[VSA] Volume Spread Analysis Part II

[heretodaygone... 10]

 

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.

 

 

Here's some targets, and you don't even have to remember what was s/r was back in January or earlier.:o

[zeon 10]

Here's some targets, and you don't even have to remember what was s/r was back in January or earlier.:o

 

We just reached resistance from prior in the day... I guess it wasn't wishful thinking after all. Sure wish I'd taken the long though :doh:

[DbPhoenix 42]

Here's some targets, and you don't even have to remember what was s/r was back in January or earlier.:o

 

Actually, I posted the targets for today using yesterday's action in the RT thread:

 

http://www.traderslaboratory.com/forums/31755-post94.html

 

Turned out that they were pretty much exact.

[Eiger 10]

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?

 

 

This was a Spring of a Selling Climax. The exact entry was on the close of the 12:55 bar on the 5-min chart at 1287.50. Risk was modest. Reward was very good.

 

Springs are an excellent, high probability trade. Every one that sets up properly is a no-brainer. There are diffierent variations and they are thoroghly discussed in Unit 3 of the Wyckoff Course.

 

You need to look at volume. This is the main indicator, along with the spread and close of the price bar.

 

You have a Selling Climax in the immediate backround, and the market responded to the climax with a vigorous rally. Wyckoff said explicitly, once you see a Selling Climax, the market is now assumed to be bullish. The reaction back down to the SC area was on generally narrow spreads and receding volume, confirming that supply is now gone from the market. The penetration was minimal and the close on the Spring bar and the bar after couldn't stay under the SC. Also, as you noticed (but not necessary to see this as a choice Spring set-up) there was non-confirmation with the Naz for lower prices. You can't ask for a much more perfect set-up.

 

There was also a Spring at 10:50 this AM. This failed. Here's a very good excercise: find as many differences between these two springs as you can. Once you have a sense of what you are you are looking for in these two springs, look for other springs on other days (there are plenty of them). Put each one you find into one of two catagories: Springs that Succeed and Springs that Fail. Do this with as many springs as you can find and you will soon own this trade. And, forget about candlesticks with this trade; they are immaterial and a distraction.

 

Eiger

[heretodaygone... 10]

Actually, I posted the targets for today using yesterday's action in the RT thread:

 

http://www.traderslaboratory.com/forums/31755-post94.html

 

Turned out that they were pretty much exact.

 

Not a contest db, but so did I with a real time call. More than one way of seeing the same thing I guess. No worries, I have no book to sell.

[DbPhoenix 42]

Not a contest db, but so did I with a real time call. More than one way of seeing the same thing I guess. No worries, I have no book to sell.

 

I agree, no contest. And I previously acknowledged your other post. I made the post above only because of the reference to my finding S/R based on activity in January.

 

Good trading to you.

[DbPhoenix 42]

This was a Spring of a Selling Climax. The exact entry was on the close of the 12:55 bar on the 5-min chart at 1287.50. Risk was modest. Reward was very good.

 

One must also include the element of news when separating movements after retests as successes and non-successes. It's not possible to reach valid conclusions without including all the pertinent elements.

[Eiger 10]

One must also include the element of news when separating movements after retests as successes and non-successes. It's not possible to reach valid conclusions without including all the pertinent elements.

 

Not sure what you mean by that. Other than to know when reports are due, I don't pay any attention to the news. It is not necessary to trade springs. I would never know what the news means to the market anyway.

[DbPhoenix 42]

Not sure what you mean by that. Other than to know when reports are due, I don't pay any attention to the news. It is not necessary to trade springs. I would never know what the news means to the market anyway.

 

That the success or non-success of the trade may have to do with news. Whether one pays any attention to the news or is even aware of it is immaterial.

 

One of the more common errors made when backtesting, either manually or by computer, is not to include events. Doing so can result in unpleasant surprises when trading setups in RT.

[DbPhoenix 42]

We just reached resistance from prior in the day... I guess it wasn't wishful thinking after all. Sure wish I'd taken the long though :doh:

 

If you're having trouble recognizing selling climaxes and retests in RT, first make sure that you've located S&R correctly. Then watch the TICK or TICKQ. Today, for example, the TICKQ was -648 at the "selling climax" and only -156 at the "retest". Seeing this divergence between two different measures of selling pressure may give you the confidence you need to take the trade.

