[VSA] Volume Spread Analysis Part II

[DbPhoenix 42]

Hi DbPhoenix

Your post is to the point ! The point is how do we know the up Bar with strong volume is trend continue or a trap ? I agree that we cannot counter the trend every time you see a big volume and a big range bar. I agree that a "no demand bar is not enough" otherwise we will always counter the trend .However ,What is the obvious signal to confirm it is a trick ?

 

Depends on where and why the bar occurs, i.e., the context, or "background". If, for example, you have a fairly lengthy accumulative base with the appropriate volume pattern, buying at a breakout of such a base -- assuming that you've correctly identified it as such a base -- is a high-probability trade. If you can't tolerate any retracement or pullback whatsoever, then you have to be prepared to (a) buy before the breakout so that those who are buying the breakout will propel you to at least a breakeven level or (b) sell when price begins to move against you, then prepare to buy again if and when the retracement has completed itself (there is always the possibility that the "breakout" is in fact a "thrust", and that price needs to spend more time in the base).

 

Since Master the Markets has its roots in Wyckoff, there is quite a bit of valuable information there. Unfortunately, there is also quite a bit that is misleading as a result of the effort to make it "easy". Separating the wheat from the chaff can be done by the trader, but I recommend that you not put any money on the line until you've finished doing so.

[winnie 10]

Dear Gary,

I am new to this VSA concept. However, I do not understand that how a big range bar with strong volume can be create by 'no demand '. This make me a little bit confused. As Tom Williams always said that big volume and big range bar is not good for the trend to continue.

Thanks for your kind help.

[Bearbull 10]

Winnie, the following charts illustrates this:

Fig 1. big up bar following congestion on very high vol. , then market drifts upwards on decreasing vol -- does this mean prof. are not interested in higher prices. Then prices come down a bit, followed by an upbar on very low vol: "No Demand" right, infact prices go down to confirm that.........

 

WRONG:

 

Fig.2, market was able to rise on low vol after retracement, why? no offerings, hence less resistance, the smart money realised this , then immediately tested the market, whilst those who were focussing on the No Demand, would have gone short as the markdown confirmed the No Demand, well look what happens next. Markets can keep going up as long as there is demand, volume aspect matters at relevant s/r levels.

 

Lesson: learn to read supply and demand against relevant support/resistance levels rather than obessing over every bar/vol and dwelling on which pros. or smart money is buying or selling, especially when you are starting out, otherwise you will be going in circles;)

[DbPhoenix 42]

I don't know what you mean by "VSA Central," but there is no misstatement. In fact, from the VSA perspective, wide spread up bar are not "created by buyers." Wide spread up bars create buyers. VSA is concerned with looking at the spread and volume to discern the professional interest in the market. What pushes prices higher does, in fact matter to VSA. Prices can be pushed high on strong demand or on no demand, and there is a vast difference. I don't know who you are or what method you trade, but here is a piece of advice: Make sure you know your facts before speaking, and check your arrogance at the door.

 

VSA Central = TradeGuider.

 

Again, while the "VSA perspective" may be that wide spread bars are not created by buyers, one can see that this perspective is incorrect after some reflection. You're not going to have any bar at all without buyers. And whether price moves higher or not depends entirely on demand. Without demand, it won't move at all.

 

If you want to review the past posts I've made to this thread, just do a search. I've made these particular posts in order to address winnie, not to reopen the debate.

[Eiger 10]

Well, well, well. A little positive activity on this thread and look who shows up to start criticising VSA and those who trade it. How many times have we seen this scenario before? Tiresome, isn't it? Its not even constuctive; its just another attempt to derail the thread and gain attention. You know, it would be laughable if this obvious attention-seeking behavior wasn't so sad.

 

There is a whole thread set up specifically to criticise VSA and TG. How is it that we haven't seen one post by you on that thread? I think it odd that a person who falls all over himself to criticise VSA on this thread doesn't take the opportunity to do so there. I guess you must just have another agenda. BTW, I really like all those shorts you've been recommending and especially all that hindsight analysis. Keep up the good work!

[Gary 10]

Dear Gary,

I am new to this VSA concept. However, I do not understand that how a big range bar with strong volume can be create by 'no demand '. This make me a little bit confused. As Tom Williams always said that big volume and big range bar is not good for the trend to continue.

