[VSA] Volume Spread Analysis Part II

[dandxg 10]

And now back on point. Today from a price volume standpoint has me a bit concerned. The ES closed on the low of the daily bar with volume showing of about 1.8 mil. This is going into the day of strength of April 1st with about 2.3 showing. If we blow through that low with volume, 1315.75, that's only 20 points to go, we got problems and could easily smoke right down to into the strength exhibited on March 17th. Taking out the 17th would be feat with almost 4 mil on that day, but who knows?

[mister ed 10]

I agree wholeheartedly. As I posted before can't we all get along and show each other some respect? We are all trading price and volume right? Some want that very specific and so VSA may or may not work. Some prefer candles and that's cool as I have used them before. Some like S/R and volume and that works too. I would like to see all outright negative nonsense omitted of this thread and every other thread, call it censorship I don't care. That goes for anyone posting nonsense, me included. That behavior is tolerated at elite trader all the time. That is why I spend less time there and more time here. I don't have a problem with hearing a different viewpoint, that's healthy when its done constructively.

 

So in response to the question should we split the thread my answer is no. If you think VSA is nonsense then stay on your own preferred thread.

 

 

I agree. The issue is not the "philosophy" of VSA, and that's not what draws the "off-topic" posts. What draws these posts is the application side. So splitting the thread won't accomplish the objective, as a thread devoted to philosophy might have maybe six posts in it (after 2500 posts, what more is there to say?).

 

I have no doubt that those who believe that they're posting real-time trades truly believe that that is what they are doing. However, it is not necessary for those who know that the trades are not in fact real-time to bring attention to the fact in the mistaken belief that everybody is too stupid to understand the difference.

 

Therefore, if someone who happens to disagree with what's being posted for one reason or another wants to contribute something, fine. But if someone is posting for no other reason than to create an uproar, a deletion or two and a PM from the moderator ought to be enough.

 

 

 

Thanks dandxg and Db ... appreciate the considered feedback. I have started a thread where I can move inappropriate posts. I am reluctant to delete any posts, better to allow people to be heard (as long as it within fourm guidelines), but may move them away from this thread. The delete option can remain in the background if needed, though.

[Guest forsearch]

Hi forsearch - welcome.

 

Sorry MP has nothing to do with VSA, just using it as an example of splitting the discussion of the practical from the philosophical - sorry for the confusion.

 

Could you explain further on the new topic that you've opened for such discussions about the merit of VSA, and how it has nothing to do with MP?

 

http://www.traderslaboratory.com/forums/f34/vsa-crock-or-not-3736.html

 

-fs

[jjthetrader 10]

Mister Ed, I support your ideas 100%. It's really nice when you and BlowFish, two senior members, step up and put an end to that stuff. It's amazing the clarity that comes from you guys.

 

Now back to the practical as dandxg has initiated, good job. It appears that the daily bar on the ES has printed a failed test. But we knew there was supply in the market because of the most recent test of the lows. Volume on a test of the lows should not be that high if supply has left the market. Maybe we've got to take another shot at it.

[BlowFish 10]

Actually maybe I over reacted a wee bit It's just the signal to noise ratio goes way up immediately after some posts and this thread is already a monster to keep on top of. <doh> here I go adding to the noise. None of it really bother me except wading through stuff I don't want to wade through. Funnily enough the other thread has got off to a good start. You could probably split this thread into sub topics but some would probably get left behind.

 

Cheers.

[Eiger 10]

Can I get some feedback please?

 

 

So I propose splitting the thread, basically starting a new one, where a discussion can take place on the 'philosophy' of VSA, whether it is a crock or not ... whatever. This will leave this thread free for the practical applied side. Like I said, there is a role for the 'is it a crock' discussion, let it flourish I say, and it shall have its own forum for debate.

 

Feedback please - good idea or no?