[zdo 20]

Thanks Db.

 

Any observations on this from the VSAers - Do you find Volume patterns at SR’s near ‘central tendency’ (POC, etc, not nec MA mean) different than Volume patterns are at extreme SR’s (tails, spikes, etc.)?

 

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.

[jjthetrader 10]

Thanks Db.

 

Any observations on this from the VSAers - Do you find Volume patterns at SR’s near ‘central tendency’ (POC, etc, not nec MA mean) different than Volume patterns are at extreme SR’s (tails, spikes, etc.)?

 

I don't find them any different at extreme levels. If they're going to happen they're going to look the same where ever you are. It's just way easier to take the trade when you're at S&R.

[zeon 10]

If you're having trouble recognizing selling climaxes and retests in RT, first make sure that you've located S&R correctly. Then watch the TICK or TICKQ. Today, for example, the TICKQ was -648 at the "selling climax" and only -156 at the "retest". Seeing this divergence between two different measures of selling pressure may give you the confidence you need to take the trade.

 

I'm not that familiar with TICK or TRIN, but I believe understand what they represent (advance & decline issues right?). Unfortunately there's no such equivalent for the S&P, only for NYSE and NASD. Any idea why this is?

[erierambler 10]

I'm not that familiar with TICK or TRIN, but I believe understand what they represent (advance & decline issues right?). Unfortunately there's no such equivalent for the S&P, only for NYSE and NASD. Any idea why this is?

 

You'll find the $TICK , will work for the S&P , and the NYSE is like a barometer for the S&P.

erie

[Eiger 10]

I'm not that familiar with TICK or TRIN, but I believe understand what they represent (advance & decline issues right?). Unfortunately there's no such equivalent for the S&P, only for NYSE and NASD. Any idea why this is?

 

Ticks are the net number of shares on the NYSE trading on the up-tick or down-tick (i.e., trading at a higher price than the immediate last price or at a lower price than the immediate last price). They can be helpful. The S&Ps have most of the biggestest, most important stocks of the NYSE - sort of a sample of the NYSE, so Ticks are fine to use with the S&Ps. It is the only other indicator I use when trading the ES.

 

You can use the Ticks kind of like an oscillator. Usually, when the market hits an extreme of buying or selling, the ticks will show an extreme. Typically, these are in the +1,000 to -1,000 range, but it all depends on the day. At the Selling Climax at noon today, Ticks hit -1229. That was pretty extreme, given that they didn't crack below -1,000 throughout the morning downtrend until the climax.

 

They can be useful for timing an entry, too -- sometimes showing an extreme reading (like that buying climax yesterday during the noon hour) and sometimes giving a divergence. For an example of divergence, look at the last swing high on the attached chart before the Selling Climax. It is not labled, but if you look closely, you will see that price rose higher at the top of the rally; Ticks did not, and that action resulted inan upthrust. Plot them on the same chart as price and volume and you will begin to see the possibilities.

 

Here is a 3-minute chart of the ES with Ticks at the Selling Climax and Spring today. Note how ticks showed an extreme on the Selling Climax (the market was one-sided). On the Spring (L), ticks were considerably above the climax lows (K), indicating a lack of selling pressure. The same indication was seen in the volume.

 

Here's a pretty good article on trading the S&Ps with Ticks: http://www.lbrgroup.com/images/terry_april_2002_AT.pdf

 

Eiger

Edited March 11, 2008 by Eiger

[mister ed 10]

This was a Spring of a Selling Climax. The exact entry was on the close of the 12:55 bar on the 5-min chart at 1287.50. Risk was modest. Reward was very good.

 

Springs are an excellent, high probability trade. Every one that sets up properly is a no-brainer. There are diffierent variations and they are thoroghly discussed in Unit 3 of the Wyckoff Course.

 

You need to look at volume. This is the main indicator, along with the spread and close of the price bar.

