[VSA] Volume Spread Analysis Part II

[brownsfan019 17]

Interesting take BF. WRBs represent a change in the supply/demand dynamic as well as so much more. They can play various roles. The attached chart shows WRBs playing multiple roles as the market transitions into an up trend.

 

However I want to focus here on the two tests.

 

Leaning Lesson:

 

Note this first test. This test is rather hard to see and would be missed by many (including some of the BBs). It is made easier for those who were predisposed to look to go long as part of a "fading the volatility spike" trade. The bar has a narrow range closing up and closes on the middle of its range on volume less than the previous two bars. Very tricky. In fact, many would be looking at this bar as a possible no demand until the next bar is up. As you can see price moved up from this test.

 

However the BBs are not sure if there is latent supply in the market. They have seen demand enter on both volatility spike and the next up bar. Yet, the nature of the test bar leaves something to be desired.

 

Now we skip to the second test. This is almost text book. It closes equal to the previous bar, has a narrower range, makes a lower low, and closes on its high. Two very important things about this test:

 

(1) Not only is the volume less than the previous two bars, but it is less than the previous test as well.

 

(2) This test trades back into the range of the body of the WRB but does not trade as low as the first test.

 

If there had been any doubt after the first test, its was all removed on the second one. This pattern actually repeats often and is very powerful. One test on low volume followed by another test with less volume than the first test and not trading as low as the first test.

 

CW - good work here.

 

My question here and to Mark as well when he was on the forum was really how to use these WRB's in real-time. As your chart shows, there's quite a few to choose from and sometimes they act as support/resistance and other times they do not.

 

This is probably a WRB discussion which belongs in the WRB thread, but it's worth discussing. I got to the point that WRB's are good for reference, but that's about it. Not much trading to be done off them in real-time after many, many hours of work and discussions with Mark and PivotProfiler. I just found myself going in a giant circle with them...

[brownsfan019 17]

Here's the WRB discussion we had awhile back. As you can see, I spent A LOT of time on these things.

[brownsfan019 17]

My candle view of these CW:

 

 

 

2 trades, one failed, one worked.

 

The 2nd worked for as long as you possibly let it.

[BlowFish 10]

VSA does not have WRB per se. The sorts of place you might find them are pushing through previous areas of demand/supply or on steadily increasing volume in a trend. With both of these you would anticipate continuation. The only place you would be alert to a shift in the dynamic would be if the volume was high to ultra high. (we are talking really climactic here not Meg Ryan climactic)

 

My price action foundation goes back to Dunnigan one of the grand fathers of PA. In his terminology a thrust (WRB) after a double bottom or a bottom and a test actually confirms a trend in the new direction - again not a place to exit.

 

In traditional Candlesticks dosen't a WRB signal continuation too? I mean they have three white soldiers / three black crows. In both instances you wouldn't want to get out on the first one.

 

In a nutshell the whole premise for exiting just because a movement is strong so it might stop is flawed.

[habi 10]

Looks as we had a secondary test completed yesterday. After a retest of the January lows on March 17 we saw a relativ strong upmove on high volume. Last weeks downmove was on lower volume and narower spread candles. It seems that the next upmove started already after yesterdays test bar. In this case a test of the high from end February should be possible. It will be interesting, where we close today

 

[zdo 20]

VSA does not have WRB per se. The sorts of place you might find them are pushing through previous areas of demand/supply or on steadily increasing volume in a trend. With both of these you would anticipate continuation. The only place you would be alert to a shift in the dynamic would be if the volume was high to ultra high. (we are talking really climactic here not Meg Ryan climactic)

 

My price action foundation goes back to Dunnigan one of the grand fathers of PA. In his terminology a thrust (WRB) after a double bottom or a bottom and a test actually confirms a trend in the new direction - again not a place to exit.

 

In traditional Candlesticks dosen't a WRB signal continuation too? I mean they have three white soldiers / three black crows. In both instances you wouldn't want to get out on the first one.

 

In a nutshell the whole premise for exiting just because a movement is strong so it might stop is flawed.

 

BlowFish,

What brownsfan019 has observed is sound statistically. As you have clearly supported in your post, WRB are not good signs of an end of trend. However, a large % of very large range bars (and WRB’s) on shorter timeframes do mark a temporary turn or presage a retracement (however large or small) turn by one bar - and do so with increasing frequency when they occur deeper into the impulse. Getting the most out of the current impulse may be all he is looking for. (ie this is getting more relevant now to individual dispositions, preferences, tendencies, and tactics than it is to understanding markets / charts in general...)