 

I am coming in a little late to this, but I want to say that I think this is a terrific idea. Let all the philosophical debates reside on a separate thread. At this point, all these distractions are so tiresome, and often motivated by something other than VSA. It gets boring when we see yet another post trying to debate how many upthrusts can dance on the head of a pin? I (and I suspect others) now just withdraw when these debates start. I also agree with you about deleting threads. Unless it is a post in patently poor taste, censuring will only generate hard feelings and more distractions. This is a great idea. Thanks.

 

Edit: I see that the new thread has rallied right out of the gates. As Martha Stewart would say, "That's a good thing."

 

Eiger

[Sledge 13]

Mister Ed, I support your ideas 100%. It's really nice when you and BlowFish, two senior members, step up and put an end to that stuff. It's amazing the clarity that comes from you guys.

 

Now back to the practical as dandxg has initiated, good job. It appears that the daily bar on the ES has printed a failed test. But we knew there was supply in the market because of the most recent test of the lows. Volume on a test of the lows should not be that high if supply has left the market. Maybe we've got to take another shot at it.

 

JJ-

As this market is not my baby, I will tread lightly moreso than try and rally some great response. I agree with you 100% As far as the volume on that Failed Test, it is nearly identical in volume to the down bar, closing on the high of the bar from I think it was the 22nd? I am not sure what volume it would show to become a solid long-term "long" entry (as each instrument is different.)

 

All-

With that being said- with that much volume on both down bars, it appears that a long term banging around in this price area will have to occour for a while to get volume to a point that you could say that supply is out of the market.

 

By VSA standards, this appears that you would be quite safe to Short on the highs and ride them down to this low over and over, I'd change my tune when one of these tests had pretty low volume (relative to the other tests taking place) OR you saw a huge shakeout.

 

Remember that if you see a high volume test- it will come back to test later. It appears this market will test at least 3 times, and I'd be fairly stunned if they got all the supply out even on the next test- unless the market makers drove it to the basement and you had a wildly long and wicked tail on a shakeout.

 

Your other option is that you could go long out of a test and grab a few ticks to the upside as well.

Sledge

[tawe trader 10]

I have a weekend away from the computer to give my eyes a rest and there's a whole load of turmoil on this excellent thread. Constructive criticism is fine, we can all learnt from that, but for people to keep having a go at VSA'ers I find quite sad. I don't hang about and post on the indicator threads slagging off MACD, CCI or Stochastics !!!!

 

I personally think that VSA is the 'best thing since sliced bread' but there are obviously people out there who are not convinced, which is fair enough. Some may say it's a load of crap but it is a form of chart reading which is more art that anything else, which is where I believe Tradeguider (and any other VSA software) struggles. Even experienced VSA'ers will have slightly different opinions, depending how they look at the 'background' for clues and trade off different timeframes.

 

When I have a losing VSA trade it always because of ME and not a fault of VSA. It will be mostly due to:- incorrect reading of the chart, impatience or greed.

 

Regards

Tawe

[tawe trader 10]

Here's a trade from last Friday morning. I didn't know it at the time but the mkt was giving a 'clue' that bad news from GE was coming.

 

The first FTSE chart is 15 mins, the first upthrust had a high on R1 and resistance. Later on the mkt made another upthrust and there didn't seem much demand for the upside.

 

The second chart is a 5 min, I went short on the bar that was looking weak and just sitting on the trendline. I was lucky in this trade, due to my timing. I am normally slow to enter, this time I wasn't and it went in my favour, very quickly.

 

As you can see the mkt plunged and I bagged 69pts. I was a bit too quick in getting out (another weakness of mine) as the mkt continued down further to S1, before some volume and support came in.

 

Tawe

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Edited April 14, 2008 by tawe trader
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[tawe trader 10]

Perhaps seeing Brownsfan having a go at VSA has made me want me to show another successful VSA trade. Who says VSA doesn't work ??? Here's another trade from last Friday morning, back-to-back wins. Hopefully everyone here on this thread can learn from each others wins or losses and experiences, instead of being just plain negative with their comments.

 

 

This trade was a bit short-term for me as I tend to look for the longer swing of pts, but it worked out ok. After seeing some very high volume coming in on S1, I went for a 'bounce' trade.

