[VSA] Volume Spread Analysis Part II

[zeon 10]

If one can't view this as training for bigger rewards down the road and patiently keep his eye on the prize, he will very likely end up on a treadmill instead.

 

Ehm, forgive me for asking, but I was under the impression you yourself found it safer to lighten your position 'at the midpoint of extremes'. And I believe in the PDF files and in a couple of posts you said that when there's a reversal signal you exit. It looks to me as if you're contradicting yourself now (or it could be me making the wrong assumption/interpretation).

 

There's always the possiblity for re-entry, not? Why wait to see if support breaks in a downmove, if you have to sit through a 50% retracement? I don't know how much that has to do with emotional maturity really...

 

It seems that there's a small line between hope and patience. But it seems like wishful thinking if you're waiting for a break of support after a reversal signal took place. Why not exit your position - like today - when there's a reversal signal and consider re-entering later?

[DbPhoenix 42]

Ehm, forgive me for asking, but I was under the impression you yourself found it safer to lighten your position 'at the midpoint of extremes'. And I believe in the PDF files and in a couple of posts you said that when there's a reversal signal you exit. It looks to me as if you're contradicting yourself now (or it could be me making the wrong assumption/interpretation).

 

Guess what? You and I aren't the same people. Why would you follow in my tracks and manage your trades exactly the way I do?

 

You can't trade correctly until you decide what you want.

[zeon 10]

Guess what? You and I aren't the same people. Why would you follow in my tracks and manage your trades exactly the way I do?

 

Because it seems like a good idea to follow advice from a more experienced and profitable trader.

 

You can't trade correctly until you decide what you want.

 

My primary concern is making a good entry and then squeezing as much out of it as possible. Trading from S to R and vice versa seems the logical way to do that. I don't want to go back to taking 15-20 trades per day. On the other hand, in trending days price might break that support or several levels but I don't know why I should care if there was a reversal signal and I took it, than I followed the plan. For example if today the trendline wasn't broken then I could've just stayed it with some contracts after lightening my position at support.

 

Look at where the market closed? I think - in hindsight - exiting for the reasons I stated was a good thing to do at that time with the information available in the chart. Shorting at the break of 1825 would be the re-entry I mentioned, but that one wouldn't have turned out nice :\

[DbPhoenix 42]

Because it seems like a good idea to follow advice from a more experienced and profitable trader.

 

And if any such trader tries to tell you what you ought to want, wave goodbye and head for the nearest exit.

 

My primary concern is making a good entry and then squeezing as much out of it as possible.

 

Which is not a surprise. But how are you going to do it? I've given you a dozen different ways of managing a trade. It's up to you to decide what you want to do.

[dandxg 10]

After a bit of self-reflection I've come to the conclusion that I prefer to exit on the first warning signal. Even though this might not be the end of the move, I'd definitely want to lighten my position. For example today - presuming I would be short - I would have taken off some contracts when price reached 1825. Later, when it failed to make a lower low AND broke the downtrendline, I would've exited my whole position.

 

Then there's also the third option, exiting completely and reversing... but I don't think I'm quite ready for that yet.

 

I think a lot of us newer to trading PV, such as me, have a hard time with where to exit. You bring up a good point first warning. What is that to you? I am working to define this for me. For me it is capitulation buying or selling depending on my position. So what does this mean? A spike in volume at the high or low, yes possibly. How much higher does it need to be above the average in volume? I think the better I get at defining it and then reading it the better an exit on a trade potentially becomes. The more specific we makes things the more clearly they can potentially become. The con is the more dogmatic you can become and lose sight of the big picture. Kind of like the debate with VSA vs a more pure price volume standpoint.

 

It helps a lot to use suggestions from Db and other to find logical areas of S/R as possible warning areas IMO. This combined with reading price action, and seeing capitulation buying or selling is the key IMHO. The reason it will never be easy is that it is subjective just like trading in general.

[dandxg 10]

Guess what? You and I aren't the same people. Why would you follow in my tracks and manage your trades exactly the way I do?

 

You can't trade correctly until you decide what you want.

