[VSA] Volume Spread Analysis Part II

[zeon 10]

Why do you use a bar chart on which you see just the high/low/close and make decisions based on candlesticks?

 

 

I'm sorry if my posts sound confusing. I mentioned 'shooting stars' because that's the only term I'm familiar with to label that kind of action. I'm not aware of any specific names that exists in 'bar theory'. Thanks for your chart, will analyze things when the market closes. Just watching price now trying to understand whether or not what is happening now is the true selling climax.

[DbPhoenix 42]

Why do you use a bar chart on which you see just the high/low/close and make decisions based on candlesticks?

 

If I'm correct, you classify candle 1 as a shooting star, but it wasn't. The next two bars have a lower shadow, followed soon by a doji. Your first trade was on the green up bar, which closed near the high. Before you don't see the next bar, it looks not really weak exept the low volume on this bar. Weakness came in in the next bar (3) with the highest volume since the open. And weakness again came in, when price entered in the range of the long upper shadow on bar 3.

 

If I understand his chart correctly, he entered, correctly, on or below your bar 3. However, he should still be in the trade (at least as of 6m before the close), though perhaps not according to VSA (can't say for sure).

[zeon 10]

If I understand his chart correctly, he entered, correctly, on or below your bar 3. However, he should still be in the trade (at least as of 6m before the close), though perhaps not according to VSA (can't say for sure).

 

You are right about the entry. Like on Friday the exit isn't as good as the entry :crap:

 

Assuming I would still be in the trade at that point, for sure at '4' I would be closing out. If not at '4' then definitely at '5'. By that time we've seen two bars on huge volume and a failure to go lower! I can't imagine that not being an exit signal? Unless the trader is just going to "leave it open till the close" without paying any more attention? In all the things I've read (but all of those could be wrong obviously) it's always been stressed that failing to make a lower low is not only a warning signal but in most cases also a reversal signal.

 

A re-entry short at '6' would've seemed like a good option at the time...

[zeon 10]

Not sure what you mean by "overnight action" unless you're referring to the ES. But the ES didn't trade at that level overnight (it would help if you were to include dates and prices in your charts for reference).

 

Sorry, I mixed up some things there. Forget I said that. The pink link on my chart comes from Friday's lows. So when I noticed that "capitulation bar" (short of any better term) it happened around the level I was expecting so this was confluence for me: support, very high volume, a bar closing well off the lows, ànd after a downmove. This has been in the past a good long signal.

 

In any case, you're pinning all your hopes on a single bar that may or may not be reacting to S/R, assuming that you plotted S/R correctly. Once you're in, you set your stop and, for the most part, stop reading. Thus you're either exiting at the wrong time, like Friday, or you're not exiting at the right time.

 

What I see in the chart is that what happened next, is price went slightly higher, but volume was dropping off along the way. Exactly the same thing happened Friday evening on the ES when price touched 1285 and then hovered around that level. The difference is that on Friday price climbed up almost 20 points off the lows. But if I were to place both situations next to one another, they'd almost look identical! And I believe I am taking context into consideration now. Although I realize every moment in the market is unique, I had hoped the time I spent studying VSA would've made me somehow 'sensitive' to the market.

[zeon 10]

If I'm correct, you classify candle 1 as a shooting star, but it wasn't. The next two bars have a lower shadow, followed soon by a doji. Your first trade was on the green up bar, which closed near the high. Before you don't see the next bar, it looks not really weak exept the low volume on this bar. Weakness came in in the next bar (3) with the highest volume since the open. And weakness again came in, when price entered in the range of the long upper shadow on bar 3.

 

Sorry, dbphoenix is correct, I shorted at bar 3, not at 1.

 

Second trade: Bar 4 (upper shadow seems not correct) is the first really sign of strenght with the highest volume since the open. All bars before closed near the low, I don't see much strenght here. I see often, that prices goes below the first sign of strenght an vis versa.

 

Look at bar 5. After the high volume bar 4, prices startet to rise just little below. On bar 5 we see already a sign of weakness because it closed in the middlewith a long upper shadow and with high volume. Bar 6 is an upthrust imho.

But why isn't 5 a re-test on lower volume? It's a solid bar, and price fails to break the low established by bar 4, the highest volume bar since.

 

Maybe it's worth to have a look on bar 7 on the left. It closed below the previous pivot low on higher volume. The upthrust was within the range of this bar.

 

What do you mean by 'pivot low'? A calculated price level?

 

Btw, is the volume coding reversed intentionally? I see red volume on upbars and vice versa.