In the ideal one would exit at the extremes of WRB neighborhood and skillfully re- enter at an optimal place in the ensuing retracement to fully participate in the ongoing trend...

[Sledge 13]

I would like to ask a WSB question to those who are more educated on them.

 

1. Say you see a large WSB DOWN on ultra high volume.

2. You then see a large WSB UP bar right next to it Very High Vol.

3. You then see another WSB DOWN bar on less volume than 1 and 2.

 

Would you draw a conclusion that Bar #1

A. Knocked out stops (and flooded market with supply on bar #2)

B. Profit taking took place (Bar 2 was absorbtion of supply)

C. Or Both?

 

I may have asked this prior- if I did, I don't remember getting an answer.

Sledge

[zeon 10]

So, with all due respect, I believe we are going back up to 12600 at least.

 

I posted this 4 days ago... looks like I was right

[habi 10]

I posted this 4 days ago... looks like I was right

 

 

Yes, I remember your post 733. It was just a little bit too early to go up, but all this down bars were on lower volume than the preceding upmove. So, you was on the right path.

Now we are already in the area of the two February highs. Will be interesting what happens here. If it goes above this highs, it looks like a nice midterm bottom.

[zeon 10]

Yes, I remember your post 733. It was just a little bit too early to go up, but all this down bars were on lower volume than the preceding upmove. So, you was on the right path.

Now we are already in the area of the two February highs. Will be interesting what happens here. If it goes above this highs, it looks like a nice midterm bottom.

 

The main reason I felt that, was because the action on the way down didn't "feel" very urgently. It was more like an absence of buying pressure than real selling. It would be nice to say I was able to profit from it by going long yesterday or the day before, but unfortunately I didn't because I've been focusing on intraday moves. However lately someone suggested that swing trading might be easier to do, and I believe on this thread someone mentioned that too...

[CandleWhisperer 10]

I would like to ask a WSB question to those who are more educated on them.

 

1. Say you see a large WSB DOWN on ultra high volume.

2. You then see a large WSB UP bar right next to it Very High Vol.

3. You then see another WSB DOWN bar on less volume than 1 and 2.

 

Sledge

 

A couple of key points first.

 

A. VSA is concerned with volume, spread and close. One wants to ask "what did the market do on all that volume? By not mentioning where the close is with respect to the range, it makes things difficult.

 

B. A WRB is defined as a bar with a body (open-close) greater than the prior three intervals. This is important. If you have three consecutive dojis (open=close) and the next bar has a close 2 ticks above the close, you have a WRB.

 

I believe you are talking about Large WRBs that are also Wide spread bars (range) but that does not have to be the case.

 

With all that said.

 

1. Down bar on ultra high volume with the next bar up (demand entered on this bar) Without seeing a chart or an explanation of some prior price action, can't tell if this is volatility expansion.

 

2. Next bar up on high volume. This confirms the selling on the first WRB and show demand entering. This bar is bullish. IS the bar closing higher than the first WRB? If so its a bottom reversal in VSA parlance.

 

3. While a no supply bar should really have a narrower range than the previous bar and volume less then the previous two bars, this is showing no supply. If the close is on the absolute low of the bar and it is a wide spread bar it is no selling pressure.

 

 

hope this helps.

[zdo 20]

More re voracity of exiting on WRB's from a couple posts back…

 

Attached is an illustration of this concept from midday today on a 1min YM.

It's not parabolic action, but the Dow did trend climb 100 points in the two hours shown.

The blue dots mark any bar whose range is greater than 2.8 StdDev of the last 100 bars ATR (or AR ?).

Almost all of them portend a turn or a correction of some magnitude on next or next after bar - even if it’s only a pause or tiny “RossHook” type of pullback.

This is only to illustrate that the concept of exiting on very WRB is not completely bogie. Better than staying in? Again, that seems to be an issue of individual style and tactics.

 

Notes:

This only measures wide range, not WRB’s proper, but most instances of very WRB’s would be in any sample of these.

Also note these are modified HA’s, not candles.

Stats are even better on tick charts...

