strong reversal signal did it not drop as I had anticipated?

Sledge

[erierambler 10]

I agree to an extent Tasuki. I havent really studied VSA closely as most traders here.... but the psychology/effort/result behind the bars and volume is what makes sense to me. I am not familiar with the VSA jargon as well.

Anyways... wanted to post ES chart for Feb. 28, 2008. Please see attached.

 

Nice effort , should you have put the day in context, regarding previous days with potential support and resistance areas , the chart would be complete.

erie

[DbPhoenix 42]

DB, actually, the answer is yes, they matter alot, at least to the style of trading that I'm trying to develop. The idea is to understand, as clearly as possible, the reason for the market's move in a direction. I can only speak for myself, but I was allowing myself to be seduced by the idea of sinister "smart money" that was out to get me (the "retail trader"). Listen to Joel Pozen or Tom Williams or Todd Krueger if you find that idea far-fetched. These guys really believe that the big operators are intentionally moving the markets to outwit the retail trader. If you follow this notion too closely, as I was doing, then you start to ascribe every market move to professionals whose motives you can only guess at.

 

Fortunately, there are much better explanations. At any turning point in the market, you can observe the forces of fear and greed and weigh their relative strength by looking at support and resistance. You can also assess the central notion of "fair value" as described in the philosophy of Market Profile. By carefully weighing in your mind each of these forces, you can get a much clearer picture of where the market is likely headed than if you indulge in the paranoid fantasy of "smart money" that is supposedly manipulating the markets. Frankly, I think this notion is actually detrimental to a trader's mental edge.

 

And that may account for the difference between us. I couldn't care less about the reasons for price's movement. When I see selling drying up at support, I go long. When I see buying dry up at resistance, I short. If price is drifting aimlessly, I do nothing. No jargon. No software. No colored arrows. No indicators (bar or otherwise).

 

The whole manipulation thing may be nonsense or it may not. Either way it has no effect on my trading. What to me is nonsense is unnecessary complication.

[erierambler 10]

Nice effort , should you have put the day in context, regarding previous days with potential support and resistance areas , the chart would be complete.

erie

 

forgot to attach the chart

[DbPhoenix 42]

Db-

I think it is fair to say that I did exit the trade because the results were not on par with my goal. Unfortunately, I work a day job and am not able to trade full time (yet) so my wisest course of action is when I am available to trade and get screen time, I have to base decisions upon what I have in front of me.

 

Since the drop did not have the strength I desired, I basically took the profit, instead of having a once winning trade, become a losing trade (which it would have, had I let it run all day long)

 

And there's nothing wrong with that, as long as you've planned it all out in advance along with your other contingencies and you're trading according to that plan. Otherwise, you're trading scared, i.e., gambling.

 

As for scalping via EOD charts, this is not something I'd recommend.

 

My main question was- why did it not drop as expected? Why with such a strong reversal signal did it not drop as I had anticipated?

Sledge

 

Because it wasn't such a strong reversal signal.

[Sledge 13]

Because it wasn't such a strong reversal signal.

 

Fair enough.

Sledge

[jjthetrader 10]

And that may account for the difference between us. I couldn't care less about the reasons for price's movement. When I see selling drying up at support, I go long. When I see buying dry up at resistance, I short. If price is drifting aimlessly, I do nothing. No jargon. No software. No colored arrows. No indicators (bar or otherwise).

 

The whole manipulation thing may be nonsense or it may not. Either way it has no effect on my trading. What to me is nonsense is unnecessary complication.

 

Gotta love DB. He's to all of us VSAers what Simon Cowel is to American Idol. He cuts straight to the point, is brutally honest and is the kick in the pants we all need to become better at what we do and drop what's not working.

Thanks for the clarity DB.

[DbPhoenix 42]

Gotta love DB. He's to all of us VSAers what Simon Cowel is to American Idol. He cuts straight to the point, is brutally honest and is the kick in the pants we all need to become better at what we do and drop what's not working.

Thanks for the clarity DB.

 

I hope not brutal. But I do find that people commonly get all wrapped up in the literal after a while and forget the fundamental principles of whatever it is they're so desperately adhering to. And this is as much the case with religion as with approaches to trading.