[DbPhoenix 42]

You are right about the entry. Like on Friday the exit isn't as good as the entry :crap:

 

Assuming I would still be in the trade at that point, for sure at '4' I would be closing out. If not at '4' then definitely at '5'. By that time we've seen two bars on huge volume and a failure to go lower! I can't imagine that not being an exit signal? Unless the trader is just going to "leave it open till the close" without paying any more attention? In all the things I've read (but all of those could be wrong obviously) it's always been stressed that failing to make a lower low is not only a warning signal but in most cases also a reversal signal.

 

A re-entry short at '6' would've seemed like a good option at the time...

 

In order to exit at 4 or 5, you'd have to see support at 128.25 (though not necessarily according to VSA). But even if you did, you do see that price is finding R where habi has drawn his red line, and, given the activity between price and volume, that would make a good re-entry since price may seek the next support level, i.e., the 128.5 level, and by then you have the trendline to guide you.

[zeon 10]

In order to exit at 4 or 5, you'd have to see support at 128.25 (though not necessarily according to VSA). But even if you did, you do see that price is finding R where habi has drawn his red line, and, given the activity between price and volume, that would make a good re-entry since price may seek the next support level, i.e., the 128.5 level, and by then you have the trendline to guide you.

 

True, this all clinges to the fact where you see support. But even if I didn't have my line drawn from before around 128.5, I'd still take '5' as a failure to make a new low. There is in comparison to '4' lesser volume. On a 1-minute chart this is clearly visible.

 

So what I see is an attempt to break support around 128.50. Twice that is rejected and than on 'X' we have a 'test' after price climbed back up above support. There you have the long signal.

 

All of this hinges on the line I've drawn and perhaps that is what's causing me so much confusion.

Edited March 10, 2008 by zeon

[DbPhoenix 42]

True, this all clinges to the fact where you see support. But even if I didn't have my line drawn from before around 128.5, I'd still take '5' as a failure to make a new low. There is in comparison to '4' lesser volume. On a 1-minute chart this is clearly visible.

 

So what I see is an attempt to break support around 128.50. Twice that is rejected and than on 'X' we have a 'test' after price climbed back up above support. There you have the long signal.

 

All of this hinges on the line I've drawn and perhaps that is what's causing me so much confusion.

 

Since you don't have the numbers, lines, or Xs you refer to on your chart, I'll use habi's.

 

Assuming that you have S drawn somewhere around 128.25 and assuming that bar 4 is considered to be a rejection of that price level and assuming that you go long somewhere in this area, you're still entering the trade, placing your stop, and then not continuing to read the action. Even if you were to take the long, there are also reversal signals at 129.00. Therefore, if you're focused on S/R and reversal signals, you exit and take the short. There's no reason not to.

 

As for your initial short, there's really no reason for you to have been stopped out, but, if you hadn't, I suspect that you would not have taken the long in the first place.

[zeon 10]

Since you don't have the numbers, lines, or Xs you refer to on your chart, I'll use habi's.

 

Sorry wrong chart! Attached the correct one now...

 

As for your initial short, there's really no reason for you to have been stopped out, but, if you hadn't, I suspect that you would not have taken the long in the first place.

 

Probably not. Perhaps I need to get my head around this and think "what would I do if I was already in a position now?". Having said that, if I was short I'd still have closed out. Which in turn, opens the possibility for a re-entry... ehm... but are you saying you would've stuck with the same one and only trade from '3' till the markets close?

 

How could you have known after '5' that price was not going to go back all the way up to 130? Yes, volume was declining on the way up, but if you wait to see that happen each time, you'll always exit too late. Somehow, exiting too late feels worse then exiting too early.

[DbPhoenix 42]

Probably not. Perhaps I need to get my head around this and think "what would I do if I was already in a position now?". Having said that, if I was short I'd still have closed out. Which in turn, opens the possibility for a re-entry... ehm... but are you saying you would've stuck with the same one and only trade from '3' till the markets close?

 

One question at a time. There's no reason to exit a short taken at "3" based on the information provided in these charts (the color-coded volume on habi's chart seems to bear no relation to the price bars, which is one reason why I dislike color-coded volume bars) unless one had reason to anticipate S at 128.25. IF he did, then there is justification for a long. But there is also justification for exiting that long and shorting again at 6. After that, yes, there's no reason to exit the short at all until the close or until there is a reversal signal.

 

 

How could you have known after '5' that price was not going to go back all the way up to 130? Yes, volume was declining on the way up, but if you wait to see that happen each time, you'll always exit too late. Somehow, exiting too late feels worse then exiting too early.

