[VSA] Volume Spread Analysis Part II

[heretodaygone... 10]

Something's wrong with the link you provided. Could you perhaps let me know which post it is (just the number), that way I can look it up.

 

All your questions depend on tactics I suppose... and you're right. It does depend on whether you are already in a trade or not. But before going there, I really wanted to know how others viewed the chart with the circled area. Is this a volume dry-up because there's no demand or because there's no supply? I like Bearbull's description of his observations. They are in line what what I observed today, but as always things have to be taken into context.

 

 

lack of supply in an up move and lack of supply in a down imo, are two totally different context's., thus the link to post 209 of this thread.

[DbPhoenix 42]

These situations can be confusing. What you are seeing here is aborption. Unfortunately, you can't really see it with the 2-min chart.

 

Of course one can. Just zoom out.

[zeon 10]

I hope this is helpful.

 

Eiger

 

Thanks, this has been most helpful. Only thing that has got me thinking now is your remark about the 5-minute chart. I've been used to trading off 5-minutes but now I'm going down to 2 or even 1-min bar charts because of the comments from dbphoenix.

 

Another question, excuse me if I missed this, but what's your chart provider? It's nice to have a continuous flow expanding over several days.

[Bearbull 10]

I don't know who you are, but I think that of all the people posting to these volume analysis threads, I think you will get there quicker, because you are studying the book and applying the context to your charts, that is how I broke through the fog.

Keep going, you'll get there soon enough.

 

Well done

S

 

Then the obvious question is why is that after 7-10yrs of VSA being around, that vast majority are still engulfed in the fog, afterall you folks at TG are not exactly rocket scientists that you are in possession of such abstruse and esoteric knowledge that it cannot be explained and illustrated via charts, realtime trades etc in clear, concise, uncomplicated and logical manner rather than getting folks hooked onto expensive software and seminars and forever going around in circles with so many cutesy terms absent in the original Wyckoff's course from which VSA has been derived in the first place although never been acknowledged.

[DbPhoenix 42]

the original Wyckoff's course from which VSA has been derived in the first place

 

While this may be true in a general sense, it is not true when one gets down to specifics. There are important differences between Wyckoff and Williams, though there may be fewer differences between SMI and Williams (which makes sense given that Williams took the SMI course). And the differences between Wyckoff and Williams are important enough to make them practically distinct.

 

Therefore, anyone who reads Undeclared Secrets or any of the material put out by TG should not assume that it all comes from Wyckoff. Only in the most very general way does any of it come from there.

[Eiger 10]

Thanks, this has been most helpful. Only thing that has got me thinking now is your remark about the 5-minute chart. I've been used to trading off 5-minutes but now I'm going down to 2 or even 1-min bar charts because of the comments from dbphoenix.

 

Another question, excuse me if I missed this, but what's your chart provider? It's nice to have a continuous flow expanding over several days.

 

I use MetaStock with an e-Signal data feed. I use MetaStock primarilly because I use a couple of indicators that were built on this platform, plus it is easy to transfer data from text and excel files in and out of MetaStock. A lot of MetaStock people also use AmiBroker, which is a (much) less expensive option, and they seem to really like it. The TradeGuider software looks interesting, but I have never used it. There is a lot of charting software out there -- all seem to have both pros and cons. Applying Wyckoff and VSA doesn't require indicators. So, unless you wanted to go with TradeGuider, you probably don't need much more than a basic package.

 

The e-Signal data feed comes with charting software, which I also use and is OK. The charting software is certainly adequate for Wyckoff and VSA applications. On commodities (including index futures), however, they have an odd convention of being one day behind in the volume, so it is always off by a bar. This only occurs on the daily chart, not the intraday. But it still can be vexing at times, so i am not sure I could recommend e-Signal whole-heartedly. (I always think about Tom Williams's comments in his book about how the exchanges really don't want us to have the volume data because it is so important. They continue to lag the data and vendors like e-Signal continue to support this.) The stock data is good, though. TradeGuider says they are coming out with a less expensive data feed that will run on MetaStock, so I am waiting to see what they develop.

 

Maybe someone here knows of an alternate data feed that will also run on MetaStock? I do know about Rueters, but I don't know of any others. In any event, I'd be interested if someone knows of another data provider.

 

I'll respond to the first part separately.

 

I hope this is helpful,

Eiger

Edited March 21, 2008 by Eiger

[habi 10]

While this may be true in a general sense, it is not true when one gets down to specifics. There are important differences between Wyckoff and Williams, though there may be fewer differences between SMI and Williams (which makes sense given that Williams took the SMI course). And the differences between Wyckoff and Williams are important enough to make them practically distinct.

 

Therefore, anyone who reads Undeclared Secrets or any of the material put out by TG should not assume that it all comes from Wyckoff. Only in the most very general way does any of it come from there.

 

Already all the free available education recourses from TG was very helpfull for me. I think it's more, than just interpreting single bars. I get a much better understanding of volume and price action, then I had before, but I know, that I have to learn more. Where you see the main differences between Wyckoff and Williams?

 

It seems, that there are several resources available based on Wyckoff. If I interpret some statements correct , then some people see e.g. SMI or TG as an ajusted Wyckoff version to todays market relations, but you and BB seems to have another view. Can you give me some educational resources (books, courses ...) which you think teach the original Wyckoff material?