 

I went long the FTSE at 5906 and got out at 5926, less then 10 mins later. I banked 20 pts from this.

 

Tawe

[jjthetrader 10]

A very narrow range today. I personally was looking for small moves. I came back for the afternoon session around 3pm and saw this beautiful, what could be climatic action (although not picture perfect) for a nice, small long trade.

 

Check out the bar marked. See the massive volume, relatively speaking? It just penetrated the low of the day and lots of support was found there pushing prices back up. Ultra High Volume downbar closing above the middle is potentially bullish.So we now have strength in the backgound and two bars later we get a picture perfect no supply. This was nice for a small move into the end of the day.

 

Hope helps someone.

[Eiger 10]

Hoping this thread now gets to be a normal thread which remains on-topic to VSA.

 

Here's my take on today. Although a narrow spread on the day, there were good opportunities around S&R. This is a 10-minute chart of the ES:

 

A – Wide spread close off the lows on an increase in volume with the next bar up is the first hint of potential buying.

 

B – Wide spread up bar closing above its open and on its highs. There was buying just before the 8:30 news.

 

C – Ultra wide spread up bar closing in the middle on substantially increased buying. This was the reaction to the news, and it looked as if selling was coming into the market, but the next bar closed up on good volume, indicating higher prices.

 

D – The day session opens and this is an up bar closing near the highs, but making no material gain above the highs of the pre-market session.

 

E – An up bar closing on its highs on sustained volume, but again no material gain on heavy volume.

 

F – An up thrust on wide spread with the largest volume of the morning. This indicated supply was dominate and the market weak.

 

G – Some buying entered but the heavy volume continued to indicate supply. Next bar was up, but on significantly lower volume.

 

H – Higher prices rejected at the opening resistance. Note the increased volume. If that was buying, why did the bar close below its open (in the middle)?

 

I – No Demand

 

J – Reversal that once again rejects the resistance area formed by D & H. Market heads lower back to the area of overnight support.

 

K – A down bar closing in the middle on an increase in volume. Buying comes in on this bar.

 

L – More volume and a close back into the area of the previous bar, K. Next bar is up, and the market rallies for the next 3 bars making higher highs, higher lows, and higher closes.

 

M – A down bar closing off its lows on volume less than the previous two bars after strength has appeared in the market. A Test indicating higher prices.

 

N – The market rallies to an old top to the left. Bar N has a fairly narrow spread, closes on its highs, but on a marked increase in volume. Next bar is down.

 

O – An UpThrust on wide spread taking out the lows of the previous two bars and closing back below the resistance area formed by D-H-J. The market reacts and shows no strength.

 

P – Another UpThrust after a weak attempt to rally.

 

Q – Volume increases suddenly on the bar before Q and is sustained on Q, which closes in the middle. Buying came in on these bars.

 

R – A down bar closing on its lows on volume similar to Q. The market has an opportunity to fall lower here, if supply has regained control.

 

S – Instead, we get an up bar on increased volume which closes in the middle back above support, and a small rally into the close.

 

Eiger

[jjthetrader 10]

 

Here's my take on today. Although a narrow spread on the day, there were good opportunities around S&R. This is a 10-minute chart of the ES:

 

A – Wide spread close off the lows on an increase in volume with the next bar up is the first hint of potential buying.

 

B – Wide spread up bar closing above its open and on its highs. There was buying just before the 8:30 news.

 

C – Ultra wide spread up bar closing in the middle on substantially increased buying. This was the reaction to the news, and it looked as if selling was coming into the market, but the next bar closed up on good volume, indicating higher prices.

 

Eiger, nice job. Thanks for the effort you put into doing this for everyone.

I like how you've got a 24hr session open and pick up cues from it before the US open. Even though volume is light information is still being given to us. Nice work.

[bertg 10]

The second chart is a 5 min, I went short on the bar that was looking weak and just sitting on the trendline. I was lucky in this trade, due to my timing. I am normally slow to enter, this time I wasn't and it went in my favour, very quickly.

 

Tawe,

 

Are you saying you entered on the 11:25 bar before it completed? Can you please explain how you saw the 11:25 bar as a weak bar?

