[VSA] Volume Spread Analysis Part II

[jjthetrader 10]

  firewalker said:

I'm not sure it is per definition riskier. It depends on how you define 'risk'. What if the test you observed happened on a 1 hour bar. Are you going to wait for the next bar to close? If so, you might enter when price has already made it's turn and presuming you want to put your stop below the low of the test, that might been a hell of a lot more risk as opposed to entering on the test itself and having a very tight stop.

 

I'm not criticizing your or someone else's approach. I'm just saying the 'risk' is determined not only by the probability of your trade, but also by the stop size and the position size you are trading. Each trader must find out what style suits him best, and whether he likes to wait for more confirmation (hence sacrificing the best entry) or enter aggressively with a tight stop, but -perhaps- a higher chance of getting stopped out.

 

I was just speaking from my experience. Too many times the trade didn't pan out if I didn't wait. If you're a 1hr bar trader then yes you wait one more hour. The reason it's riskier to jump in without confirmation is because you're not even looking at a valid signal so you're basically jumping in on a bar that looks like a test bar should but may not be at all. THe next bar could easily break the tests low and would prove it's not a test.

So yes, if you are a gambler then by all means don't wait.

It's always riskier to jump in early because you don't have probabilities on your side. Risk isn't totally determined by money management.

[firewalker 10]

  jjthetrader said:

I was just speaking from my experience. Too many times the trade didn't pan out if I didn't wait. If you're a 1hr bar trader then yes you wait one more hour. The reason it's riskier to jump in without confirmation is because you're not even looking at a valid signal so you're basically jumping in on a bar that looks like a test bar should but may not be at all. THe next bar could easily break the tests low and would prove it's not a test.

So yes, if you are a gambler then by all means don't wait.

It's always riskier to jump in early because you don't have probabilities on your side. Risk isn't totally determined by money management.

 

Your last sentence is correct. Apart from that, there is no gamble at all in taking an early entry. Have a look at Sledge's post here (posts #46 with the chart and #54 with the entry details). He explains a very early and aggressive (but spot on) entry. There was a test later on, where I went long, so I waited for confirmation. Each to their own, one must trade whatever style or strategy he feels fit. But I doubt the smart money are going to wait one hour to get a trade on if they see the signal is there...

[jjthetrader 10]

  firewalker said:

Your last sentence is correct. Apart from that, there is no gamble at all in taking an early entry. Have a look at Sledge's post here (posts #46 with the chart and #54 with the entry details). He explains a very early and aggressive (but spot on) entry. There was a test later on, where I went long, so I waited for confirmation. Each to their own, one must trade whatever style or strategy he feels fit. But I doubt the smart money are going to wait one hour to get a trade on if they see the signal is there...

 

First of all I'm not going to assume I should get in early on a trade just because it worked once for Sledge.

 

Second, the smart money doesn't wait for signals, they create the signals. The second bar, the confirmation, is them locking you out. That is the VSA way to trade.

 

The original question was about VSA. I was answering that. I wasn't answering how to gamble your money away. That's a different thread.

[Sledge 13]

  firewalker said:

Your last sentence is correct. Apart from that, there is no gamble at all in taking an early entry. Have a look at Sledge's post here (posts #46 with the chart and #54 with the entry details). He explains a very early and aggressive (but spot on) entry. There was a test later on, where I went long, so I waited for confirmation. Each to their own, one must trade whatever style or strategy he feels fit. But I doubt the smart money are going to wait one hour to get a trade on if they see the signal is there...

 

Firewalker-

Ok here I can speak from a very strong perspective. JJ and I know each other pretty well, and please know this: I have learned A LOT about VSA and patience from JJ. I give him a TON of credit for the guidance he has taught me and lessons he has taught me as well. I would not be the trader I am today without his friendship and help.

 

With that being said, I am a more "aggressive" trader than JJ- this is by his own words. JJ is an outstanding trader who makes money daily and rarely loses. His style is to be a bit more conservative than myself. We both make money, but we have different trading styles.

 

Also note that he is actually able to be in front of his platform during his trading hours, he is much more nimble and able to squeeze out pips or reverse his position in a heartbeat if he sees something that warrants him to do so. I on the other hand am working towards that- I trade on a longer timeframe because my present circumstance demands it.

 

On that call I was correct, but knowing JJ, he would have still taken that trade, but gotten in a little later than I- because he would want to increase his probabiltiy of a successful trade- and as you know- that is what it is all about. When JJ pulls the trigger, his analysis is solid, he knows the probability is even higher for success than mine. Maybe he grabs 10 less pips on it- but his probability is higher. Also factor in that with me, I may have made that call, rode the up move and by the time I got back to my platform if it didn't hit my T/P target- I may actually gotten to it on the pullback and made LESS than JJ on the same trade (because he spotted the exhaustion and closed out)

 

So to nutshell all this rambling. JJ is a highly skilled VSA trader, with a more conservative approach. He puts money in the bank on a daily basis. His style may be a bit less aggressive than mine personally, but that does not mean that just because he doesn't trade like me, that I can't learn from the trading smarts he has been so willing to share and help me further my own VSA education

 

Sledge

[firewalker 10]

  jjthetrader said:

First of all I'm not going to assume I should get in early on a trade just because it worked once for Sledge.