[Eiger 10]

Thanks, this has been most helpful. Only thing that has got me thinking now is your remark about the 5-minute chart. I've been used to trading off 5-minutes but now I'm going down to 2 or even 1-min bar charts because of the comments from dbphoenix.

 

 

It seems like nearly every post I have made recently draws a response about time frame. Some seem to want to argue about time frame and promote their position on it. There is a vigorous advocacy of the 1-minute bars. Apparently so vigorous that you doubt your own wisdom. That is not a good thing for a trader. The time frame you choose to trade from is your decision, no one else’s. Please understand that I don’t really care what you choose. I have nothing invested, nor do I want to invest in whatever time frame you choose (sounds silly to even say that, doesn't it?). What I mean to say is that it is your choice, and it is a personal choice based on a variety of factors that are strictly personal to you. Don’t let others (including me) unduly influence you.

 

I found from my own experience that the small time frame is not helpful to my trading. As I said earlier, we have more of a tendency to “see” something that isn’t there on small time frames. Because the time frame is small, if what you see is a misperception, it will quickly disappear and cost you money. You run the real risk of getting whipsawed a lot. Sebastian Manby says he uses a 15-min chart to help reduce the whipsaws. The other major problem with the small time frame is you miss a lot of what is there. Again, Sebastian Manby said earlier that you don’t get meaningful VSA indications like no demand on a 1-minute time frame. So, if you are interested in developing proficiency in VSA, well, I would think about what he is saying. He is a master.

 

We were discussing absorption, which was missed on the small time frame chart. When Wyckoff discussed absorption, he did it with a DAILY chart. He analyzed the NY Times Average from late 1930 to late 1931, and it is a brilliant analysis full of chart reading techniques. But he did not use a 1-minute chart, and to my knowledge never used a 1-min chart.

 

Ask yourself whether or not the advocates of the small time frame talked about absorption. Nope. Totally missed it. In fact, if you look at the blog, there was discussion about where to take a short position during this time! Same with the Spring on March 19. The blog took a short position in the midst of strength, yet later said that from a Wyckoff view, traders would have gone long on that day. Why go short, then? Because of the fundamental problem with the small time frame – you have a very strong tendency to miss the forest while hugging the trees.

 

Should the 1-min chart be condemned, then? I don’t think that at all. Sometimes it can be useful. I was confused about price action and a 1-min chart would certainly have been helpful. No doubt about it. If you are trading in and out for small scalps, you probably need a tick chart. But, this is about VSA, not scalping. On balance, I personally have found that it is more a liability than an asset. That was all I said and it sure seemed to rattle the cages, didn’t it?

 

One more thing raised is the notion that the 1-min chart lets you see the flow of the market. I don’t buy that. You do not need a 1-min chart to read the flow. In fact, Wyckoff developed a wave chart as a way to read the flow of the market. He was very focused on the wave movement of the market and always talked about how the market moves in waves. When the waves start to change in length and time, you can anticipate a change in market direction. You definitely do not need a 1-min to read the waves. Although not strictly VSA, if interested we can talk about this useful aspect of Wyckoff.

 

Zeon, you may find the 1-min chart suits you well, and that is terrific. If you can trade well with it, then use it. But you need to come to your own conclusion on this. Don’t take what I say or what others say as gospel. It ain’t. Think about this: a little while ago I posted about a potential Spring in the Naz. That was immediately countered with a triangle pattern and an opinion about the downside. Do you remember what you had said? Compare that with where we are now. Go with your own counsel, man. You know more than you may think you do.

 

Eiger

[DbPhoenix 42]

Given your references to "the blog", and given that my blog is the one you're referring to, I feel compelled to respond to some of these remarks.

 

I found from my own experience that the small time frame is not helpful to my trading. As I said earlier, we have more of a tendency to “see” something that isn’t there on small time frames. Because the time frame is small, if what you see is a misperception, it will quickly disappear and cost you money. You run the real risk of getting whipsawed a lot. Sebastian Manby says he uses a 15-min chart to help reduce the whipsaws. The other major problem with the small time frame is you miss a lot of what is there. Again, Sebastian Manby said earlier that you don’t get meaningful VSA indications like no demand on a 1-minute time frame. So, if you are interested in developing proficiency in VSA, well, I would think about what he is saying. He is a master.

 

What Sebastian does or does not say -- or anyone else, for that matter -- is not particularly relevant to the content of my blog since I make no effort to teach "VSA". It is only logical that one misses what he doesn't see, and one misses a great deal by focusing on summary bars, and the longer the interval of the bar, the more he misses. But, again, whatever bar interval one chooses is entirely up to him.

 

We were discussing absorption, which was missed on the small time frame chart. When Wyckoff discussed absorption, he did it with a DAILY chart. He analyzed the NY Times Average from late 1930 to late 1931, and it is a brilliant analysis full of chart reading techniques. But he did not use a 1-minute chart, and to my knowledge never used a 1-min chart.

 

Ask yourself whether or not the advocates of the small time frame talked about absorption. Nope. Totally missed it. In fact, if you look at the blog, there was discussion about where to take a short position during this time!

 

First, "absorption" was not missed on the "small time frame" (which is distinct from a short bar interval) chart. I'm more interested in addressing what's happening in the chart, not what buzz word to call it. And unless I'm mistaken, you didn't bring it up at all until after the fact. This is of no benefit to anyone having to make a RT decision.