Edited April 1, 2008 by zdo

[mister ed 10]

zdo - sorry if this is a dumb question but the modified HA bars you have shown, does the modification you make have any impact on the acual range of each bar or does that remain the same? So, would a regular 1 minute bar have the same range as the modified HA bars you show in the chart?

[zdo 20]

Too late to edit previous post. The first picture was from yesterday not today. I just scrolled back and snapped something.

 

Here is one from today during approximately same time period.

Shows same tendencies

 

(Also Admin/Mods, please feel free to move all three of these posts to the WRB thread if you like...)

[zdo 20]

zdo - sorry if this is a dumb question but the modified HA bars you have shown, does the modification you make have any impact on the acual range of each bar or does that remain the same? So, would a regular 1 minute bar have the same range as the modified HA bars you show in the chart?

 

Hi mister ed,

 

Those screen shots didn't turn out very well - maybe because I was taking wide shots or maybe TS jpg's aren't that great. They show fine in desktop viewer though. Anyway -

 

These are one minute ohlc bars with a 'gold' color. The range is not impacted by the HA's at all. They are a paint bar overlay. The modified HA's never extend beyond the high or low. so Yes - regular 1 minute bar have the same range as the modified HA bars

 

Hth. If not pls rephrase the question - we'll get it straight.

Edited April 1, 2008 by zdo

[mister ed 10]

Thanks zdo

[Sledge 13]

A couple of key points first.

 

A. VSA is concerned with volume, spread and close. One wants to ask "what did the market do on all that volume? By not mentioning where the close is with respect to the range, it makes things difficult.

 

B. A WRB is defined as a bar with a body (open-close) greater than the prior three intervals. This is important. If you have three consecutive dojis (open=close) and the next bar has a close 2 ticks above the close, you have a WRB.

 

I believe you are talking about Large WRBs that are also Wide spread bars (range) but that does not have to be the case.

 

With all that said.

 

1. Down bar on ultra high volume with the next bar up (demand entered on this bar) Without seeing a chart or an explanation of some prior price action, can't tell if this is volatility expansion.

 

2. Next bar up on high volume. This confirms the selling on the first WRB and show demand entering. This bar is bullish. IS the bar closing higher than the first WRB? If so its a bottom reversal in VSA parlance.

 

3. While a no supply bar should really have a narrower range than the previous bar and volume less then the previous two bars, this is showing no supply. If the close is on the absolute low of the bar and it is a wide spread bar it is no selling pressure.

 

 

hope this helps.

 

CW-

It does. Thank you!

Sledge

[JDS 10]

zdo - Thanks for your pictures. They have sparked some ideas! I was wondering if the code for the StdDev showme and the price bands are posted anywhere? ---JDS

[brownsfan019 17]

 

B. A WRB is defined as a bar with a body (open-close) greater than the prior three intervals. This is important. If you have three consecutive dojis (open=close) and the next bar has a close 2 ticks above the close, you have a WRB.

 

That is how Mark defines a WRB. I personally think there's some serious faults with defining a WRB as such. Again, discussed in the WRB thread.

[brownsfan019 17]

In traditional Candlesticks dosen't a WRB signal continuation too? I mean they have three white soldiers / three black crows. In both instances you wouldn't want to get out on the first one.

 

In a nutshell the whole premise for exiting just because a movement is strong so it might stop is flawed.

 

1) In traditional candlesticks the 3 white/black soldiers is supposed to signify the end of a possible move. I personally do not use these at all.

 

2) If you spend any time in the WRB thread, you will see that exiting based on a WRB is in fact a possible exit method that produces profits. Your thinking is flawed.

 

The WRB is an interesting animal but one I have given up hunting. Why? As evidenced in the WRB thread, there are plenty of WRB's that give you a PERFECT exit point and others that provide a TERRIBLE exit point.

 

You see BF, some WRB's do in fact give you the END of the move while others are simply along for the continuation. So, sometimes exiting on the WRB is in fact almost PERFECT and other times not so much. The problem I had was there was no distinguishable method of knowing when to exit and when to ride the wave.

 

You've also failed to disclose what timeframe(s) you are basing your opinion on. That is kinda important as well. On a 1 minute chart you may want to hang around for multiple WRB's as they are commonplace. On a 30 minute chart however, that is not the case (usually).

 

You of all people know that there are no definites in trading. To say that my thinking of exiting on WRB is flawed is flawed within itself b/c you are only looking at it in your little vacuum.