 

This reminds me of a post you made on ET quite awhile ago I read and I will paraphrase if ok by you? Correct me if I wrong

 

" You have to address someone's belief system about trading before you can teach them and address their issues".

 

How true that is. I don't trade with PV because I think you are successfull and want to copy you, although I am very grateful to the help that you and others provide me. I trade with PV because it makes sense to me.

 

I stumbled around and spent several thousand on trade set ups and methods that I could never trade because the risk parameters weren't right and I didn't believe in the way they traded period. Some of the educators couldn't even explain the reason why their method worked sometimes! The reason why trading with price and volume is for me is that it fits my personality, I seek value, I love a deal. I won't pay what I know is extravagent prices for anything unless my life depends on it. I have to see the value, it has to make sense and be logical to me. Supply and demand drive price in a capitalist market.

 

It's funny on a side note, but you see ppl. speculating is this the bottom in RE market, huh? Generally speaking it can't be otherwise you should generally see increasing prices and increasing volume of transactions which you generally don't except in certain markets.

 

Anyway enough of my rambling.

[DbPhoenix 42]

It helps a lot to use suggestions...to find logical areas of S/R as possible warning areas IMO. This combined with reading price action, and seeing capitulation buying or selling is the key IMHO. The reason it will never be easy is that it is subjective just like trading in general.

 

No, it will never be easy. And there are two more reasons why: hope and fear. Not exiting because one hopes that the trade will go farther. Exiting because one is afraid that the trade will reverse.

 

Until one grabs hope and fear by the neck and wrestles them to the ground, it's going to be next to impossible to develop an acceptable management system, much less implement one.

[mister ed 10]

Yeah, my three Ney books reside in the high-mildew section of my library (bought through the used book Amazon partners).

 

 

I just got a copy of Richard Ney's Wall Street Jungle. Here's the opening line:

 

"Most of us enter the investment business for the same sanity-destroying reasons a woman becomes a prostitute: it avoids the menace of hard work, is a group activity that requires little in the way of intellect, and is a practical means of making money for those with no special talent for anything else."

 

This really should be a cracking good read

 

Hi Ricks Inn & Eiger - I haven't read any of Ney's books, and am only familiar with his works from what I can find on the net around the place. I would be interested in any review you could provide, no matter how brief.

 

How do his views fit with VSA etc.?

[Soultrader 12]

Hi Ricks Inn & Eiger - I haven't read any of Ney's books, and am only familiar with his works from what I can find on the net around the place. I would be interested in any review you could provide, no matter how brief.

 

How do his views fit with VSA etc.?

 

I wrote a review on the Wall Street Jungle located here. The book is quite interesting with alot of insights on market manipulation and specialist manuevers. However, It did get a little slow towards the middle especially the section on tax benefits that specialists take advantage of.

 

Its worth a read, especially when its listed on amazon for only a few bucks now.

[CandleWhisperer 10]

Wanted to post a pic of a beautiful set-up with not so beautiful results. :doh:

 

This chart actually shows two set-ups, but I will just focus on the first one. I hope some other VSAers will tell me what they see and what they would have done (or not done) in this situation.

 

Let's start at the beginning.

 

First thing we see is a ultra wide spread candle on ultra high volume. Markets don't like this type of candle. Unless it is tested immediately or unless there are tops to the left, in which case the BBs could be pushing thru supply (absorption volume). The BBs are willing to buying into the selling because they expect prices to rise. That was not the case here.

 

This WRB on ultra high volume starts the set-up. Note that the next candle is up. However the volume is lower and the range is narrow. This is an indication that something is holding a ceiling on price: supply is overhead. We also note that the WRB did not close on its high. Supply must have entered on that bar.

 

The next candle of note is the Doji. While it is not within the "required" area, it is a very key candle. It is a narrow range bar, with a lower low, closing up and closing near its high. This is a test. But the volume, while relatively low, is up. In short, the test fails. The very next candle is a Dark WRB that closes lower than the low of the test bar. This is not at place to enter for me as the test is not within the correct area, nor is the dark WRB engulfing. However, this is a clear (up to this point) sign of market weakness.