 

Second, Wyckoff for intraday trading used a tape reading notation system, a form of P&F, the interval being determined by price behavior. He did not use 5m charts or 15m charts or 60m charts. In fact, unless one considers his intraday notation system to be a chart, he did not use intraday charts at all. What he was focused on was buying and selling waves, not bars.

 

Same with the Spring on March 19. The blog took a short position in the midst of strength, yet later said that from a Wyckoff view, traders would have gone long on that day. Why go short, then? Because of the fundamental problem with the small time frame – you have a very strong tendency to miss the forest while hugging the trees.

 

No, because short off an upwave to resistance and long off a downwave off support is the nature of intraday trading, a central tenet of Wyckoff's. As for making the point "later", I said at the time that I was stopping for the day because I had other things to do. I also pointed out in my commentary IN CAPS that the comments made for the period of my absence were hindsight remarks. Your "spring" (not a Wyckoff term) began on the 17th. Of what relevance was it to intraday trading on the 19th?

 

Should the 1-min chart be condemned, then? I don’t think that at all. Sometimes it can be useful. I was confused about price action and a 1-min chart would certainly have been helpful. No doubt about it. If you are trading in and out for small scalps, you probably need a tick chart. But, this is about VSA, not scalping. On balance, I personally have found that it is more a liability than an asset. That was all I said and it sure seemed to rattle the cages, didn’t it?

 

You are again confusing a small bar interval with scalping. Again, the small bar interval enables a more precise entry, assuming that one has done his homework with regard to support and resistance, and the position is held until the wave ends, whether that occurs in minutes or in hours.

 

One more thing raised is the notion that the 1-min chart lets you see the flow of the market. I don’t buy that. You do not need a 1-min chart to read the flow. In fact, Wyckoff developed a wave chart as a way to read the flow of the market. He was very focused on the wave movement of the market and always talked about how the market moves in waves. When the waves start to change in length and time, you can anticipate a change in market direction. You definitely do not need a 1-min to read the waves. Although not strictly VSA, if interested we can talk about this useful aspect of Wyckoff.

 

You're once again confusing intraday trading with EOD trading. Wyckoff's intraday trading was via the tape. He read the flow continuously since the flow is itself continuous.

 

Think about this: a little while ago I posted about a potential Spring in the Naz. That was immediately countered with a triangle pattern and an opinion about the downside. Do you remember what you had said? Compare that with where we are now.

 

And you apparently missed the "spring" in both the ES and the NQ that occurred shortly after the open yesterday and which resulted in a 40pt move in the NQ. Though perhaps you posted your notice of it somewhere else.

 

Clearly you don't understand the point of my blog, which is to call attention to the features of the territory so that whoever is trying to draw an accurate map can do so. It is not to make calls or to tell people where to enter or where to exit or what their targets should be or otherwise teach How I Trade. Most of all, it is not hindsight quarterbacking, telling them what they should have done or ought to have done, what was "classic" or "textbook" or "obvious".

 

Given my general lack of interest in VSA and your devotion to it, I am sure that those who are equally interested in VSA and in learning how to implement it would greatly appreciate your opening up a blog yourself and explaining to interested traders what is going on in VSA terms throughout the day in real time.

[mister ed 10]

It seems like nearly every post I have made recently draws a response about time frame. Some seem to want to argue about time frame and promote their position on it. There is a vigorous advocacy of the 1-minute bars. Apparently so vigorous that you doubt your own wisdom. That is not a good thing for a trader. The time frame you choose to trade from is your decision, no one else’s. Please understand that I don’t really care what you choose. I have nothing invested, nor do I want to invest in whatever time frame you choose (sounds silly to even say that, doesn't it?). What I mean to say is that it is your choice, and it is a personal choice based on a variety of factors that are strictly personal to you. Don’t let others (including me) unduly influence you.

 

I found from my own experience that the small time frame is not helpful to my trading. As I said earlier, we have more of a tendency to “see” something that isn’t there on small time frames. Because the time frame is small, if what you see is a misperception, it will quickly disappear and cost you money. You run the real risk of getting whipsawed a lot. Sebastian Manby says he uses a 15-min chart to help reduce the whipsaws. The other major problem with the small time frame is you miss a lot of what is there. Again, Sebastian Manby said earlier that you don’t get meaningful VSA indications like no demand on a 1-minute time frame. So, if you are interested in developing proficiency in VSA, well, I would think about what he is saying. He is a master.

 

We were discussing absorption, which was missed on the small time frame chart. When Wyckoff discussed absorption, he did it with a DAILY chart. He analyzed the NY Times Average from late 1930 to late 1931, and it is a brilliant analysis full of chart reading techniques. But he did not use a 1-minute chart, and to my knowledge never used a 1-min chart.

 

Ask yourself whether or not the advocates of the small time frame talked about absorption. Nope. Totally missed it. In fact, if you look at the blog, there was discussion about where to take a short position during this time! Same with the Spring on March 19. The blog took a short position in the midst of strength, yet later said that from a Wyckoff view, traders would have gone long on that day. Why go short, then? Because of the fundamental problem with the small time frame – you have a very strong tendency to miss the forest while hugging the trees.