 

You don't "know" anything. But you're at R and you have a reversal signal. Why ignore this one and act on the rest? What's different? If you trust your setup, take it. If you don't, re-examine it.

 

As for exiting too early or too late, stop fussing over it. Just follow your plan.

 

Based on your resubmitted chart, here's where you should have re-entered the short, assuming that you exited the first one:

 

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[zeon 10]

You don't "know" anything. But you're at R and you have a reversal signal. Why ignore this one and act on the rest? What's different? If you trust your setup, take it. If you don't, re-examine it.

Habi's chart defines R at that level indeed, but mine didn't. In fact, I only had support drawn around 130... so absent of any resistance lines I considered that 'rejection' on high volume actually to be a positive signal that selling was over and that buyers were going to take control. I'm starting to see where I was wrong know. But the origin of my incorrect analysis seem to come from drawing support at 128.50.

 

Based on your resubmitted chart, here's where you should have re-entered the short, assuming that you exited the first one:

 

If I had taken that short, I would have closed it when price failed to break 128.50 straight away. There is some sort of consolidation there and because price doesn't "act" the way I want it, I'd have closed the trade. Probably just before the break. But isn't that what you've been advocating too? That if the trade doesn't do what you expect from it, close it and re-enter perhaps later.

 

I would've wanted to see a break of 128.50; instead we kept above that level for a reasonable amount of time. Considering this is my support level I'd have looked at that and said "aaah another test on even lower volume: sellers must be done!".

 

You must wonder how I manage to get these things completely the other way around :doh:

[DbPhoenix 42]

Habi's chart defines R at that level indeed, but mine didn't. In fact, I only had support drawn around 130... so absent of any resistance lines I considered that 'rejection' on high volume actually to be a positive signal that selling was over and that buyers were going to take control. I'm starting to see where I was wrong know. But the origin of my incorrect analysis seem to come from drawing support at 128.50.

 

Selling WAS over and buyers DID take control. Buyers drove price all the way back to the white line I drew. But this line will not likely be drawn ahead of time. You have to do it in RT after the swing low is broken to the downside at 11:20+/-. Whether or not you drew S at 128.5 is not necessarily pertinent to the action at the white line.

 

 

 

If I had taken that short, I would have closed it when price failed to break 128.50 straight away. There is some sort of consolidation there and because price doesn't "act" the way I want it, I'd have closed the trade. Probably just before the break. But isn't that what you've been advocating too? That if the trade doesn't do what you expect from it, close it and re-enter perhaps later.

 

I would've wanted to see a break of 128.50; instead we kept above that level for a reasonable amount of time. Considering this is my support level I'd have looked at that and said "aaah another test on even lower volume: sellers must be done!".

 

By that time, though, you've got a TL to help you. Even VSA acknowledges TLs.

 

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Traders who are overly-concerned about "leaving money on the table" generally wind up doing exactly that.

 

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[habi 10]

- Pivot low means the low with the two red lines, nothing calculated.

 

- It's just impossible to place the numbers exactly above/below the candles in eSiganl. So, bar 5 is the bar with the long upper shadow which tested the first time the previous low. The next bar and the two bars (x in your 1 minute chart) can be test bars and prices went higher. On the other side, bar 5 and 6 give signs of weaknes with higher volume in a resistance area and if you look on a higher timeframe, we are in a downtrend since March 5.

 

- The support at 128.5 was broken two times to the downside and two times to the upsidde before it was holding again. I have some doubt, if this is a really good one.

 

- Volume bar color. If the volume is higher than the previous volume bar, then it's green, otherwise red.

[Eiger 10]

Interesting discussion. I thought today was a pretty difficut day to trade, as there weren't a lot of VSA signals. However, there were some indications. The trend line off the overnight high in the Globex might have been helpful to plot. In the morining ES session, price was rejected twice off this supply line, first at B. Then, on the weak rally up, the bars at D and F showed supply - up bars closing in the middle with high volume. In between at E, we had No Demand. This all occurred at the supply line and where supply came into the market at B.

 

H was stopping volume, but I agree with Db, it's not enough context ("background" in VSA) to take a position off that bar, tempting as it might seem. A better location was at I, where volume at least dried up and you had a second bottom reversal, indicating some demand for the typical countertrend rally over the noon hour. With the downtrend in place, however, I would only trade that as a scalp. You need cause (or a base of buying) to build before you would anticipate a decent rally, at least one that had good odds of running up a bit.

