[VSA] Volume Spread Analysis Part II

[thrunner 10]

I'm wondering how one should perceive this? When near R Is it a lack of supply, or a lack of demand, or vice versa on S? Which way is price more likely to go from an expert's point of view?

Absolutely not an expert here. But why don't you start looking at Bid/Ask volume (from a reliable tick datafeed source) at support and resistance levels? These are transient data which will not be stored but it will give you insight into the nature of the auctioning process.

[tune 10]

 

The learning curve can be accelerated under certain conditions, but looking at price action this way requires a certain conceptual and perceptual bias...

 

Certain conditions? What did you have in mind?

[zeon 10]

Eiger, you did great, no need to beat up yourself, you managed to identify the entries and pulled the trigger, that in itself is some achievement. You do not need home runs, increase contract size and aim for fixed points. Also have a look at other markets which are less spikey, NQ, Russell for instance.

 

Focusing on fixed points have it's own problems though. I studied my favourite instrument (the ES) extensively and come up with a number of statitistics. That way I knew how much the chances were of price going (for example) 10 points in the right direction after my entry. Then I calculated the chances of price going in the right direction say 15 or 20 points (smaller odds obviously). But in the end the frustration remained because when you're in a short and price reverses a tick before your target you tend to become gutted. Or if you exit prematurely at 15 points and price goes 50 points further you go like :doh: ...

[DbPhoenix 42]

Certain conditions? What did you have in mind?

 

Freedom from distractions, for one, like message boards. Also replay. And by "replay" I mean the sort that replays moving bars, not that just scrolls through completed bar after completed bar.

[Nvesta81 10]

Freedom from distractions, for one, like message boards. Also replay. And by "replay" I mean the sort that replays moving bars, not that just scrolls through completed bar after completed bar.

 

Surprisingly everything you said did click for me right away. I have quite of a bit of screen time behind me and I've witnessed what you speak of pretty frequently and likely absorbed it subconsciously, the hard part for me was making sense of it in the part of the brain that's suppose to articulate it to others . For example when I see a large rally take place then the next candle closing in the middle of the bar on large volume it's evident that sellers rushed in, if the next candle closes below the previous it hits you instantly that there could be a reversal, especially near S/R zones. You're right that it's all about seeing the big picture and not focusing on just 1 bar or whatever. Sometimes you just need someone's articulate post to spark the light-bulb, and yours did the trick.

[DbPhoenix 42]

Screen time will do that for you, but I'm glad I was able to contribute.

 

It might also help -- or not -- to remember that there is no such thing as a "close" unless the trading literally stops, that what we refer to as a "close" is solely a function of the choices we make regarding how we display the data. Price couldn't care less.

 

On the other hand, if this makes you dizzy, just forget I said anything.

[zdo 20]

The "support and resistance levels" that I'm using are from points and levels that are from 1-4 weeks old, so I don't have a huge amount of confidence in them and have to be especially attuned to what traders are doing at each of these levels. But I've learned to ignore everything that doesn't take place at S or R, so I ignore moves "against" me that don't take place at or near some important level

 

Db,

 

So what are your optimum ‘ages’ of SR levels for the time frames you trade for you to have maximum confidence in them?

A related but much more general question – what is your criteria for placing your S and R lines? Importance equals ?? And if you have discussed this at length elsewhere, links would be appreciated. Thanks.

 

zdo

[zeon 10]

I like the idea of giving examples of trades on charts. This is a trade I took earlier today. It seemed like a decent signal at the time. The volume on an upbar was high but the bar closed near the low. This bar also drilled into resistance, so it was something of a no brainer short for me. I set my stop at 5 points and got taken out by a single tick. What am I doing wrong this time

[jjthetrader 10]

I like the idea of giving examples of trades on charts. This is a trade I took earlier today. It seemed like a decent signal at the time. The volume on an upbar was high but the bar closed near the low. This bar also drilled into resistance, so it was something of a no brainer short for me. I set my stop at 5 points and got taken out by a single tick. What am I doing wrong this time

 

The two previous bars were strength and appear to be a bottom reversal. At that point you wouldn't want to short until you see weakness and that 'upthrust' looking bar was on huge volume. I've found that upthrusts with huge volume are not great to short off. I've been burned the same way. Sorry to hear you got stopped. Thanks for posting so that others may learn though.

[DbPhoenix 42]

Db,

 

So what are your optimum ‘ages’ of SR levels for the time frames you trade for you to have maximum confidence in them?

A related but much more general question – what is your criteria for placing your S and R lines? Importance equals ?? And if you have discussed this at length elsewhere, links would be appreciated. Thanks.

 

zdo

 

I prefer zones, then levels, last points. This is addressed fully in my Blog:

 

PVSR Q&A

 

S&R and Trading Trend

 

The Springboard

 

I'll try to provide a chart later.