 

Should the 1-min chart be condemned, then? I don’t think that at all. Sometimes it can be useful. I was confused about price action and a 1-min chart would certainly have been helpful. No doubt about it. If you are trading in and out for small scalps, you probably need a tick chart. But, this is about VSA, not scalping. On balance, I personally have found that it is more a liability than an asset. That was all I said and it sure seemed to rattle the cages, didn’t it?

 

One more thing raised is the notion that the 1-min chart lets you see the flow of the market. I don’t buy that. You do not need a 1-min chart to read the flow. In fact, Wyckoff developed a wave chart as a way to read the flow of the market. He was very focused on the wave movement of the market and always talked about how the market moves in waves. When the waves start to change in length and time, you can anticipate a change in market direction. You definitely do not need a 1-min to read the waves. Although not strictly VSA, if interested we can talk about this useful aspect of Wyckoff.

 

Zeon, you may find the 1-min chart suits you well, and that is terrific. If you can trade well with it, then use it. But you need to come to your own conclusion on this. Don’t take what I say or what others say as gospel. It ain’t. Think about this: a little while ago I posted about a potential Spring in the Naz. That was immediately countered with a triangle pattern and an opinion about the downside. Do you remember what you had said? Compare that with where we are now. Go with your own counsel, man. You know more than you may think you do.

 

Eiger

 

Great stuff Eiger - thank-you. While this thread is about VSA, and Wyckoff, and for those interested in it, I particularly like your point about:

Go with your own counsel, man. You know more than you may think you do.

[Sledge 13]

The time frame you choose to trade from is your decision, no one else’s. What I mean to say is that it is your choice, and it is a personal choice based on a variety of factors that are strictly personal to you. Don’t let others (including me) unduly influence you.

 

Very true Eiger. After studying VSA and getting some excellent advice from a more veteran VSA trader (Thank you JJ.) I learned to "Zoom Out" from the market. For me I not only moved from being a short timeframe trader to a longer timeframe trader- but also learned to physically ZOOM out the chart. This allows me to see more bars and a bigger picture all the way around.

 

Some folks like fast action, they like fast trades and scalps. New Traders in any market are geared to "hit homeruns" the first time they step to the plate. To them- looking at a 1 hour chart is like watching paint dry or "no fun- this sucks." My own experience- if you can read charts this from a "Zoomed out" perspective-- the greater your chances of getting more pips, or ticks or whatever. Sounds simplistic- but think about it- when was the last time you made 100 pips on a 1 minute chart? I never did- because I was too close to the market. On a 1 minute chart your human nature is that when you see that first down bar when you are long- you get out. If you are VSA trained you may follow Tom Williams advice and allow yourself 1 down bar and hold that trade with sweat on your brow, and then get out when the second consecutive down bar closes- you'll never snag a 100 pip trade on a 1 minute chart. I'm pretty strong willed and I'll admit to this when I was a pup trader:

 

I'd be trading on a 1 minute chart. I'd read my chart correctly and get in very near the bottom of the decline and go Long. I am able to snag 15 pips on a 1.00 lot contract. I now have $150 in my account sitting there looking at me as the trade is still open. I see one down bar. I grab my balls and hold on, it loses 2 pips so I'm now looking at $130 in my account. The second down bar now closes and I'm only up 10 pips ($100) and we know the drop is coming. Out of the fear of having a once profitable trade become a break even or a NEGATIVE trade- I'd close out. Why? Because people don't like to lose. So I'd take my $100 bucks and try again later. All the while- this is LONG TERM raging bull trend. If that trade was executed and held- 5 hours later- I would have taken 95 pips on it. So I "settled" for $100 when I eventually could have had $950. This is what the pro's know- it is why they are so very good at what they do-they know the fear is there, they know the mentality of the herd.

 

TG folks will tell you if you are trading on a 1 minute chart "you're crazy" (too much noise) Sometimes it is fun to grab 10 or 20 pips just for the hell of it, but the long-term winners, the real meat of your income will come from longer timeframe trading. Sometimes you just have to keep banging your head against the 1 Minute wall to have it sink it. Eventually, if people stay in this long enough (or last) they will be longer timeframe traders.

 

Sledge

[Sledge 13]

Given my general lack of interest in VSA and your devotion to it, I am sure that those who are equally interested in VSA and in learning how to implement it would greatly appreciate your opening up a blog yourself and explaining to interested traders what is going on in VSA terms throughout the day in real time.

 

Blog? That is what this THREAD is for! Flame me to the friggin hills for all I care but if you have such a "lack of interest" in the topic of this thread- why not post on your blog and step out of the VSA II thread all together?

[mister ed 10]

Very true Eiger. After studying VSA and getting some excellent advice from a more veteran VSA trader (Thank you JJ.) I learned to "Zoom Out" from the market. For me I not only moved from being a short timeframe trader to a longer timeframe trader- but also learned to physically ZOOM out the chart. This allows me to see more bars and a bigger picture all the way around.