 

J was a selling climax of the weak rally. The SC came at resistance formed by extending a horiztonal line off 2 & C (the red dotted line was not in place yet). Note the heavy volume at J and the mid-range close -- supply. VSA and Wyckoff both talk about trading ranges or congestion areas housing a lot of trapped traders. Those who went long around A, 2, & C, and again on the rally up to F were trapped and under pressure. They are hoping for a rally up into that area to get out even. Fat chance. There was not enough buying (cause) to take it up into that area. (As price starts to fall away again -- especially after 3&4 -- these trapped traders will help fuel the downtrend by selling). As it usually does, selling came in on the lows of that congestion area.

 

3 & 4 showed sideways resting action after a bit of volume came in two bars before 3. Clues that this was not going higher were: 3 was No Demand, and 4 had (slight) increased volume to the downside.

 

K was the Selling Climax for the day (remember those trapped traders?). It occurred over two bars and caused a bottom reversal bar at K. They had a hard time holding the market up at L, though. I thought that this was bag holding at the time and went long. It didn't go very far. Look at the rally to M. Increasing volume and shortening of the thrusts. I kept looking for it to break to the upside (the two closes at M were constructive), but it never did. Still a lot of supply in the market.

 

Eiger

[zeon 10]

Interesting discussion.

[...]

 

J was a selling climax of the weak rally. The SC came at resistance formed

Eiger

 

I like the analyses and the time you put in them is well worth it imo. Thanks for your contributions. One remark though, don't you mean a buying climax at J?

[zdo 20]

Hi all,

Hope this question does not turn out to be ‘too general’ and it is intended for all – Wycoffers, VSAers, and PVers in general.

Threaded through this material are concepts associated with ‘reversion’.

Are the crucial Volume patterns used at SR’s near ‘central tendency’ (POC, etc.) different from the Volume patterns found at extreme SR’s (near tails, spikes, etc.)?

 

Thanks,

 

zdo

[Eiger 10]

I like the analyses and the time you put in them is well worth it imo. Thanks for your contributions. One remark though, don't you mean a buying climax at J?

 

You are right, it is a Buying Climax. When I see these I get so excited that I am just thinking about selling, I guess.

 

Speaking of Selling Climaxes, there was a very nice one just at noontime today. You can see the volume come in beautifully on that. Study the 10, 5, & 3-min charts of this climax. It tells you a lot about how to read them.

 

BTW, I feel that the work I put into the charts is necessary. It is not really work, though, because i love doing it. When i review the day and annotate the charts, I am also reviewing my trades, putting more emphasis on the trades that went well. Just like my charts, I log every trade. I find that doing this every night, I learn new things about the market and myself as a trader. On the weekends, I usually review the charts of the week, and sometimes for the last few weeks. It really helps. I think if you really want to learn VSA/Wyckoff, this is a good way to do it along with studying the available material by TG, Williams, and SMI/Wyckoff.

 

Eiger

[DbPhoenix 42]

Hi all,

Hope this question does not turn out to be ‘too general’ and it is intended for all – Wycoffers, VSAers, and PVers in general.

Threaded through this material are concepts associated with ‘reversion’.

Are the crucial Volume patterns used at SR’s near ‘central tendency’ (POC, etc.) different from the Volume patterns found at extreme SR’s (near tails, spikes, etc.)?

 

Thanks,

 

zdo

 

Patterns aren't so much the issue as what it is that traders are trying to do at each of these levels. The "pattern" at extremes tends to be a lot of trading activity (volume) spread out over a wide range of price in a very narrow window of time. This creates a lack of support at any given price level during that move. Thus those who for example buy on such an upmove will be the first to bail when things start to go wrong (the weak hands). This is what is meant by "sell strength", when what is meant is more along the lines of "sell apparent strength".

 

If one has a lot of shares to buy or sell, however, he is more likely to find the opportunity to do so at a price that is beneficial to him if he trades where everybody else is trading, i.e., at the point or level or zone where the greatest number of trades are taking place.

 

If one can get past the jargon and catch phrases and buzz words, this is what is at the core of any approach that trades via price action, whether the volume is expressed, as for example in stocks, or implied, as for example in forex.

[Sledge 13]

Question:

Ok the background gives us a large up move indicating weakness. Then Professional $ has stopped supporting the market and it dives. The question is, when you see (for simplicity sake) 2 Wide Spread down bars on ultra high volume. Followed by two or 3 smaller spread up bars, then the market plows downward again, and again they are followed by 2 or 3 smaller low spread up bars.

 

Are these "mini pullbacks" a result of:

A. Profit taking and traders closing out of their positions?

B. Stop Losses Triggered?

C. Both?

 

Both "A" and "B" would introduce supply into the market correct?