 

I see a range, and yes, the 11:25 bar is sitting on the trendline, with volume declining in the last 4 bars. It's a down with the range really small, the volume is really low and the close is off the lows close to the middle. In my very limited VSA knowledge, I woudn't have entered on the 11:25 to go short. Please help me understand why you went short there.

 

Thanks,

Bert

[CandleWhisperer 10]

VSA is really all about understanding the supply/demand dynamic in the market. It all comes down to supply and demand.

 

This thread is about VSA in general and an individual’s personal application specifically. That is, while all are looking to understand the core vsa concepts, not everyone will trade the same way. Yet, we all are still trying to understand and interpret the same supply/demand dynamic.

 

I just wanted to post this very interesting thing.

 

First, on the first chart there is a test on the left side. This could of been used to get long, but that is not what this post is about. The test is part of the contracting volatility phase. There are also possible places to get short, but that too is not what this post is about. However, if one did get short, then there is a MARKET DERIVED NATURAL target area. Which is what this post is about.

 

Okay, here we go. Note that we see a white WRB that represents volatility expansion. Then we see some price action that represents volatility contraction. The key bar then is the white WRB that represents a volatility breakout. Now we have our Supply/Demand Delta zone. I have begun to call it this rather than Support/Resistance zone to further emphasize what is really going on in this area. This is a key area as determined by the BBs. It is not mathematically driven or based on TPO counts (although it could be in either case). This is where the BBs stepped in creating the volatility breakout which completes the pattern: Expansion/contraction/Breakout (or Spike).

 

Price wants to fill (hint) this area. This is why it is a good target zone if you had been short. Something else is going on in these types of zones as well: some type of reconciliation of the supply/demand dynamic will usually take place. Hence the desire to take entry signs within this area.

 

Notice that price eventually makes its way back to this area and we see a nice test (far right). The bar is narrow, closing lower than previous bar, closing on its midpoint and on volume less than the previous two bars.

 

The second chart shows the price action after the test.

 

This is not a post on what a great trade that turned out to be. Or on patience-one would of had to wait awhile for this set up. It is really about understanding the supply/demand dynamic and why one should be focusing on it.

[Eiger 10]

...Price wants to fill (hint) this area. This is why it is a good target zone if you had been short. Something else is going on in these types of zones as well: some type of reconciliation of the supply/demand dynamic will usually take place. Hence the desire to take entry signs within this area.

 

 

Great observation, CW, You can see them come back into these price acceleration areas all the time, on all time frames. They can be like magnets for price to revisit (and thus, short exit objectives, or long entry areas). I think that the wide spreads and heavy volume (WRBs) indicate demand, but also supply. They come back to test these areas before rallying prices to make sure supply isn't present to swamp the subsequent mark-up.

 

Eiger

[mister ed 10]

CW - in response to your post (#1065), I have attached a 'zoomed-in' view of your volatitly expansion/breakout area to put a question to yourself and the forum. I have added some black horizontal lines, one at the low of the 'Volatiltiy Breakout' WRB and two others labelled 1 and 2. Viewed on a 5-minute bar (as your chart is) the volatility breakout bar is marked as you have done so. If the same action was being viewed on a 10-minute bar, or a 15-minute bar, or some other timeframe bar, the volatility breakout WRB could well be viewed as being the addition of two of the 5-minute bars (or three, or whatever).

 

 

I think then that the "WRB" (not the right terminology, but bear with me) could well be viewed, and probably should be viewed, as being the entire price area between my bottom horizontal line and either the horizontal line line marked 1 or 2. My reasoning is that the dynamic of the surge higher in price, which is the price expansion plus the big volumes, stretches over at least 3 and, my preference, 5 bars (the extent is going to be a judgment call on behalf of each trader, something I am comfortable with for myself but others may not be). Viewed this way we set up a much wider "Supply/Demand Delta zone" (I like that term) ... which may or may not be a good thing...

 

Any thoughts on this anyone?