 

Some folks like fast action, they like fast trades and scalps. New Traders in any market are geared to "hit homeruns" the first time they step to the plate. To them- looking at a 1 hour chart is like watching paint dry or "no fun- this sucks." My own experience- if you can read charts this from a "Zoomed out" perspective-- the greater your chances of getting more pips, or ticks or whatever. Sounds simplistic- but think about it- when was the last time you made 100 pips on a 1 minute chart? I never did- because I was too close to the market. On a 1 minute chart your human nature is that when you see that first down bar when you are long- you get out. If you are VSA trained you may follow Tom Williams advice and allow yourself 1 down bar and hold that trade with sweat on your brow, and then get out when the second consecutive down bar closes- you'll never snag a 100 pip trade on a 1 minute chart. I'm pretty strong willed and I'll admit to this when I was a pup trader:

 

I'd be trading on a 1 minute chart. I'd read my chart correctly and get in very near the bottom of the decline and go Long. I am able to snag 15 pips on a 1.00 lot contract. I now have $150 in my account sitting there looking at me as the trade is still open. I see one down bar. I grab my balls and hold on, it loses 2 pips so I'm now looking at $130 in my account. The second down bar now closes and I'm only up 10 pips ($100) and we know the drop is coming. Out of the fear of having a once profitable trade become a break even or a NEGATIVE trade- I'd close out. Why? Because people don't like to lose. So I'd take my $100 bucks and try again later. All the while- this is LONG TERM raging bull trend. If that trade was executed and held- 5 hours later- I would have taken 95 pips on it. So I "settled" for $100 when I eventually could have had $950. This is what the pro's know- it is why they are so very good at what they do-they know the fear is there, they know the mentality of the herd.

 

TG folks will tell you if you are trading on a 1 minute chart "you're crazy" (too much noise) Sometimes it is fun to grab 10 or 20 pips just for the hell of it, but the long-term winners, the real meat of your income will come from longer timeframe trading. Sometimes you just have to keep banging your head against the 1 Minute wall to have it sink it. Eventually, if people stay in this long enough (or last) they will be longer timeframe traders.

 

Sledge

 

Sledge - great info, can I strongly second something you said

Thank you JJ

We are getting more and more strong VSA / Wyckoff practitioners on this thread and I am learning and consolidating heaps.

[DbPhoenix 42]

Blog? That is what this THREAD is for! Flame me to the friggin hills for all I care but if you have such a "lack of interest" in the topic of this thread- why not post on your blog and step out of the VSA II thread all together?

 

Be happy to. If Eiger hadn't brought my blog into it, I wouldn't have made the post.

 

In any case, if Eiger wants to provide real time VSA commentary on ES in this thread, that's great. As I said, that would be of great benefit to those who are interested in learning how to apply VSA in real time. Whether it takes place in a blog or a thread is not important.

[CandleWhisperer 10]

There are a multitude of factors to consider when choosing a timeframe to trade. I will just touch a few:

 

(1) Signal to noise ratio. Now Tom and many others will say do not trade a 1 min chart because there is so much noise. I believe there is an error in this thinking. EVERY MOVEMENT OF PRICE IS VAILD as it represents buyers and sellers coming together in agreement. Therefore, there really is no such thing as noise. This is what DB is talking about.

 

With that said, if one trades currencies with their high propensity to trend, 1 minute charts can lead to many false break out signals. And retracements that on a larger time frame would be easily sat through.

 

Keeping with the VSA theme for a moment, one has to asses the likelihood that the biggest and smarts traders in the world are trying to get 5-10 pips out of the currency market that tends to trend for 100s of pips. VSA tells us that the BBs trade all timeframes to both hide from the public and each other. But the GBP was not brought down by Soros on a 1 minute chart.

 

(2) Signal type. Mark is a Price Action trader who uses WRB analysis first and Japanese candlestick patterns second. For the patterns he uses many timeframes from which to trade. Because a pattern may not set up on one timeframe but may on a higher or lower one. For example, a Doji on one time frame is almost always a hammer on some other timeframe.

 

A valid signal pattern is thus not dependant on timeframe but on the candle lines that transverse into a valid signal pattern.

 

Some type of entry singals, however, are better suited when there is higher timeframe confirmation. Or simply be taking the singal on higher timeframes to begin with.

 

(3) Personality. Many people need instant gratification. They want to know if they are on the right side of the market or not immediately. Related to this is the important idea of risk. Technically a swing trader can know if he or she is right or wrong as immediately as a 1- min scalper, but to many the there is a time distortion resulting in increased risk as timeframe increases.

 

On the other hand, some use time to second guess themselves or at least not rush into positions. It is very nice for some to see a set up on a 15 minute chart and know they still have at least 15 (the whole next bar) to actually decide to pull the trigger.

 

Of course, there are many other factors. I think (1) is very important here. While the father of VSA is against the 1 minute timeframe, we should still realize that every price (tick) is valid and thus worth understanding. With that said, sometimes one does need to step back from within the trees to actually see he is in a forest.........

[DbPhoenix 42]

Smart post, CW. But with regard to your third point, I'd like to amplify it a bit by adding that there are several types of risk. Mamis enumerated three: price risk (which is the one most people think of first), information risk, and time risk.

 

The first two have an inverse relationship, i.e., the less price risk one wants to assume, the more information risk he must assume in the bargain. In other words, if one wants the best price, he's going to have to forego the comfort of having all the information he wants regarding whether or not the price is in fact the best one. If he waits for more information, he by definition will not get that best price. For example, if price bounces off support and one waits five or fifteen or sixty minutes to buy, he will not get the same price he would have gotten if he had bought when price bounced off support in the first place. If one wants another example over a longer timeframe, many people apparently are still waiting for confirmation of a bear market before selling their stocks, even though the market topped out long ago.