 

Food for thought.

[BlowFish 10]

1)

 

The WRB is an interesting animal but one I have given up hunting. Why? As evidenced in the WRB thread, there are plenty of WRB's that give you a PERFECT exit point and others that provide a TERRIBLE exit point.

 

 

That my whole point! We seem to agree. Context, prevailing market characteristics and a whole bunch of other stuff is important. Actually similar criteria that you would apply to entries.

 

 

If you had entered on say a hammer at support (or a selling climax/test at support) Dunnigan would say that if you then saw a 'thrust' that your trade was 'confirmed' i.e. you where in at the start of a new trend. Using ZDO's chart as an example he would be adding on each of those pullbacks. Dunnigan was rigerous in his research incidentally. If however you where in congestion or long a WRB going into longer term resistance that paints another picture

 

The good thing about simply exiting on a WRB is simplicity. No need for analysis you see a WRB you exit. Of course you would need other exit criteria (unless you waited for a WRB or your stop to be hit).

 

Zdo makes some interesting points about what your objectives are (scalp or intraday swing) if you are riding momentum getting out when it pauses is quite fine. Each to there own.

 

As an aside one Of the many things on my to do list is post a review of http://www.amazon.com/New-Blueprints-Gains-Stocks-Grains/dp/1897597576/ref=pd_bbs_2?ie=UTF8&s=books&qid=1206798671&sr=8-2

This is actually New Blueprints for Gains in Stocks and Grains and also has The One-Way Formula for Trading in Stocks & Commodities appended. IMO they are great works on price action (thats saying something coming from me), there is also hard back edition that has a few reviews.

[CandleWhisperer 10]

.....The WRB is an interesting animal but one I have given up hunting. Why? As evidenced in the WRB thread, there are plenty of WRB's that give you a PERFECT exit point and others that provide a TERRIBLE exit point...

 

As we all know, no method for exits is perfect. You can be sure that any method used will at times get you out of the market, only to see price continue on in the direction of your trade.

 

Here is an example of an alternative stop method using WRBs.

 

This is a trailing stop method.

 

Entry would be after the failed test in the body of the high volume WRB is confirmed by another dark WRB that engulfs and closes lower than the low of the test.

 

1: initial stop level. High volume bar closing in its lower portion after the test bar.

 

The way this works is this. Once you have your stop, you move it to the close of the WRB ONLY after the appearance of another same color WRB that is lower.

 

2: This becomes the stop level after the appearance of WRB A.

 

3: This becomes the stop level after the appearance of WRB B.

 

4: This becomes the stop level after the appearance of WRB C.

 

5: Stop is moved to this level once we have WRB D.

 

6: Current stop level and formed with the completion of the dark WRB E.

 

Simply exiting on a WRB doesn't make sense to me, because WRBs just as often represent CONTINUATION. More exactly, they can be involved in strong continuation patterns. In my opinion, if one is using price action to get into the market, one should use the market's price action to get out. And the best way to do that is not thru profit targets, but trailing stops.

[DbPhoenix 42]

Wouldn't it be easier just to read the price action?

[CandleWhisperer 10]

Wouldn't it be easier just to read the price action?

 

As far as I am concerned it is.

 

P.S. Good to see you back here.

[DbPhoenix 42]

As far as I am concerned it is.

 

P.S. Good to see you back here.

 

Thank you, but, no, it isn't, not technically. Clearly you've put a great deal of thought into this and you've come up with a rather elaborate scheme to try to trade these candles profitably. But you're "reading" the candle, not the price action, and therefore using the candles as indicators, divorced to a large extent from the price action itself.

 

Candles, whether WRBs or not, are entirely a function of the interval chosen to display them. The "WRB", in other words, disappears when the price action is displayed in another interval. The price action is the same; the only thing that's changed is the means by which it is displayed.

 

WRBs are simply a graphic display of distance by time. One can see this in any display, even dots. Granted that "WRB" is convenient shorthand for the type of movement it displays, just as "doji" is a far more convenient way of describing the price action within a certain span of time than "that bar where the open and the close are the same". But either way, bar or candle, is not the thing. It's nothing more than a means of displaying the thing.

 

If one finds it necessary to develop elaborate schemes for entry and exit and stop placement and so forth, it's likely that he's focusing on the representation and not the thing -- price action -- that's being represented, and the lists of rules grow ever longer.