 

You have a Selling Climax in the immediate backround, and the market responded to the climax with a vigorous rally. Wyckoff said explicitly, once you see a Selling Climax, the market is now assumed to be bullish. The reaction back down to the SC area was on generally narrow spreads and receding volume, confirming that supply is now gone from the market. The penetration was minimal and the close on the Spring bar and the bar after couldn't stay under the SC. Also, as you noticed (but not necessary to see this as a choice Spring set-up) there was non-confirmation with the Naz for lower prices. You can't ask for a much more perfect set-up.

 

There was also a Spring at 10:50 this AM. This failed. Here's a very good excercise: find as many differences between these two springs as you can. Once you have a sense of what you are you are looking for in these two springs, look for other springs on other days (there are plenty of them). Put each one you find into one of two catagories: Springs that Succeed and Springs that Fail. Do this with as many springs as you can find and you will soon own this trade. And, forget about candlesticks with this trade; they are immaterial and a distraction.

 

Eiger

 

Outstanding post thanks Eiger ... For ease of matching your post up with the chart I have attached a 5-minute chart here with the two times of springs marked with boxes.

 

 

To convert the times on the horizontal axis to EDST, add 9.

Edited March 12, 2008 by mister ed

[Eiger 10]

Outstanding post thanks Eiger ... For ease of matching your post up with the chart I have attached a 5-minute chart here with the two times of springs marked with boxes.

 

 

To convert the times on the horizontal axis to EDST, add 9.

 

Those are them (not sure about that grammar, but those are the two areas of the springs)

 

If any one wants to post what they see as the differences, we could have a discussion about a valuable trade set-up that comes up often in all markets and all time frames. This is one of my key trades. It is Wyckoff based (actually, I don't believe that Wyckoff had ever wrote about springs, though he did discuss shake outs, which are a bit different. I believe that the spring concept was developed by Bob Evans, a successor to Wyckoff). There are times not to take these trades, but when the background conditions are right as was the case today, they are excellent trades.

 

Eiger

[mister ed 10]

If any one wants to post what they see as the differences, we could have a discussion about a valuable trade set-up that comes up often in all markets and all time frames.

Eiger

 

Good idea Eiger,

 

One difference I noted was the price move down to the first low of the springs (i.e. the price low to the left of each blue box) is further in the 2nd example than the first.

 

I have noticed on my chart I have blanked out the prices :crap:, I don't know how I did that (just talent I guess) ... but makes it a bit difficult sorry. Anyway, on the first example I see the price fall about 8 points, in the second example price fell around 10 points From the high between the 2 lows of the spring the price fell about 6 points in the first example, 7.5 odd in the second.

 

From a volume perspective, the difference in the volume activity at the two lows of each spring is greater in the second example than the first - more noticeable reduction in volume in the 2nd leg down of the 2nd example. Also, the volume on the bar off the 2nd low of each example is quite diffierent - in the first example the volume on the bar following the low is about average, while in the 2nd example the volume for the bar off the second low is huge - urgency here.

[Eiger 10]

Here's a chart of the daily British pound (March contract) through today. E-Signal plays with the volume, so it is off by one bar (annoying, and it always makes the work difficult).

 

Anyway, this is an interesting chart. First, does this remind you of today in the ES? There is a Selling Climax, rally, then not one, but two tests. The second test is a Spring. A Spring often puts the market "on the springboard," as Wyckoff used to say. And, this market was no exception. A quick and vigorous rally off the Spring led to a Jump Across the Creek and an uptrend. Note the absorption that occured at each resistance area. This is a classic chart.

 

So, two good examples of how Springs work in two different markets and time frames. It is one of my favorite trades.

 

Eiger

[Bearbull 10]

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.

 

This is a crucial concept DB, would it possible for you to dig up a pattern on your own chart to illustrate ' realise you trade NASDAQ but that should not be a problem to elucidate the concept.

[DbPhoenix 42]

This is a crucial concept DB, would it possible for you to dig up a pattern on your own chart to illustrate ' realise you trade NASDAQ but that should not be a problem to elucidate the concept.