 

The confusion over "signals" on a smaller-interval chart remains and is likely a Gordian Knot. For some people, any hesitation is a sign of weakness, much less a retracement, even if the retracement is only a tick or so. But over the years I've found as much confusion over the difference between a retracement and a reversal regarding daily and weekly charts as I have intraday charts.

[Eiger 10]

Thursday was a good day for Springs. There were two that occurred. I love these trades when they set up. FWIW, here's what I saw.

 

On the day before, the S&P market had a trend day down. Unless we are breaking out of a daily consolidation area where the market is likely to trend for a few days in a row, the day after a trend day usually sees testing and consolidation, at least in the morning session, if not all day. I thought that there were a couple of good indications that we would see some testing and consolidation.

 

First, Wednesday ended the day at the bottom of the trend channel in an oversold position. The NYSE Ticks had hit quite low levels in the late afternoon (-1,100 to -1,200), also indicating it was pretty oversold. The last few down bars on the 5 min chart on Wednesday had ultra high volume, suggesting demand was coming back into the market (“strength, when it appears, comes on down bars.”). Earlier, there was a Spring on the daily chart, followed by the big rally fueled by the FOMC rate cut. So, it didn't seem likely that we would be starting a new downtrend with such strength in the background. Even though Wednesday was a trend day down, I was seeing it as a potential Test of the daily Spring.

 

Spring #1

 

On the 5-min chart, bar A was an average spread down bar closing midrange. It sprung the early morning support area just to the left. Two constructive aspects of this spring were 1) the small penetration below support and 2) the close well above support. Also, the next bar was up and the volume was less on this up bar. I have found that lighter volume like this is usually better. I think Tom Williams refers to this as a “vacuum.” It indicates that there is no real supply at this level and allows the market to rally nicely. Had there been larger volume, and price was unable to rally away from the danger point, the spring likely would have failed and we would see more downside. Wasn’t that a nice rally? There was a trading range to the left and Tom Williams makes the point that high volume on up bars is usually unliked, except when they are pushing the market through resistance, as here.

 

I like to keep a 3-min chart with Ticks (not VSA, but I find it helpful) that is day session only along with the 5-min chart that includes the overnight data. The day session chart can be helpful around the open. At bar A on the 3-min chart, price dips under Wednesday’s low and volume recedes on the low. You can also contrast the Wednesday afternoon volume generally with the volume around Thursday’s open. I end the day session only chart at 4:00, so you don’t see all the volume, but you can see that spike of volume (70K contracts on a 3-min bar-yikes!). There were actually more heavy volume bars and this was ultra high volume, as mentioned above. You can also see that Ticks didn’t come close to Wednesday’s low ticks. They held higher, indicating that there was no selling left at this level. There was a nice Test at 1.

 

Spring #2

 

The second Spring came at about 12:40 – lunchtime seems to be more active lately, or is it just me? The morning rally and the reaction holding as it did suggested to me overall bullishness in the background. In the immediate background, the down bar at E (5-min chart) looked like stopping volume and the market then rallied. I thought this added to the strength. On the 5-min chart, the volume at F was less than E, but the penetration was lower than at A and the close just reached above support. The next bar closed near its open, which wasn’t all that great. I think there was still supply that hadn’t been drawn out of the market. The Ticks seemed to suggest that, too, as there was no divergence that we often see on a Spring. Volume was less, and although it took a while to rally, there were several tests: one three bars after F, one at “t”, and another at G (3-min chart) indicating that supply was drying up.

 

As I say, Springs are one of my favorite trades. They aren’t 100%, but when there is strength in the background, they usually work quite well.

 

Hope you find this is useful.

Eiger

[Bearbull 10]

Where you see the main differences between Wyckoff and Williams?

 

It seems, that there are several resources available based on Wyckoff. If I interpret some statements correct , then some people see e.g. SMI or TG as an ajusted Wyckoff version to todays market relations, but you and BB seems to have another view. Can you give me some educational resources (books, courses ...) which you think teach the original Wyckoff material?

 

Unless you study and assimilate the original Wyckoff's course and then also study Undeclared secrets, MTM etc it is almost impossible to point out/recognize/understand/explain meaningfully the glaring differences.

As you can observe the whole drawn out debate ending with Db being told to get on his bike is due to the fact that reading buying and selling pressure via smaller time frame is being equated to scalping, this is a fundamental error and as I have said unless one has thoroughly understood the original Wyckoff teaching, it will remained misunderstood. He was not advocating taking positions via tick or 1min chart. If you wish to trade via 15min30min fine, however the smaller time frame allow a micro view into the price action, wave flows in that 15min bar, i.e how many times price knocked at the bottom or the top where it opened , how rapidly it moved to the high or low, how rapidly it was rejected etc, this then allows the trader to better understand the meaning of that 15min open/high/low/close in conjunction with the vol.

We are all on the same path here, nobody is right or wrong, just different viewpoints and nobody is forcing anybody to adopt one or the other. The choice is ours for at the end of the day all that matters is what is in our account regardless of who says what on this thread or any other. HASTA LA VISTA;)

[OAC 10]

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).