[dandxg 10]

I am not sure if this is redundant or not but it may help some folks so here goes?

 

Have any of you that use VSA noticed that when you get a good trade set up occur you can drill down to a really fast chart even a 1 min a have a virtually risk free scalp most times. I need to test it a bit more but it shows a lot of promise. For instance you see dist. on a 240 min chart if you are trading forex and then you see a UT, a 2 bar UT, or ND, any combo thereof and then go to a fast chart could be 5,3, whatever and then wait for a corresponding short and hit it. The higher the time frame the easier it tend to propel your scalp because the big money is propelling the trade in your direction.

 

They other thing I noticed which is faulty IMO that deserves attention is in the past TG would suggest a 240 min for ES, and ER2 as well as forex when there aren't a equal number of 240 min periods in RTH. There are 2, 202 min and 30 seconds period because there are 405 in RTH ES and ER2 while YM has more, I don't trade it. Why does this matter? Because is you are looking for something very specific then you better make sure you don't cut bars short, otherwise you are seeing a false image. Another example, the suggestion of 60 minute charts. 405 divided 60 doesn't divide equal so I suggest either 45 or drop the last 60 minute bar because what your are looking at is incorrect. Anyway you get the point. Just wanted to bring it to light. Good trading to all.

 

Trading price and volume made realize that every time I take a trade there has to be simple logic and hopefully the points above are logical to you. As a good friend told me if you can't explain in less the 60 seconds to a lay person the logic for why you are taking this trade you got a problem.

[mister ed 10]

Have any of you that use VSA noticed that when you get a good trade set up occur you can drill down to a really fast chart even a 1 min a have a virtually risk free scalp most times.

 

Yeah I have noticed that.

[mister ed 10]

They other thing I noticed which is faulty IMO that deserves attention is in the past TG would suggest a 240 min for ES, and ER2 as well as forex when there aren't a equal number of 240 min periods in RTH. There are 2, 202 min and 30 seconds period because there are 405 in RTH ES and ER2 while YM has more, I don't trade it. Why does this matter? Because is you are looking for something very specific then you better make sure you don't cut bars short, otherwise you are seeing a false image. Another example, the suggestion of 60 minute charts. 405 divided 60 doesn't divide equal so I suggest either 45 or drop the last 60 minute bar because what your are looking at is incorrect. Anyway you get the point. Just wanted to bring it to light. Good trading to all.

 

You're right dandxg, the maths shows that something weird is going to happen with 240 min time bars on those contracts ... do they suggest rolling over the time remaining to the next day or what ... like that's going to work....

[dandxg 10]

Mr. Ed, they didn't suggest a thing, it's just something I realized one day on my own thinking about it. It was actually months back, it just slipped my mind, otherwise I would have mentioned it sooner. The important point is if you are trading with VSA, which has a very specific set of conditions, an ND for example, make sure that the time periods you look divide equally.

 

Another point which an OP made that I raised to Sebastian on one of the webinars TG did a couple of months back is consider the players who affect a given period of day. For example, TG was looking for a short in GBP and Gav said he would be watching volume up til London forex open. So I ask, because my understanding is the Europeans and folks in America trade forex more than any one although I don't trade forex. Are you doing to discount the Asian session for volume? This isn't meant to slam TG at all, because I am grateful for what I learned from them. Anyway I not trying to start a VSA controversy just point out some things I noticed, that's all.

[mister ed 10]

Sledge is probably the best to ask about how he deals with the change in FX volume characteristics from the Asian session into the European and then London open. And nothing wrong with VSA controversy if the point is to further our understanding and learning, which yours is dandxg.

[tawe trader 10]

Tawe,

 

Are you saying you entered on the 11:25 bar before it completed? Can you please explain how you saw the 11:25 bar as a weak bar?

 

I see a range, and yes, the 11:25 bar is sitting on the trendline, with volume declining in the last 4 bars. It's a down with the range really small, the volume is really low and the close is off the lows close to the middle. In my very limited VSA knowledge, I woudn't have entered on the 11:25 to go short. Please help me understand why you went short there.