Thanks for your kind help.

 

Hi Winnie,

A no demand would be a narrow range up bar (ideally) on low volume that you see after weakness (selling) has appeared. Price does rise on no demand, despite what DDPheonix is saying. The chart is an example of no demand that was a good entry for the sell off this afternoon in ES. It is a 5 minute chart. There was weakness that came in (Ws) and the market rounded over. It failed going higher and made a lower high. Right after that is the no demand where I put the cursor on.

 

BearBull,

The examples you gave have no weakness in the background. The light volume down move said it would go up, not down. So those examples don't give a true picture.

[firewalker 10]

Interesting situation on the daily chart... speaking in VSA terms I believe this would be called an upthrust.

[DbPhoenix 42]

Winnie, if it makes sense to you that the price of something can rise if there's no demand for it, VSA may be just right for you. Otherwise.....

[Eiger 10]

Of course price can rise on no demand. It does it all the time and it is quite logical. Playing with semantics does not make it different.

 

Take the attached chart as example. Prices rise all afternoon. Note that the volume is generally expanding with the increasing prices. Demand is pushing prices higher. It then rests a bit, and then rises again. Price then reacts (note the increased volume on the reaction). But then price starts to rise again. Is there demand for higher prices? No. Look at the spreads and look at the volume. As price rises to 1, volume retreats. The same thing occurs on bar 2, volume retreats and also the spread narrows. This is quite different than the rally on the previous afternoon where demand was evident. Price has risen on 1 & 2, but it does so on No Demand. This is why even though it goes a tick or two higher on 3, it quickly falls. There was No Demand at that level for higher prices.

 

You see this all the time in the markets and with weakness in the background, an excellent place to take a short. Word games won't change this characterisitc of the market.

 

Eiger

Edited May 14, 2008 by Eiger

[winnie 10]

Dear All of you ,

Thanks for all your kind help. VSA is a very new thinking to me. I need to gain more experience and more stud:cheers::cheers:y on it. Anyway all of your advise is very useful and make thing more clear !

Best Wishes for profitable trading !

[BlowFish 10]

Bearbull lovely chart. Hope you where all over that pull back on diminishing volume it screamed small correction. I am hearing good things about the NAS from a couple of trading buddies. Time for a change maybe, haven't traded it for donkeys years.

[Bearbull 10]

BearBull,

The examples you gave have no weakness in the background. The light volume down move said it would go up, not down. So those examples don't give a true picture.

 

Gary,

I can understand that initial flurry of epiphany after going through a seminar, have been through that phase myself when trying out indicators(CCI, MACD etc), Candlesticks, VSA, the lot, however after a thorough study of the original Wyckoff, the problems were glaringly obvious. At the outset, there is no intention to bash VSA or any other form of technical analysis, this is presented as more in the light of constructive contribution

 

After significant price movement on a particular time frame, it would be easy to note the various candlestick formations (doji, engulfing bars etc) at the right locations of the turn, similarly with VSA signals of no demand, no supply, upthrusts and so on, simply because they reflect the balance of supply and demand at that moment at that price level and as Tom Williams states if they appear on hindsight charts, they must be there at the hard right edge, and he is absolutely right. However there in lies the main problem, how to recognise them at the right location.

Those who have sound knowledge of both VSA and Wyckoff are trying to point out especially to newcomers to VSA is that the price/vol relationships have more relevance against significant support/resistance zones (price levels) rather than just anywhere on the chart, so instead of mulling and fretting over every bar, it is more productive to focus at these levels for high probability trades. Afterall for every setup that can be identified than has panned out, there is always a similar setup that did not pan out. So once again there is no intention to bash VSA or any other form of analysis.

 

In this respect, I would urge any newcomers to VSA to really chew over and digest this quote from post 1146, this is pure Wyckoff (always remember VSA is derived from that" : "Wide spread up bars are created by buyers. Whether there are a few buyers pushing price higher or a great many is illustrated by the volume. Either way, this leads us to the second part of the misstatement, which is that the "smart money" [sic] is selling their holdings when "everyone dog piles" into the market. Professionals are in fact selling their holdings as soon as price begins its rise, buying first to move the price, then selling into the rise if buying interest manifests itself.