Alternatively, you can attempt to buy on a pullback after a key resistance has been broken and short on a pullback after a key support has been broken. The difference is the RR(Risk/Reward) may be better doing this way because the target is the next key support or resistance. which could be sizable. Whereas your method of buying on support based on selling drying up may only lead to a temporary bounce that amounts to a couple ticks or pips. Call it my couple cents ?

[zeon 10]

It seems like nearly every post I have made recently draws a response about time frame. Some seem to want to argue about time frame and promote their position on it. There is a vigorous advocacy of the 1-minute bars. Apparently so vigorous that you doubt your own wisdom. That is not a good thing for a trader. The time frame you choose to trade from is your decision, no one else’s. Please understand that I don’t really care what you choose. I have nothing invested, nor do I want to invest in whatever time frame you choose (sounds silly to even say that, doesn't it?). What I mean to say is that it is your choice, and it is a personal choice based on a variety of factors that are strictly personal to you. Don’t let others (including me) unduly influence you.

 

[...]

 

Eiger

 

Eiger, first of all I'd like to express my gratitude for taking the time to respond in depth to my questions. This is really much appreciated. You are right, I still need to find my own way, and I'm trying to listen to different people and different opinions. All this time that I've been trading I've not exactly been losing money, but I haven't been making much neither. There are a couple on this site who really seem to know what they are talking about and I appreciate those comments.

 

I don't mean to stir trouble between other members because of any conflicting views. I can only tell what I've experienced for my own and so far that has been that the 5-minute bar chart gave me a lot more clear volume signals than the lower timeframes. This could obviously be down to my inexperience of reading the buying and selling pressure/flow... On the other hand, I'm sure dbphoenix isn't scalping when he's trading off the 1-min chart. He seems to stay in a trade until price reaches the next support or resistance level.

 

What I'm trying to say is, I appreciate the input from people here and I hope this thread can stay as interesting as it has been!

[zeon 10]

Ask yourself whether or not the advocates of the small time frame talked about absorption. Nope. Totally missed it. In fact, if you look at the blog, there was discussion about where to take a short position during this time!

 

 

Db, to be honest I think what's Eiger been saying here is right and the "absorption" could well be seen in real time. Ofcourse he only brought it up after the fact, but I mean we all discuss charts after the fact. All of our strictly speaking, made 'after the fact'. But the noticeable dry-up in volume that I observed and which can be seen in the first chart from the ES I posted (which started this discussion), can all be seen in realtime. Whether one calls it absorption or something else, I don't mind much, but I think this term describes quite well what is going on.

 

As far as I understand what Eiger's trying to say, is that whatever selling is going on, it's been absorbed because traders truly want price to go higher. You might have a better word for this, but that's like discussing semantics instead of charting and I doubt we want to go there...

 

First, "absorption" was not missed on the "small time frame" (which is distinct from a short bar interval) chart. I'm more interested in addressing what's happening in the chart, not what buzz word to call it. And unless I'm mistaken, you didn't bring it up at all until after the fact. This is of no benefit to anyone having to make a RT decision.

 

Given my general lack of interest in VSA and your devotion to it, I am sure that those who are equally interested in VSA and in learning how to implement it would greatly appreciate your opening up a blog yourself and explaining to interested traders what is going on in VSA terms throughout the day in real time.

 

Anyhow, whether this or that analysis is more VSA than Wyckoff, I personally don't care. I'm just trying to absorb (sorry for the word) as much information as possible and I feel there's been a lot of talk in this thread about what is originally an idea from Wyckoff or Williams or SMI or... and all that kind of surpasses the idea of 'analysis'. No offense meant here.

Edited March 22, 2008 by zeon

[zeon 10]

Alternatively, you can attempt to buy on a pullback after a key resistance has been broken and short on a pullback after a key support has been broken. The difference is the RR(Risk/Reward) may be better doing this way because the target is the next key support or resistance. which could be sizable. Whereas your method of buying on support based on selling drying up may only lead to a temporary bounce that amounts to a couple ticks or pips. Call it my couple cents ?

 

... When I see selling drying up at support, I go long. When I see buying dry up at resistance, I short.

 

OAC, you quoted db from somewhere in the beginning of this thread, but I think yours is a good question. In fact, despite several replies, I'm still not quite clear on the issue. It certainly feels safer to buy or sell retracements after a breakout, which is what you're describing if I understand correctly.

 

Db - and I know this has been asked before - but perhaps you could spend some little more time on it to shed some clarity in the matter. The only thing you replied is that 'price reigned'. Forgive me, but that didn't exactly make me much wiser. You said you'd short at resistance if you observed buying drying up. But, apart from declining volume, how do know that buying is in fact drying up? Look again at the chart I posted from the ES. This is at it's core what we are talking about. The volume is declining and a lot of the bars fail to close above the green line on low volume. Isn't this buying drying up? So would you have taken a short here, or not? If not, I'd appreciate it if you could inform me why not.

[zeon 10]

There are a multitude of factors to consider when choosing a timeframe to trade. I will just touch a few:

 

(1) Signal to noise ratio. Now Tom and many others will say do not trade a 1 min chart because there is so much noise. I believe there is an error in this thinking. EVERY MOVEMENT OF PRICE IS VAILD as it represents buyers and sellers coming together in agreement. Therefore, there really is no such thing as noise. This is what DB is talking about.