 

Second, the smart money doesn't wait for signals, they create the signals. The second bar, the confirmation, is them locking you out. That is the VSA way to trade.

 

The original question was about VSA. I was answering that. I wasn't answering how to gamble your money away. That's a different thread.

 

You are putting words in my mouth... I never said you should assume anything from someone else based on one example. I'm saying there are other people out there who trade (not 'gamble') more aggressive entries and do perfectly fine. When the huge volume comes in, stopping volume if you wish to call it so, thàt is the signal of the smart money. Not the next bar closing up or down. There is imo no reason to wait for a bar to close, because bars or candles are only a representation of price. I'm not arguing which is the better way to trade, in fact, I said "each to their own" and I appreciate both views. I even gave the example myself when I pointed out, in that particular trade chart from Sledge, that I took a more conservative entry, waiting for confirmation later. But I disagree that method A is better than method B or that method A leans closer to gambling than trading.

 

  Sledge said:

Firewalker-

With that being said, I am a more "aggressive" trader than JJ- this is by his own words. JJ is an outstanding trader who makes money daily and rarely loses. His style is to be a bit more conservative than myself. We both make money, but we have different trading styles.

 

Sledge, I was merely using your chart as an example. I didn't mean to attack JJ, VSA, or anybody or anything else. I even stressed that both options are perfectly valid for me. Don't know where all the hostility suddenly comes from

 

  Sledge said:

On that call I was correct, but knowing JJ, he would have still taken that trade, but gotten in a little later than I- because he would want to increase his probabiltiy of a successful trade- and as you know- that is what it is all about.

 

For sure, did I say that getting in later was bad? I said that getting in later usually requires a wider stop, thus more risk. But if that makes the odds higher, than the risk is probably warranted. Either way, that's all for the individual trader to find out and determine what suits him or her best.

 

  Sledge said:

So to nutshell all this rambling. JJ is a highly skilled VSA trader, with a more conservative approach. He puts money in the bank on a daily basis. His style may be a bit less aggressive than mine personally, but that does not mean that just because he doesn't trade like me, that I can't learn from the trading smarts he has been so willing to share and help me further my own VSA education

 

I didn't say he wasn't and I don't think I showed anybody any disrespect. If I did, I apologize. Your trade, that we discussed in the other thread, was for me a perfectly valid setup. How you approach it, where exactly you enter and place your stop is down to the individual trader to determine what works for him. But the chart I posted was a one minute candlestick chart. I don't think you said anything about waiting for the next bar to close to enter. And that, in the end, was all I was trying to point out to JJ.

[Sledge 13]

Firewalker-

I'm sorry, It was not my intent to sound hostile. I did not mean to come across that way- its so damn hard to try and make points without voice inflection to have someone be able to hear them as they sound in my head.

 

I'm defending JJ, but I'm not trying to sound harsh towards you. I apologize if it came across that way.

 

I respect JJ and his trading- but I sure as heck can't be upset with you or your trading style as it sounds as if it is a reflection of my own

Sledge

Edited June 27, 2008 by Sledge

[Eiger 10]

  tawe trader said:

 

... Just to clarify things (if not for myself then for other novice VSA'ers), am I correct in assuming that a 'bullish' test is only seen as a positive test (ie signal to go long) AFTER the next bar closes up ?

 

Regards

Tawe

 

Hi Tawe,

 

That's generally true. We do want to see confirmation following the Test with an upbar (but not a No Demand bar). I will usually take a trade on the close of the test bar (assuming my other trade criteria are met), but will look to bail if the market does not act right.

[Eiger 10]

  firewalker said:

...What if the test you observed happened on a 1 hour bar. Are you going to wait for the next bar to close? ...

 

I find it very helpful to watch higher time frames during the trading day, even though my trades are taken mostly off the 5 & 3-min charts. If I saw a Test on the 30 or 60-min chart, for example, and there were other indications of higher time frame strength in the backrgound, it would give me more confidence to take a long trade on the 5-min chart (say a Test in a Rising Market) and then trail the stop and play for a larger gain than if I were trading solely off the lower time frame. Usually, if i am trading off the lower time frame, I will play to the next level of resistance. If there were good indications on the 60-min chart, though, I would generally be encouraged to hold at least part of the position on a trailing stop.

 

Just some thoughts ...

 

Eiger

[Turning Point 10]

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[biegea 10]

Hi, I was wondering if anyone could give me an interpretation on RSX. Until Tues, 7/1, this chart sill looked like it was merely undergoing a reasonable pullback. On Tuesday, we gapped down, albeit on low volume. This told me that while we have clearly broken support, we have not done so on heavy volume, and this could mean that the selling was approaching a possible end.