 

A few candles later we get another test. This is a better looking test in some ways. The range is narrow, the close is on the high and the close is down from the previous bar. To be ideal we would want to see a lower low, however. But check out the volume. It is less than the previous two bars but still high. Another failed test. A failed test means price MAY still rise but any rise should be muted by the latent supply in the market. Price does rise a bit.

 

Now we have the key candle(which also happens to be a Doji). A higher high, closing up and closing near its lows on volume less than the previous two bars. This is an up thrust in the form of no demand. We have seen weakness in the background in the form of two failed tests and an ultra high volume wide spread up candle. Notice where this up thrust occurs. It is with the WRB support/resistance zone. More specifically, it is within the area overlapping the white WRB and both a Long Shadow (upper) and Long Shadow (lower). This is the area between the cyan lines. Short on the close of this candle. Initial stop just above the S/R Zone.

 

The stop is moved to the open of the dark WRB only after the appearance of the second dark WRB that closes lower than the first. This second dark WRB finds resistance at the bottom of the S/R zone.

 

Price moves up. We see a couple of no demands prior to a white WRB that closes on our stop level, taking us out of the market with a small gain. :crap:

 

Stepping back for a moment, it is clear that the white WRB on ultra high volume represents some kind of change in the supply/demand dynamic. Which is why it, and they in general, make good zones for entry. Although that is only one of their many uses.

[BlowFish 10]

Hi Ricks Inn & Eiger - I haven't read any of Ney's books, and am only familiar with his works from what I can find on the net around the place. I would be interested in any review you could provide, no matter how brief.

 

How do his views fit with VSA etc.?

 

Briefly :-

 

Interesting, though in places turns into a one man crusade against the specialist system. For that reason in these passages read like a guy ranting (e.g. the section James mentioned). To be honest I was somewhat disappointed though not regretful.

[Bearbull 10]

Nic (gassah) and I are thinking of opening up a Wyckoff thread in order to keep all of this from getting tangled. Yes, it's all about price action, but addressing several approaches simultaneously can be unnecessarily confusing.

 

Great idea, am sure it will prove informative and educational to quite a few who are interested in Wyckoff and avoid the unnecessary controversy and lengthy posts being generated for and against VSA or Wyckoff.

This way folks can read both threads and derive benefit.

[BlowFish 10]

Wanted to post a pic of a beautiful set-up with not so beautiful results. :doh:

 

This chart actually shows two set-ups, but I will just focus on the first one. I hope some other VSAers will tell me what they see and what they would have done (or not done) in this situation.

 

Let's start at the beginning.

 

First thing we see is a ultra wide spread candle on ultra high volume. Markets don't like this type of candle. Unless it is tested immediately or unless there are tops to the left, in which case the BBs could be pushing thru supply (absorption volume). The BBs are willing to buying into the selling because they expect prices to rise. That was not the case here.

 

This WRB on ultra high volume starts the set-up. Note that the next candle is up. However the volume is lower and the range is narrow. This is an indication that something is holding a ceiling on price: supply is overhead. We also note that the WRB did not close on its high. Supply must have entered on that bar.

 

The next candle of note is the Doji. While it is not within the "required" area, it is a very key candle. It is a narrow range bar, with a lower low, closing up and closing near its high. This is a test. But the volume, while relatively low, is up. In short, the test fails. The very next candle is a Dark WRB that closes lower than the low of the test bar. This is not at place to enter for me as the test is not within the correct area, nor is the dark WRB engulfing. However, this is a clear (up to this point) sign of market weakness.

 

A few candles later we get another test. This is a better looking test in some ways. The range is narrow, the close is on the high and the close is down from the previous bar. To be ideal we would want to see a lower low, however. But check out the volume. It is less than the previous two bars but still high. Another failed test. A failed test means price MAY still rise but any rise should be muted by the latent supply in the market. Price does rise a bit.

 

Now we have the key candle(which also happens to be a Doji). A higher high, closing up and closing near its lows on volume less than the previous two bars. This is an up thrust in the form of no demand. We have seen weakness in the background in the form of two failed tests and an ultra high volume wide spread up candle. Notice where this up thrust occurs. It is with the WRB support/resistance zone. More specifically, it is within the area overlapping the white WRB and both a Long Shadow (upper) and Long Shadow (lower). This is the area between the cyan lines. Short on the close of this candle. Initial stop just above the S/R Zone.