 

Perhaps the easiest way to illustrate it is with constant volume bars. This is a copy of a chart I posted yesterday to the RT thread as an example of prep. Each of these bars represents 100,000 contracts. Note that in area between 1272 and 1280, you've got 800,000 contracts. However, in the area between 1280 and 1310, the range is three times greater but the volume is half as much, so at any given price point, the number of contracts traded is less. This helps to account in part for the ease with which price retraced all the way back to 1286.

 

Another example may be found at the end of the day. Note that there are four bars between 1308 and 1315, but only one between 1315 and 1320. This creates an "air pocket" in which one can expect to find little support.

 

.

 

 

 

.

[zdo 20]

That does illustrate some of the differences my original and general question was about. Thanks Db. A regular chart with a volume study would also be appreciated as that is what most of us are studying RT. Does the same period on a regular time bar chart show the same process?

 

Yesterday, jjthetrader replied to my question about volume patterns in value and volume patterns away from value area with “I don't find them any different at extreme levels. If they're going to happen they're going to look the same where ever you are. It's just way easier to take the trade when you're at S&R.” I too have observed that they can and do pop up anywhere. But, if nothing else, the ‘background’ is different for SR’s in ‘value area’ and SR’s outside of ‘value area’ in tails. Let’s narrow the question some to triggered ‘no demand’ and ‘no supply’. Is there consensus that no differentiations should be made about whether price is in value area or out of value area? And only that it’s preferable for these ‘patterns’ (using the word for brevity only db ) to occur at SR?

 

Thanks,

 

zdo

[habi 10]

First, does this remind you of today in the ES? There is a Selling Climax, rally, then not one, but two tests. The second test is a Spring. A Spring often puts the market "on the springboard," as Wyckoff used to say. And, this market was no exception. A quick and vigorous rally off the Spring led to a Jump Across the Creek and an uptrend. Note the absorption that occured at each resistance area. This is a classic chart.

Eiger

 

Hi Eiger (north face? :o)

 

Interesting explanation as allways. I have a question about the spring. Why is the first test not a spring, but the second one is? I see in both cases a higher volume up bar closing near the high after the test, but the following price action is different. How do you define a spring?

[Eiger 10]

Morning Session on the ES:

 

Here is what I saw this AM (3/12/08) on the 5-min ES H8 chart:

 

1 - Globex high

 

A - Market falls to the early morning demand line (support) where buying comes in (note mid-range closes and very heavy volume)

 

B - Market falls into an Over Sold position. B shows a narrowing spread and mid-range close on heavy volume. This is bag holding. They were buying at A and again at B. The bar after B is a Bottom Reversal, confirmation that the buying was successful and the trigger to an up move.

 

C - Test on volume less than the previous two bars. Next bar is up with a strong close.

 

D - Market runs up above the Globex high, but immediately selling enters the market. Very heavy volume on up bars. Note the close off the highs on the bar before D - an indication that supply is beginning to swamp demand. D is a mid-range close on continued heavy volume - supply overcoming demand. Confirmation comes on the bar after D, a down bar.

 

E - an attempt to rally, but on No Demand

 

There is some support around the 9:30 high, as seen by the shortening of thrust and mid-range closes. It may try to rally from here, but we'll have to see.

 

All of this is based on my studies of Wyckoff and Tom Williams's good work, nothing more.

 

Eiger

[Eiger 10]

Hi Eiger (north face? :o)

 

Interesting explanation as allways. I have a question about the spring. Why is the first test not a spring, but the second one is? I see in both cases a higher volume up bar closing near the high after the test, but the following price action is different. How do you define a spring?

 

Don't you mean the "Mordwand"?

 

The first test is known as a Secondary Test - this is what Wyckoff called it, most just refer to it as a test. Note that the low of this test comes into the area where there was ultra high volume on the SC. It is a test of that volume.

 

In this chart the test still had some volume on it. I assume that this is why it was tested again with the Spring.

 

A Spring is also a test. To be a Spring, however, the low of the Spring bar must penetrate the low it is testing. This is one of the reasons why it can be such a good trade. If there is strength in the background, and there is a test of a high volume area where price dips below support and does not draw out supply, then this is a strong signal that there is no supply left. The market will thhen often rally vigorously.

 

Eiger