 

I don't want to piss off the VSA people nor the MP people (the SMI people I don't care so much), but come on. When it gets to counting bars, much less measuring them, it's time to go sit down in a darkened and quiet place and think long and hard about where it all went wrong.

 

At the risk of repeating myself, it's not about bars and indicators and jargon and schematics and software and academic erudition. It's about buying pressure being more insistent than selling pressure, or vice versa. That's where it begins. If one is not attuned to that dynamic, then all the jargon in the world is not going to enlignten him.

[jjthetrader 10]

DB, I didn't mean brutal as in pissing people off. I meant brutally honest as in no sugar coating the truth.

[DbPhoenix 42]

Fair enough.

Sledge

 

What I mean is, who says so? And why? Does this person have any evidence to support his contention?

 

Try to get past the "bar". Find an interval that enables you to see the waves, even if you have to go sub-minute. Granted you may not see the relevance of this to EOD, but keep in mind that all of this is going on, even if you can't see it in the bar interval you've chosen. But just like termites in your walls, you'd better be aware of the nature of this activity or you'll sink into the madness of such like "candlestick patterns".

[erierambler 10]

 

 

At the risk of repeating myself, it's not about bars and indicators and jargon and schematics and software and academic erudition. It's about buying pressure being more insistent than selling pressure, or vice versa. That's where it begins. If one is not attuned to that dynamic, then all the jargon in the world is not going to enlignten him.

 

Db,

How about starting a thread without all the jargon , and then the topic would not derail this thread? I do agree the simpler the better, less involvement mentally ........in trading.

erie

[DbPhoenix 42]

Db,

How about starting a thread without all the jargon , and then the topic would not derail this thread? I do agree the simpler the better, less involvement mentally ........in trading.

erie

 

That's pretty much what my blog is for (see below). As for derailing, I'm pretty much done on that score, or at least I hope so. If someone finds value in all the jargon, it's arrogant of me to tell him he doesn't. But I've made my point that the jargon is purely extraneous and there's no reason to keep hammering away at it.

[BlowFish 10]

And that may account for the difference between us. I couldn't care less about the reasons for price's movement. When I see selling drying up at support, I go long. When I see buying dry up at resistance, I short. If price is drifting aimlessly, I do nothing. No jargon. No software. No colored arrows. No indicators (bar or otherwise).

 

The whole manipulation thing may be nonsense or it may not. Either way it has no effect on my trading. What to me is nonsense is unnecessary complication.

 

Fair comment and whilst trading I guess that is the case for most of us. Supply running out at a price or demand coming in. Thats the change in dynamic that we seek to identify through change in pace, volume and momentum. Thats still the dynamic the various VSA 'paterns' seek to identify.

 

Having said that beliefs are important. Chart time is important. Proving it 'works' is important. For some people they like to have an underlying understanding of why it works. (just seeing something work is not enough for us). This can be a simple explanation however.

 

Why does price rise from support? Supply has dried up or demand has risen (or probably a bit of both) Why does support break? supply is still available or demand has not entered the market.

 

/agree JJ perhaps not brutal but honest. Actually its probably the greatest kindness you can do someone telling them they are pissing in the wind until they do x y z. It's like telling your best friend there breath smells when they wonder why they dont get girls.

[DbPhoenix 42]

Fair comment and whilst trading I guess that is the case for most of us. Supply running out at a price or demand coming in. Thats the change in dynamic that we seek to identify through change in pace, volume and momentum. Thats still the dynamic the various VSA 'paterns' seek to identify.

 

Unfortunately, static charts are not dynamic, yet these are the kinds of charts that practically everybody works with, especially when they're trying to explain something to somebody, whether in an article or a post or a book, so one is in the position of explaining the nature and character of movement using something that doesn't move. Hence the fallback position: patterns. Then the subsequent focus on and reliance on the pattern, forgetting about the dynamic that created the pattern in the first place, leading to an occasional and sometimes frequent misreading of the "pattern" (e.g., the "head and shoulders").

 

"No Demand", for example, is an important concept, but it has nothing to do with bars since bars don't exist in the continuous flow of transactions. "No Demand" is more accurately a "state of being" for the relationship between buyers and sellers at that time. It's a portion of that continuous flow that is led up to and fallen away from. On the other hand, "No Demand" as jargon has everything to do with bars, but for me is far less useful when it finds its way to that particular box.