 

[...]

 

I think (1) is very important here. While the father of VSA is against the 1 minute timeframe, we should still realize that every price (tick) is valid and thus worth understanding. With that said, sometimes one does need to step back from within the trees to actually see he is in a forest.........

 

Candlewhisperer, I'm not discussing whether or not 1-minute charts provide 'noise' or not, but the problem is in correctly identifying signals on such a timeframe. I think there's a much higher probability of reading the market incorrectly if you are trying to trade of such a timeframe.

 

Here's a chart of the NQ of the 20th (last Friday), which I copied from db's blog. I've left the original lines on it: the two pink lines at 1740 and 1750 are resistance, and the red line is a trendline. Now follow me how I see this chart, reading it from left to right.:

 

(A) = a rise in volume and price breaks out of the descending trendline. A while later I draw an upsloping trendline.

 

(B) = 1740 was resistance and here we have a massive surge in volume and price jumps to 1745! Wow, a breakout, let's go long here! Stop set just below the pink line at 1739.

 

© = hmm, there doesn't seem to be much follow through, perhaps we are wrong? and stopped out at 1739...

 

(D) = Ah, another rise in volume! perhaps resistance was not at 1740 but at 1745. If that's the case, than this is the breakout, and we go long here.

 

(E) = looks better, there's a decrease in volume, this looks like the retracement. 10 minutes later we can draw another upsloping trendline.

 

(F) = If we are still long, we could've exited at 1745. But at 1520 price breaks above 1755 on high volume. Boom, another breakout, let's go long again! Stop just below the resistance line at 1754. And ouch, stopped out again.

 

What I'm trying to say, is that most of these 'breakouts' B / D / F wouldn't be visible on a 5-min chart. So you wouldn't be inclined to trade them, because they just wouldn't be there.

[DbPhoenix 42]

Db, to be honest I think what's Eiger been saying here is right and the "absorption" could well be seen in real time. Ofcourse he only brought it up after the fact, but I mean we all discuss charts after the fact. All of our strictly speaking, made 'after the fact'. But the noticeable dry-up in volume that I observed and which can be seen in the first chart from the ES I posted (which started this discussion), can all be seen in realtime. Whether one calls it absorption or something else, I don't mind much, but I think this term describes quite well what is going on.

 

As far as I understand what Eiger's trying to say, is that whatever selling is going on, it's been absorbed because traders truly want price to go higher. You might have a better word for this, but that's like discussing semantics instead of charting and I doubt we want to go there...

 

Actually, it's not a matter of semantics but of accuracy. For example, Eiger states that when Wyckoff discussed absorption he did it with daily charts (in caps, as if to emphasize the point), and that's true as far as it goes. However, he also discussed it with regard to intraday activity as well. Wyckoff also provided certain criteria for detecting absorption in real time. With regard to the activity that took place on the 20th, those criteria were not met. Detecting the "absorption" after the fact is as easy as all hindsight analysis (even though it technically was not absorption), but that's not what the blog is about. Similarly, he could not understand why anyone would take a short position on the 19th against a "background of strength", even though the day was worth over 50 ES points on the short side.

 

Anyhow, whether this or that analysis is more VSA than Wyckoff, I personally don't care. I'm just trying to absorb (sorry for the word) as much information as possible and I feel there's been a lot of talk in this thread about what is originally an idea from Wyckoff or Williams or SMI or... and all that kind of surpasses the idea of 'analysis'. No offense meant here.

 

I don't much care where the analysis comes from either. However, it must be understood that I'm not teaching VSA and that this VSA thread is not teaching Wyckoff. Therefore, when someone posts to this thread that Db says this and Db says that and how do I reconcile that with the content of this thread, then it should come as no surprise that the responses take on the character of Db is wrong about so and so and look at what Db missed. Add to that all the incorrect information regarding Wyckoff which only adds to the confusion.

 

If you want to learn VSA, then I suggest that you focus on VSA. If you focus instead on MP or whatever and then expect someone here to reconcile the two for you, you may not get the hoped-for results, particularly if the individual attempting to explain does not have a thorough understanding of MP. I suggest also that you avoid any chart with a bar interval of less than five minutes. An even longer bar interval may be best for you. You'll just have to experiment.

 

You will learn eventually that there is a great deal of difference between real-time trading and hindsight trading and that a diet of being told what you should have done goes only so far. If you want to learn how to trade in real time, then you're going to have to trade in real time, preferably on paper. Every day. All day. You aren't going to get very many epiphanies from analyses that are all in the past tense.

[DbPhoenix 42]

Alternatively, you can attempt to buy on a pullback after a key resistance has been broken and short on a pullback after a key support has been broken. The difference is the RR(Risk/Reward) may be better doing this way because the target is the next key support or resistance. which could be sizable. Whereas your method of buying on support based on selling drying up may only lead to a temporary bounce that amounts to a couple ticks or pips. Call it my couple cents ?

 

As I've said several times, the target remains the same. The only difference is where and when one enters. Either one enters at support/resistance or he waits for n minutes for some other signal of some sort. Granted that entering in such a fashion requires a certain sensitivity to the nature of the trading activity and the relationship of that activity to price action, but it is at bottom no different from the relationship using any other temporal reference.