Thanks,

Bert

 

Hello Bert,

 

Perhaps I should have said that I seen the mkt as being weak by looking at the background on the higher timeframe - the 15min chart.

 

Why did I see background weakness ? There was solid resistance overhead at 6032 from two days earlier, the mkt gapped up after the open followed by two upthrusts and the first upthrust was repelled by R1. What does Tom Williams say about upthrusts 'to trigger stops in a weak mkt'.

 

What I did, which was slightly higher risk was enter just secs before the 11:15 upthrust 15min bar was completely formed.

 

I was also watching the 5min chart and yes the 5min bar just sitting there on the trendline/demand line does look like a no supply bar BUT considering the background I decided the odds favoured a downside move.

 

So just to re-cap, I used the higher timeframe 15min chart as the main reason for my short trade but on seeing the 5min chart and the 5min bar location, decided to act quickly.

 

Regards

Tawe

[BlowFish 10]

I would go with Mr. Ed's comments on the volatility breakout. The volatility expansion zoomed right on. CW does things in a way that works for him - and generously posts them what's more! I have annotated the chart in perhaps a more traditional way, by encapsulating the area that was broken out of. For me (an it's just an opinion) this usually provides a tighter more focused zone and so its easier to look for entries. It's my belief that this is where 'real' S/R lies but at the end of the day it dosen't matter its what works for you that is important.

 

DB's blog (where he does a couple of weeks commentary) and the realtime price action thread have a lot on identifying S/R zones for the day. I have to say they where uncanny in there accuracy and certainly worth a review.

 

Keep 'em coming CW, I always find it interesting when you can get to the same place by different routes.

[habi 10]

I am not sure if this is redundant or not but it may help some folks so here goes?

 

Have any of you that use VSA noticed that when you get a good trade set up occur you can drill down to a really fast chart even a 1 min a have a virtually risk free scalp most times. I need to test it a bit more but it shows a lot of promise. For instance you see dist. on a 240 min chart if you are trading forex and then you see a UT, a 2 bar UT, or ND, any combo thereof and then go to a fast chart could be 5,3, whatever and then wait for a corresponding short and hit it. The higher the time frame the easier it tend to propel your scalp because the big money is propelling the trade in your direction.

 

They other thing I noticed which is faulty IMO that deserves attention is in the past TG would suggest a 240 min for ES, and ER2 as well as forex when there aren't a equal number of 240 min periods in RTH. There are 2, 202 min and 30 seconds period because there are 405 in RTH ES and ER2 while YM has more, I don't trade it. Why does this matter? Because is you are looking for something very specific then you better make sure you don't cut bars short, otherwise you are seeing a false image. Another example, the suggestion of 60 minute charts. 405 divided 60 doesn't divide equal so I suggest either 45 or drop the last 60 minute bar because what your are looking at is incorrect. Anyway you get the point. Just wanted to bring it to light. Good trading to all.

 

Trading price and volume made realize that every time I take a trade there has to be simple logic and hopefully the points above are logical to you. As a good friend told me if you can't explain in less the 60 seconds to a lay person the logic for why you are taking this trade you got a problem.

 

Hi dandxg

 

Yes, I think it's important, that you mention this points. There are a lot of things we have to watch carefully with all the long traded instruments. I have no experience with FX products, so I can just give some thoughts about the emini contracts.

 

Volume is clearly higher during the regular session, i.e. the most activity is during tihs time. I compare volume outside the regular session just with volume during this time, but I look more on price behavior. If you have a look at Eiger's posts, the premarket price action gives you often some usefull hints.

In eSignal, I have a problem with houly charts. If I take a time template, which starts at 09:30, then it ends at 10:30. So I created a template with start time 09:00 and I'm aware, that the first 30 minutes are outside of the regular session and therefore, the volume would likly be lower. A 30 minute chart resolves this problem.

Another problem are trendlines. If you draw trendlines in a regular session template, then you miss a lot of price action. If you include the whole session, you have a lot of price action with low volume. This is why I take more attention to horizontal S/R areas, but I use trendlines anyway.