 

What pushes price higher is demand, and it doesn't matter by whom or by what the demand is fueled. What is important to the trader is to determine when the demand has permanently (within that timeframe) exhausted itself (and, no, a "no demand" bar is not enough). Otherwise he will find himself consistently trading counter-trend.

 

will address the issue of downbar on low vol signifying lack of selling in the next threads with some charts

[Bearbull 10]

Once again have to repeat this: it is crucial , however it is upto the individual to take the message on board or reject it, the choice is yours, if you are making money via what you have managed to learn before, than all the best to you, there is no intention here to change that;)

"What pushes price higher is demand, and it doesn't matter by whom or by what the demand is fueled. What is important to the trader is to determine when the demand has permanently (within that timeframe) exhausted itself (and, no, a "no demand" bar is not enough). Otherwise he will find himself consistently trading counter-trend.

 

Back to the business of trading in realtime, am going to post 12 charts, they all have those no demand bars accompanied by downbars on low vol ( no supply, right????), this is what we face in realtime whilst making decisions and if those who trade this no demand bars can detect the real from the fake one, and which one will lead to that coveted price move, than that is great.

 

Fig. 1 - here is no demand, do we short or wait for confirmation?

 

Fig. 2. - but now there is a downbar on low vol, no selling pressure, right?

 

Fig. 3. - oops, this confirms the No Demand, do I short, where is my stop loss point?

[Bearbull 10]

Fig. 4.. - Assume the short position was taken, do I stay short?

 

Fig. 5 - No demand, better stay short, if not gone into the trade before, another opportunity to short , this is afterall a second no demand (vol less than previous 2bars).

 

Fig. 6 - Once again downbar on low vol, no selling pressure, what do I do, ?

[Bearbull 10]

Fig. 7 - and once again no demand confirmed, another opportunity to short or add more contracts.

 

Fig. 8 - what the heck, looks like a 2 bar reversal, where is my stop?

 

Fig. 9 - what happened to the stops?

[Bearbull 10]

Fig. 10 - Another No Demand

 

Fig. 11 - Another Down Bar on Low Vol? No supply ??? what to do

 

Fig. 12 - facing the same situation as Fig 4

 

Incidentally Gary this is bar by bar as it would unfold in realtime of the chart you posted. If you have mastered this, that hats off to you;), but you can appreciate that any newcomers may benefit from such an exercise, wouldn't you say.

[Bearbull 10]

Gary,

 

Talking about weakness in the background

 

Fig 1, would you consider shorting here or going long, after downbars on relatively high vol, supply coming in, right,

No. o.k --- no buying climax you say, market is not weak, fine, lets move on

 

Fig. 2. what about this, if downbars on low vol mean no supply, then downbar on relatively high vol surely must mean increased selling,

No, once again no WEAKNESS IN THE BACKGROUND, I hear you say

 

Fig 3. how about this for an outcome

 

Incidentally this is action on the Russell yesterday.

[winnie 10]

Dear BearBull,

Thanks. This is what I see in real time. This make me very confuse in how to use VSA in actual trading. I don't know which bar to trust.

[DbPhoenix 42]

Dear BearBull,

Thanks. This is what I see in real time. This make me very confuse in how to use VSA in actual trading. I don't know which bar to trust.

 

Fortunately, you have several choices. This particular site is rich in discussion of trading by price action, particularly VSA, Wyckoff, and Market Profile. Some are more logical than others, some are more internally consistent (not studded with multiple exceptions, like raisins in an oatmeal cookie) than others, but while each of these approaches addresses the subject in a different way, but they are all about judging the balance and imbalance of supply and demand in an auction market.

 

You must decide what is most in keeping with your view of the market and of market participants. You must also decide whether you want what is essentially a scalping strategy or a trend-following strategy. You appear to be taking your time with this, time to gather the information and think about it. This is relatively rare among new traders and is to be commended.

Edited February 9, 2009 by DbPhoenix

[Bearbull 10]

Dear BearBull,

Thanks. This is what I see in real time. This make me very confuse in how to use VSA in actual trading. I don't know which bar to trust.