 

The stop is moved to the open of the dark WRB only after the appearance of the second dark WRB that closes lower than the first. This second dark WRB finds resistance at the bottom of the S/R zone.

 

Price moves up. We see a couple of no demands prior to a white WRB that closes on our stop level, taking us out of the market with a small gain. :crap:

 

Stepping back for a moment, it is clear that the white WRB on ultra high volume represents some kind of change in the supply/demand dynamic. Which is why it, and they in general, make good zones for entry. Although that is only one of their many uses.

 

Hi CW, To be honest I have never bought into the idea that WRB bars are S/R. It is something I have challenged on occasion but don't really have the energy to argue about. (OK lets say to 'discuss vigorously' ). The reason why they very often appear to 'work' in this regard is because they are pushing through the real S/R!!!! You get a much much more accurate zone by trying to identify that. The reason they sometimes do not work is when they are moving through 'air' (a place with little or no previous S/R). To identify the 'real' S/R you need to look farther to the left. (You would need to look left to see what it was pushing through).

 

If you look at DB's blog in the section where he does an analysis for the following day you will see how he approaches it, there are also people doing it in the price action thread. It's uncanny how accurate it usually is. I'd really urge anyone with an intrest in identifying S/R take a look. I know you seem to have a great handle on things and I certainly enjoy your posts, but I sincerely think it could turbo charge your identification of S/R.

 

EDIT What period bars are they on your chart? And is the time stamp in the bottom right what timezone and does that epresent the time of the last bar? Thanks.

Edited April 10, 2008 by BlowFish

[CandleWhisperer 10]

Hi CW, To be honest I have never bought into the idea that WRB bars are S/R. It is something I have challenged on occasion but don't really have the energy to argue about. (OK lets say to 'discuss vigorously' ). The reason why they very often appear to 'work' in this regard is because they are pushing through the real S/R!!!! You get a much much more accurate zone by trying to identify that. The reason they sometimes do not work is when they are moving through 'air' (a place with little or no previous S/R). To identify this S/R you need to look farther to the left.

 

If you look at DB's blog in the section where he does an analysis for the following day you will see how he approaches it, there are also people doing it in the price action thread. It's uncanny how accurate it usually is. I'd really urge anyone with an intrest in identifying S/R take a look. I know you seem to have a great handle on things and I certainly enjoy your posts, but I sincerely think it could turbo charge your identification of S/R.

 

First I do not want a long drawn out discussion over this either, but I think you and others are missing some key points.

 

1. Tom does not look at the open. He does talk about taking low volume signs with the range of high volume (usually wide spread) bars. It is my contention that if he looked at the open, he would refine that to with the body of a WRB or Long Shadow. Simply, WRBs and Long Shadows narrow the focus from simply "the range".

 

2. Mark uses the term Support/Resistance Zones so I do as well. Yet, to me WRBs represent three (interlocking) concepts:

 

* Changes in the supply/demand dynamic. This is technically NOT the same thing as support and resistance. Simply, All support and resistance areas are areas of changes in supply/demand, but not all areas of change in supply and demand are at support and resistance.

 

* A defined area to look for entries. Again this is the low volume sign within the range of the high volume idea. Of course, with up thrusts it could be high volume sign within high volume areas.

 

* Profit target zones.

 

I have a hard time looking at the previous chart and NOT concluding that something happened on the appearance of the WRB. As evidenced by roughly 90% of the following price action has been contained with its body. Again, that area may not be support or resistance; although price seems to be respecting the boundaries. But that area is clearly an area where a shift of some kind has and continues to take place.

 

***edit****

 

It should be noted that I have never mentioned WRBs in relation to being swing points or continuing price action. With the former, the more traditional ideas of support and resistance do come into play. These are important to Mark and I am working on these areas. But again, it still comes down to what happens within the body of the WRB.

Edited April 10, 2008 by CandleWhisperer
add on

[BlowFish 10]

Thanks for clarifying your view on things.

 

EDIT: No matter it appears to be 5 minute GMT?