Edited March 4, 2008 by DbPhoenix

[Bearbull 10]

I like the idea of giving examples of trades on charts. This is a trade I took earlier today. It seemed like a decent signal at the time. The volume on an upbar was high but the bar closed near the low. This bar also drilled into resistance, so it was something of a no brainer short for me. I set my stop at 5 points and got taken out by a single tick. What am I doing wrong this time

 

Upthrusts are great after prices have risen and climaxed i.e background weakness

Here the market has just gapped down to yesterday's low and reversed on the

2nd bar ie. buying pressure, the upthrust here is out of context as there is background strength, the bootcamp guys call this Palm tree in Alaska or Polar Bear in Hawaii, doesn't belong there.

[Eiger 10]

I like the idea of giving examples of trades on charts. This is a trade I took earlier today. It seemed like a decent signal at the time. The volume on an upbar was high but the bar closed near the low. This bar also drilled into resistance, so it was something of a no brainer short for me. I set my stop at 5 points and got taken out by a single tick. What am I doing wrong this time

 

There was more buying than selling off the open. There was also nothing much except a price bar or two. One thing to think about is to try to put more things together before making a trade -- easier said than done.

 

A little higher up on the 5-min ES chart (it's the same for SPY), price came up to a level where supply had entered three times earlier in the overnight session. The bars marked A were selling. We know this because they are up bars on high volume closing back in the middle. B was a no demand bar, but we have a light volume bar at C, so the market is saying that it isn't ready to move south. At D, another No Demand, and E is the Up thrust and signal to go short.

 

Also, look at E on the 3-min chart. First, there is shortening of the thrust - meaning that the tops are not making much progress, despite decent volume. This is a sign of supply. Then look carefully at E. A narrow range down bar on an increase in volume. Two things to note about this bar that say supply: 1) the narrow range at the top of the rally on high volume says they were capping the market. 2) this is a down bar with more volume than any other bar since the start of the rally. This indicates a change in behavior and strongly suggests lower prices. This was the trigger for an entery.

 

So, you had several things occuring here that made a short a good probability trade: resistance area, selling occuring on the up bars, no demand bars, shortening of the thrust, capping the market, change in behavior, up thrust. Try to put combinations like these together, rather than just a bar or two. These combos come up nearly every day, often several times during the day. The psychological keys to this are patience and concentration.

 

Eiger

[Bearbull 10]

This examples also highlights the difference between s/r levels exhibited by the market v/s the calculated pivots. Yesterday's last hour short covering established the 1321 region as support . That zone once broken is now acting as resistance 1320-21

[DbPhoenix 42]

I prefer zones, then levels, last points. This is addressed fully in my Blog:

 

PVSR Q&A

 

S&R and Trading Trend

 

The Springboard

 

I'll try to provide a chart later.

 

[Eiger 10]

This examples also highlights the difference between s/r levels exhibited by the market v/s the calculated pivots. Yesterday's last hour short covering established the 1321 region as support . That zone once broken is now acting as resistance 1320-21

 

Also, 1320 was yesterday's low, and it was trading there off the open. These markets like the S&Ps seem to like to trade around the daily highs and lows a lot. They are often good S & R levels and price targets. A difficult book to read, but an excellent one, nonetheless, is Geo Talyor's book - Taylor Trading Technique. He talks about how markets trade in these areas and how you can think about markets as buy days & sell days.

 

OK, back to trading!

 

Eiger

[DbPhoenix 42]

Today's R in the NQ was 1730. Potential S was 1720 which, if we begin a bottoming (temporary) process here, may become the midpoint of the range to come, or the "POC".

 

 

Where we are now:

 

Edited March 4, 2008 by DbPhoenix

[zeon 10]

Would anybody see the decreasing distance between the lows as an indicator of a reversal coming? This rally seemed to come out of nowhere (unless you take the volume spikes as buying thanks Eiger)

Edited March 4, 2008 by zeon

[Eiger 10]

I hope everyone had a good day today.

 

I wanted to ask a question about something that perplexes me alsmost every time I see it. It happened today, and I put a chart up to help the discussion.

 

There was clearly buying early this afternoon. You could see the heavy volume come in on down bars at L, N, and P. There was even buying earlier H & I). So the market had turned from bearish to bullish by the time Q & R tested for supply, and there was a pretty good cause built.

 

Then we run up into the old top/resistance at K. The market does this on heavy volume (bars marked S) and stops. When I saw that volume come in, I thought the market might react from here and turn down. I was thinking that on all the volume here, the market would have pushed through and gone higher; not stop at this level.

 

Clearly, T was a nice test and the market went higher. Was there anything else that VSA or Wyckoff talks about that would let you see the market as more bullish than I was seeing it at the time, or was the test at T the only key?

 

I appreciate your help

 

Eiger

[zeon 10]

Also, 1320 was yesterday's low, and it was trading there off the open. These markets like the S&Ps seem to like to trade around the daily highs and lows a lot. They are often good S & R levels and price targets. A difficult book to read, but an excellent one, nonetheless, is Geo Talyor's book - Taylor Trading Technique. He talks about how markets trade in these areas and how you can think about markets as buy days & sell days.