 

As has been stated previously, there are useful concepts and principles in Tom William's book, regarding price/vol relationships, however it is imperative to study Wyckoff material, avoid getting into the quagmire of VSA jargon, professionals, smart money etc and focus on supply/demand at significant price zones i.e support/resistance levels, effort v/s result, effort= vol, price move=result. and that is going to take lot of screen time, to sit and observe selling and buying pressures and waves without thinking too much about what you are going to do or should have done etc that can come later. It is cool to join the bandwagon and harp on about pros, footprints of elephants etc, but we have to keep in mind that "The smart money knows that ordinary traders are getting smart at reading their footprints and they are going to get even smarter to wrong foot those who think they have finally figured it all out by just reading a book on VSA:)"

 

Anyway another example of how the market can be misread

 

Fig. 1, lots of upbars on very high vol, surely a sign of weakness, time to short afterall there is no demand bar with confirmation on the next bar, is it not.

o.k where you would you short, and where is the stop

Fig. 2 Has the stop been hit, what happened to the setup, there was an ideal no demand bar confirmed on the next bar and with weakness in the background.

[mister ed 10]

Those who have sound knowledge of both VSA and Wyckoff are trying to point out especially to newcomers to VSA is that the price/vol relationships have more relevance against significant support/resistance zones (price levels) rather than just anywhere on the chart, so instead of mulling and fretting over every bar, it is more productive to focus at these levels for high probability trades.

 

Bearbull - I have pulled this one paragraph out of all your recent posts as it summarises the very important point of the context, or background, against which 'signals' (for want of a better word) occur, and as you say is a point important not only to VSA, but also to Candlestick analysis, and other methods. Thanks very much for re-emphasising this important point, nice series of posts.

[firewalker 10]

Anyway another example of how the market can be misread

 

Fig. 1, lots of upbars on very high vol, surely a sign of weakness, time to short afterall there is no demand bar with confirmation on the next bar, is it not.

o.k where you would you short, and where is the stop

Fig. 2 Has the stop been hit, what happened to the setup, there was an ideal no demand bar confirmed on the next bar and with weakness in the background.

 

When I first started out, VSA got me going in directions I don't want to be going anymore. There's definitely some good stuff in there, but I think, in the end, it lacks context and focuses too much on individual bars.

 

I just arrived here, and I certainly don't want to offend anyone. But it's very easy to misread the market while focusing on individual bars. Your chart is very illustrative of how I went my ways in the early days. If you look for it there's "no demand" or "no supply" all around the place. What's more important, imho, is where it takes place and under what circumstances (meaning the preceding price action).

 

In this particular example, all the very high volume bars closed at the high, signaling strength. The following bars were on low volume and unable to push price lower. If you look at the second chart you'll see volume dropping off when price goes lower, and rising when price continues higher. All signs of strength imho.

[gassah 10]

When I first started out, VSA got me going in directions I don't want to be going anymore. There's definitely some good stuff in there, but I think, in the end, it lacks context and focuses too much on individual bars.

 

This summarizes my experience also.

[gassah 10]

This summarizes my experience also.

 

I'm not bashing VSA at all. There is a lot of good in MTM but I think many VSA'ers go through this phase of using it incorrectly that some of us eventually grow out of and recognize what Tom was trying to get across.

[Sledge 13]

Of course price can rise on no demand. It does it all the time and it is quite logical. Playing with semantics does not make it different.

 

Take the attached chart as example. Prices rise all afternoon. Note that the volume is generally expanding with the increasing prices. Demand is pushing prices higher. It then rests a bit, and then rises again. Price then reacts (note the increased volume on the reaction). But then price starts to rise again. Is there demand for higher prices? No. Look at the spreads and look at the volume. As price rises to 1, volume retreats. The same thing occurs on bar 2, volume retreats and also the spread narrows. This is quite different than the rally on the previous afternoon where demand was evident. Price has risen on 1 & 2, but it does so on No Demand. This is why even though it goes a tick or two higher on 3, it quickly falls. There was No Demand at that level for higher prices.

 

You see this all the time in the markets and with weakness in the background, an excellent place to take a short. Word games won't change this characterisitc of the market.

 

Eiger

 

 

Eiger-

Very nice post, shows some very basic fundamentals all in one chart for winnie (and any others still learning too) Nice Example!

Sledge