 

Not sure if you saw my edit on the previous post. Could you tell me what period bars they are? and whether the time stamp was for the last bar and what time zone it is. I'd like to have a closer look.

Edited April 10, 2008 by BlowFish

[Eiger 10]

I would say that yesterday's action kills the absorption idea in the S&Ps. Price reacted too far. It dropped below the 1360 support area (to the half-way point of the last swing low). Volume also picked up.

[Eiger 10]

Wanted to post a pic of a beautiful set-up with not so beautiful results. :doh:

 

This chart actually shows two set-ups, but I will just focus on the first one. I hope some other VSAers will tell me what they see and what they would have done (or not done) in this situation.

 

Let's start at the beginning.

 

First thing we see is a ultra wide spread candle on ultra high volume. Markets don't like this type of candle. Unless it is tested immediately or unless there are tops to the left, in which case the BBs could be pushing thru supply (absorption volume). The BBs are willing to buying into the selling because they expect prices to rise. That was not the case here.

 

This WRB on ultra high volume starts the set-up. Note that the next candle is up. However the volume is lower and the range is narrow. This is an indication that something is holding a ceiling on price: supply is overhead. We also note that the WRB did not close on its high. Supply must have entered on that bar.

 

The next candle of note is the Doji. While it is not within the "required" area, it is a very key candle. It is a narrow range bar, with a lower low, closing up and closing near its high. This is a test. But the volume, while relatively low, is up. In short, the test fails. The very next candle is a Dark WRB that closes lower than the low of the test bar. This is not at place to enter for me as the test is not within the correct area, nor is the dark WRB engulfing. However, this is a clear (up to this point) sign of market weakness.

 

A few candles later we get another test. This is a better looking test in some ways. The range is narrow, the close is on the high and the close is down from the previous bar. To be ideal we would want to see a lower low, however. But check out the volume. It is less than the previous two bars but still high. Another failed test. A failed test means price MAY still rise but any rise should be muted by the latent supply in the market. Price does rise a bit.

 

Now we have the key candle(which also happens to be a Doji). A higher high, closing up and closing near its lows on volume less than the previous two bars. This is an up thrust in the form of no demand. We have seen weakness in the background in the form of two failed tests and an ultra high volume wide spread up candle. Notice where this up thrust occurs. It is with the WRB support/resistance zone. More specifically, it is within the area overlapping the white WRB and both a Long Shadow (upper) and Long Shadow (lower). This is the area between the cyan lines. Short on the close of this candle. Initial stop just above the S/R Zone.

 

The stop is moved to the open of the dark WRB only after the appearance of the second dark WRB that closes lower than the first. This second dark WRB finds resistance at the bottom of the S/R zone.

 

Price moves up. We see a couple of no demands prior to a white WRB that closes on our stop level, taking us out of the market with a small gain. :crap:

 

Stepping back for a moment, it is clear that the white WRB on ultra high volume represents some kind of change in the supply/demand dynamic. Which is why it, and they in general, make good zones for entry. Although that is only one of their many uses.

 

Hi CW,

I think that was a good reading of the chart, and certainly good trade management. Maybe the volume on the WRB wasn't ultra high? (I don't know this market). Volume didn't pick up when it approached the low of the WRB compared to the first reaction down (between the two failed tests). Given the data on the chart, that's about the only clue I see. What was to the left of this?

 

This is an interesting chart. Maybe you can post another chart with more data? It was still struggling later in the day at the 15050 area.

 

I don't think VSA addresses the idea that WRBs can be support, as indicated on your chart. Others use them this way too. It might be a question for Williams and Manby?

 

Eiger

[BlowFish 10]

Heres a chart with more data. I wasn't going to post it so make of it what you will. I got caught up in a nice FTSE trade so it has gone to the bit bucket! I don't know the instrument but the volume struck me more high than ultra high but how long is a piece of string Mind you the chart I post is the future rather than spot so maybe that accounts for some difference blue dot is WRB.

 

Cheers.

[DbPhoenix 42]

.

Wyckoff counsels that in order to determine where one is going, he first has to determine where he is:

 

 

 

This is what I call a "cusp". If the bulls are going to take back the reins, they need to get on with it.