Sledge

[zeon 10]

You are right, it is a Buying Climax. When I see these I get so excited that I am just thinking about selling, I guess.

 

Speaking of Selling Climaxes, there was a very nice one just at noontime today. You can see the volume come in beautifully on that. Study the 10, 5, & 3-min charts of this climax. It tells you a lot about how to read them.

 

Eiger

 

If that was the selling climax, then it looks like we just had a re-test on lower volume. But the nasdaq made lower low while the ES just stopped at about exactly the same level. This is my problem, realizing this is a re-test in real time... I can only do so after price starts to move up, so I'm always chasing price. I noticed price trying to go lower... a downbar. The next upbar closed off the highs, so no buying yet. However the next bar volume comes in big time and there she goes!

 

Other than (a) taking a gamble that price won't break through or (b) waiting for price to rise and chasing price with a worse entry, how can you pin-point the exact entry?

 

As I'm typing this, the ES just went up 5 points in one bar! So you need to have very triggerhappy fingers, or you needed to be prepared to take the risk...

[DbPhoenix 42]

 

As I'm typing this, the ES just went up 5 points in one bar! So you need to have very triggerhappy fingers, or you needed to be prepared to take the risk...

 

No, it means that you have to be selective about the field on which you choose to play.

 

I knew going in that today was going to be difficult since there were three distinct S/R zones and that there was a possibility that price would bounce back and forth among them like a pinball. And that's just what has happened. So I had a choice of trying to play all that or stand aside until the market decides just where "value" lies at this time. You have the same choice.

[zeon 10]

No, it means that you have to be selective about the field on which you choose to play.

 

I knew going in that today was going to be difficult since there were three distinct S/R zones and that there was a possibility that price would bounce back and forth among them like a pinball. And that's just what has happened. So I had a choice of trying to play all that or stand aside until the market decides just where "value" lies at this time. You have the same choice.

 

 

I think I did the right thing by closing out my short on the ES earlier. However, I was contemplating taking a long there on the re-test but I was too late and the right signal didn't occur. I wanted to see a hammer-like formation form but price jumped up and by the time I felt like pressing the buy button price had already gone up and I didn't feel like chasing it.

 

But suppose I did take the long entry... how could I determine my target? Surely the next R would be wishful thinking? You never know ofcourse, but if you say S and R are your targets, do you mean only when you are trading with the longer term trend, are regardless of that? Because in going against the trend I've experienced on several occasions that price does follow the path towards the next S/R level but usually fails to reach it and then reverses before breaking down in the other direction.

[habi 10]

I think if you really want to learn VSA/Wyckoff, this is a good way to do it along with studying the available material by TG, Williams, and SMI/Wyckoff.

 

Eiger

 

I just studied Tom Williams/TG and of course both VSA Threads. Since Williams and TG are based on Wykoff's theories, what are the main differences between Williams, Wykoff and SMI?

 

What for resources do you recommend for Wykoff and SMI?

[DbPhoenix 42]

I think I did the right thing by closing out my short on the ES earlier. However, I was contemplating taking a long there on the re-test but I was too late and the right signal didn't occur. I wanted to see a hammer-like formation form but price jumped up and by the time I felt like pressing the buy button price had already gone up and I didn't feel like chasing it.

 

But suppose I did take the long entry... how could I determine my target? Surely the next R would be wishful thinking? You never know ofcourse, but if you say S and R are your targets, do you mean only when you are trading with the longer term trend, are regardless of that? Because in going against the trend I've experienced on several occasions that price does follow the path towards the next S/R level but usually fails to reach it and then reverses before breaking down in the other direction.

 

Your questions are becoming more general, so my answers will become more general as well, which isn't going to do you any good. Plus I've lost track of all your shorts and longs, so I have even less idea what to say.

 

If you want specific help, you're going to have to ask specific questions and post the relevant charts. Which is where a blog comes in.

[Eiger 10]

I just studied Tom Williams/TG and of course both VSA Threads. Since Williams and TG are based on Wykoff's theories, what are the main differences between Williams, Wykoff and SMI?

 

What for resources do you recommend for Wykoff and SMI?

 

I suppose there may be differences, but I see them generally as the same. Tom Williams's materials make it come more "alive", though.

 

Units 2 & 3 from the Wyckoff course are the most important. Unit 2 is the original course Wyckoff wrote in the 1930s, though it has been somewhat modified over the years. Unit 3 has the refinements to Wyckoff that were developed from the 1940s on. Both are important. Start with Unit 2.