 

OK, back to trading!

 

Eiger

 

Interesting note there. I've experienced the previous day's high and low often to be important. But entering of them is just one thing. If you went long from 1320, would the upthrust be a decent enough signal to exit? If so, than you'd only make 3 points or so.

 

Thanks for the tip about the book.

[zeon 10]

Clearly, T was a nice test and the market went higher. Was there anything else that VSA or Wyckoff talks about that would let you see the market as more bullish than I was seeing it at the time, or was the test at T the only key?

 

I appreciate your help

 

Eiger

 

Hope you don't mind me talking out loud, but it looks like a line parallel through the one you've drawn can be constructed, beginning at K. That line seems to coincide with the point T you tested. And after that line is broken, I think bulls are definitely in control more than they were before. That and the previous chart I posted perhaps?

[Eiger 10]

Would anybody see the decreasing distance between the lows as an indicator of a reversal coming? This rally seemed to come out of nowhere

 

The shortening distance from one low to the next is known as Shortening of the Thrust (SOT). It is a Wyckoff prinicpal. In today's case, as the market tried to go lower, buying came in. The buying kept the thrust (or the waves, swings, legs, etc) from going lower. It is a sign that the market is nearing a turning point. You can see it occur in both up moves and down moves. You can also see it occur in tighter clusters of waves and clusters of price bars like this morning at around 10:00 (see the 3-min chart I posted earlier today). SOT is a great tool.

 

Eiger

[zeon 10]

I have one more question about today's action.

 

I've attached another chart, this time 5-min.

A = selling climax

B = test on lower volume

C = entry long on volume rise, professional money flows in here

 

Am I not applying Wyckoff / VSA principles here?

If so, then why does price not rise anymore? I didn't take this trade because it felt like going against the trend. Despite that, my rules said to go long there :embarassed:

[heretodaygone... 10]

I have one more question about today's action.

 

I've attached another chart, this time 5-min.

A = selling climax

B = test on lower volume

C = entry long on volume rise, professional money flows in here

 

Am I not applying Wyckoff / VSA principles here?

If so, then why does price not rise anymore? I didn't take this trade because it felt like going against the trend. Despite that, my rules said to go long there :embarassed:

 

 

Great question Zeon. It brings up the question that I had asked DB a couple of pages back. "Does lack of supply equal demand?" His answer was that 'rising prices' must mean demand.

[Eiger 10]

I have one more question about today's action.

 

I've attached another chart, this time 5-min.

A = selling climax

B = test on lower volume

C = entry long on volume rise, professional money flows in here

 

Am I not applying Wyckoff / VSA principles here?

If so, then why does price not rise anymore? I didn't take this trade because it felt like going against the trend. Despite that, my rules said to go long there :embarassed:

 

You have some of it right, but there are other things going on in the chart. I made up a chart of SPY so you can see what I refer to.

 

In classic Wyckoff, markets don't turn on a dime. They need to first stop the down move, then build cause (i.e., allow for a period of accumulation). There is a sequence that markets often follow that Wyckoff identified. We saw it today. After a down move has been under way for a while, you will get a rally that will typically (not always) last longer and be larger than any previous rally in the down trend. This is called Preliminary Support and signals that we are getting close to the end of the down trend. If you are familiar with Elliot, think of it as the 4th wave.

 

Where you had the Selling Climax, was actually Preliminary Support. There was climactic action, but not really the SC. There was a secondary test (ST), but note that that ST still had a lot of volume.

 

Then, on the rally up you had a series of up thrusts at 1 and No Demand bars at 2. See how the volume was receding on the rally? You don't want that if you are looking for or in a long position. It means there is no momentum (professional buying) behind the rally. Thus, the market is weak. Contrast this with 3 on the chart. At 3, the bars were closing on thier highs and volume was increasing with the rally. Professional support was behind the move.

 

That first rally had nothing behind it and a minor Buying Climax (bc) occurred at resistance and the market fell back.

 

The Selling Climax came later with the heaviest volume on the chart. Two other tests occurred, and accumulation had apparaently been completed as the market then rallied vigorously.

 

Hope this helps.

 

Eiger

[DbPhoenix 42]

The shortening distance from one low to the next is known as Shortening of the Thrust (SOT). It is a Wyckoff prinicpal. In today's case, as the market tried to go lower, buying came in. The buying kept the thrust (or the waves, swings, legs, etc) from going lower. It is a sign that the market is nearing a turning point. You can see it occur in both up moves and down moves. You can also see it occur in tighter clusters of waves and clusters of price bars like this morning at around 10:00 (see the 3-min chart I posted earlier today). SOT is a great tool.

 

Eiger

 

I suspect that the "SOT" comes from SMI. Wyckoff's thrust was a short, sharp, and headfake move up, the opposite of a shakeout. What you're referring to is simply a secondary test or retest.

 

FYI