 

.

[zeon 10]

.

Wyckoff counsels that in order to determine where one is going, he first has to determine where he is:

 

This is what I call a "cusp". If the bulls are going to take back the reins, they need to get on with it.

 

.

 

Cool, that's exactly the line I drew before the day. A lot of talk of this breaking down again, but I had my line drawn and it looks like reacted to that.

 

Also, at the same time the ES bounced off support, the NQ reversed off the midpoint of yesterday's range at 1835.

 

Just observing from a neutral standpoint, but I'm sure amazed at the amount of 'order' there sometimes is. Actually finding a trade somewhere in there is another thing.

[Sledge 13]

Heres a chart with more data. I wasn't going to post it so make of it what you will. I got caught up in a nice FTSE trade so it has gone to the bit bucket! I don't know the instrument but the volume struck me more high than ultra high but how long is a piece of string Mind you the chart I post is the future rather than spot so maybe that accounts for some difference blue dot is WRB.

 

Cheers.

 

Looks like a Euro Chart. Regarding the 8th bar in from right- Wouldn't this be the Gapping up Tom Williams talks about- rapid markup to discourage any longs to sell since they are now making $- he also refers to this as a path of least resistance to "bypass the tolls normally having to be paid to get to higher prices"

[BlowFish 10]

Indeed it is....I should have said its not an instrument that I am familiar with.

[DbPhoenix 42]

Actually finding a trade somewhere in there is another thing.

 

At least one will be looking for those trades on the right side of the market, in this case, the long side.

 

Rather than my getting into hindsight analysis, I suggest that those who are interested go back now and review the morning with an eye toward the long side and not the short. Look at what price is doing and look at what volume is doing in tandem. Set aside any notions of being tricked and focus on the flow of price and volume.

[zeon 10]

Rather than my getting into hindsight analysis, I suggest that those who are interested go back now and review the morning with an eye toward the long side and not the short. Look at what price is doing and look at what volume is doing in tandem. Set aside any notions of being tricked and focus on the flow of price and volume.

 

This isn't hindsight, because what I copied here is what I observed for myself at the time and typed in a text editor. I was however observing the 'extremes' (1825 and 1845) and not considering trading from the middle.

 

So price opened on huge volume which brought us straight back up to resistance (1845). It stalled there and reversed rather strongly (on the 5-minute chart the second bar takes up more half of the first one). However, volume recedes on the next bars and most of them close in the middle. Volume takes off further but there's a sudden reaction, apparently in the middle of S/R at 1835. The bar closes near the high.

 

Next is a strong reaction back up. At this moment I was thinking: if this moves back to resistance this could lead to a short opportunity. However there wasn't much suppy at resistance (only a short pause and notice the volume taking off, but price not going lower much => no effect). Next a wide range body, very wide actually on massive volume. Price goes up more than 10 points in 5 minutes. Wow.

 

Next 15 minutes are three tiny little bars, again on receding volume. A retracement. But how far will the retracement go. The next resistance is at 1865, but again going long here is trading in the middle of nowhere. If I were to considering long, I'd wait for a retracement back to 1845. But as I was thinking that, price went up quickly on confirmed volume.

 

And so right now we are at resistance, 1865. The demandline isn't broken yet and there's no lower high. So shorting this is not an issue. Going long now is very late imo, we've already moved 30 points in two hours. Like they say, flat is also an option...

[DbPhoenix 42]

It may seem odd to some TL members that anyone (me) who maintains a 5s chart would be interested in a daily chart, much less a weekly one, including S/R that goes back for months.

 

But even if one trades off tick charts, he is excluding important information -- important in the sense that it may/will affect his trade -- if he does not consider the bar intervals and timeframes (these are two entirely different things) used by other traders.

 

There are, for example, a hell of a lot of EOD traders out there, and every one of them is looking at the highs of this trading range. Though some may be looking at 1390 and some may be looking at 1400 (for the NQ, 1880-1900), the power behind any move through or away from these levels will include a great many of those traders. To ignore them is to ignore the elephant in the room.

 

This is not to say that we can't fail here. But what are the probabilities? And that's where the relationship between price and volume provides the key.