[dandxg 10]

What I find that works for me is to look at the macro and then the micro. Here's what I mean. After looking at the DB's diagrams on ET for countless hours I just look for a pullback on lighter volume that is clearly indentifiable and then I look for an upthrust or a no demand for entry. Why? Because they are both logical to me. I have the macro correct which drives the ND or UT trade set up. For a newbie to price volume, the specicifity of looking for an exact bar gives the structure which I need to keep on plan. Keeping to one's trade plan we can all agree is of vital importance.

[DbPhoenix 42]

For a newbie to price volume, the specicifity of looking for an exact bar gives the structure which I need to keep on plan. Keeping to one's trade plan we can all agree is of vital importance.

 

And if you need that structure, then stick with it for as long as you need it.

 

But just for grins, plot a line-on-close using this same timeframe.

[Bearbull 10]

Unfortunately, static charts are not dynamic, yet these are the kinds of charts that practically everybody works with, especially when they're trying to explain something to somebody, whether in an article or a post or a book, so one is in the position of explaining the nature and character of movement using something that doesn't move. Hence the fallback position: patterns. Then the subsequent focus on and reliance on the pattern, forgetting about the dynamic that created the pattern in the first place, leading to an occasional and sometimes frequent misreading of the "pattern" (e.g., the "head and shoulders").

 

"No Demand", for example, is an important concept, but it has nothing to do with bars since bars don't exist in the continuous flow of transactions. "No Demand" is more accurately a "state of being" for the relationship between buyers and sellers at that time. It's a portion of that continuous flow that is led up to and fallen away from. On the other hand, "No Demand" as jargon has everything to do with bars, but for me is far less useful when it finds its way to that particular box.

 

What a great insight, candid, lucid and without any fluff and all given freely, still folks tend to whine and winge,

However if a couple of brainwashed stooges were sent in to these thread to trumpet first about their chance encounter with their godsent mentor, then conduct webinars purporting to possess an uncanny ability to read the market, born out of an omniscient, clairvoyant gift from the divine, then offer a mentoring course for 5k, first ensuring to have a prior interview to ascertain whether the wannabe mentee is a suitable candidate for psychological control, reject those of strong minds who might challenge and upset the boat during the classes, create an illusion of realtime trade calls, keep reminding the audience how privileged they were out the many millions out there to be in the presence of a supreme master of the markets. 4 weeks rapidly pass by as the mentees are left bemused as to: did they learn " How To Trade".

But wait for it, Lo and Behold the answer for that is to embark on a further 10 sessions of one to one 90min sessions at the cost of $1000 each.

 

TALK ABOUT A PROFESSIONAL CAMPAIGN IN THE MARKET;)

[DbPhoenix 42]

Sounds like there's an interesting story in the wings here:)

[Bearbull 10]

Sounds like there's an interesting story in the wings here:)

 

Sure is, ever consider going into mentorship, you could make a fortune, setup a hefty entry fee, people would then queue up, give freely, they don't want to know, human nature, never changes;)

[Sledge 13]

Db-

I know you are being as candid as you can with all of the questions being tossed your direction. I appreciate your candor.

 

After typing this message below, it is choppy and appears ungathered, but with a complex question, I apparently am not presenting my thoughts in a consolidated and succinct manner trying to ask what I would like to ask- but here goes:

 

I wondered if you could just plainly state how you learned your "feel" for the market and apply it- how you feel out the trade- in a sense you are doing just that.

 

I suppose this is a continuation of our conversation we started a week ago- I understand that you can sort of "sense" or "get a feeling" the particular rally or decline is wearing out. Since you don't use bars or volumes etc but S/R.

 

I guess I'm asking- does the "feel" or the sensing come with practice, as every market is different and has its own personality? Meaning that since I focus on the GBP/USD day in and day out, I have more of a natural "feel" of how the market acts- if I tried to apply that "rhythm" to say the JPY- I'd get murdered.

 

Guess I'm trying to pick your brain about how you get from Trade Enter to Trade Close- knowing when to pull the trigger on both. Your method seems un-congested and ro be applying the KISS theory, although from all of us looking in, at present, it is like heading to the Auto Show to see the newest model of XYZ.- We can look, but we want to drive it. Can you help some of us understand how your method can be achieved for other traders?

Sledge