 

Today (Wed, 7/2) is where it got particularly interesting. The daily chart looks dreadfully bearish with a wrb red candle closing on lows on heavy volume. Most smaller time periods support this view. However, if you go to the 5-min, you can see that heavy trading all happened at one time, and it was on a WRB up, going into HOD. The ensuing decline was on nothing compared to the buying on that one 5-min bar.

 

How is one to interpret this -- when the larger timeframes all look ugly but the volume on the smaller timeframe shows that the heavy volume was not in the direction of what the larger timeframes seem to imply?

 

Thanks in advance for your thoughts.

biegea

[Eiger 10]

It takes a little more than large volume on a 5-min chart to turn a trend. In VSA, we view ultra high volume on up bars as dangerous to bulls. The high volume indicates supply present in the market. You can see this clearly on the weekly chart attached. The highest volume on the chart occured on an up bar in May. We know that there was heavy supply on that bar because the next bar tried to rally higher, but failed and fell well into the spread of the high volume bar, closing on its lows and in the middle of the range of the high volume bar. We call this an UpThrust. The market then tried to rally the next week, but the volume was very light, indicating there was No Demand from the large, professional traders. So this combination of events is quite bearish, and the market falls.

 

The current downtrend on the daily chart has accelerated over the last two days, and is taking the market into a steeper stride or angle of decline. The 50 level has a confluence of support. There is a weekly Demand Line (green), a support level around which price had been stopped in late Feb/early march, then supported in late April (purple), the Demand line of the downtrend channel (red), and also the 1/2 - way point from the rally low at about 41 to its high at about 60. Given that the daily is accelerating with widening spread and volume is starting to rise, I would look to see if this market will find support around this level. If it does, the subsequent rally will tell you whether this has been a shakeout and new highs can be expexted, or lower prices will prevail and perhaps a trading range from the low at 41 to the resistance area between 56 - 60 will form.

[biegea 10]

eiger, thanks so much for the thorough analysis. Great points, I clearly overlooked a number of much bigger-picture items here. Cheers, biegea

[winnie 10]

How to know whether an up bar is a no demand bar or just take rest of a downtrend and then resume the downtrend ? For example, if we see a downtrend( or last bar is strong down bar with wide spread and big volume) and then an up bar with a lower volume than previous two bar, can we say that the bar is a no demand bar ?

Thanks

[Sledge 13]

  winnie said:

How to know whether an up bar is a no demand bar or just take rest of a downtrend and then resume the downtrend ? For example, if we see a downtrend( or last bar is strong down bar with wide spread and big volume) and then an up bar with a lower volume than previous two bar, can we say that the bar is a no demand bar ?

Thanks

 

Winnie-

That is what the Tradeguider folks would call a "Polar bear in Hawaii" it is out of place- thus should be disregarded.

 

To me that bar shows that the brakes are being applied HARD, and would be a very wise bar to perk up and pay attention too. I know the TG folks would say that about the Wide Spread Down Bar, but the bar you describe shows that some profit taking is taking place and a lot of offloading took place on the WSB- logically that makes sense- you don't see too many "smart traders" seeing a huge down bar and say- "ooh I should go long"

 

Hope this helps.

Sledge

[speres 10]

  winnie said:

How to know whether an up bar is a no demand bar or just take rest of a downtrend and then resume the downtrend ? For example, if we see a downtrend( or last bar is strong down bar with wide spread and big volume) and then an up bar with a lower volume than previous two bar, can we say that the bar is a no demand bar ?

 

 

Thanks

 

 

Thats what a no demand bar is Winnie, I think you answered your own question...

What is a no demand bar for instance? Price moves up on low volume. Pro money has withdrawn and has no interest in higher prices at this time. Hence low volume.

 

To your second question (strong down bar with wide spread and big volume) the volume would have to be very big for a trend reversal for starters.Is the volume huge is the first question you ask yourself. Then you get a move up on low vol. Is this no demand?, well it might be, smart money might not have finished distribution yet for example and so have withdrawn, but after a possible sign of strength would you short the no demand, of course not.

[speres 10]

Also was there any follow through after the increased volume? You see the increased volume, what was the effect?

[Eiger 10]

Great VSA trading yesterday and today. Here is a quick analysis of today's market:

 

A - Top Reversal near the 10:00 inflection point

B - No Demand

C - Some buying enters here. Note the volume and the close in the middle

D - But the market is not quite ready to rally with the UpThrust and the market falls back near the lows of yesterday where buying drove the market upward

E - Down bar on above average spread close near the lows on an increase in volume. This could be bearish, but the next bar dips lower and closes up. Note also the volume difference between E and C. In the background, we are in the support area of yesterday's lows.

F - Bottom Reversal. This bar dips lower than the previous bar reverses and closes on its high.

G - low volume down bar indicating no supply

H - a small shake out that closes on its highs indicating upward prices

I - Supply enters (increased volume, mid-range close) as we approach the old top at A-B-D. This weakness was only temporary as the market goes sideways holding its gains in a fairly tight range

K - Hidden Test

L - Test bars

M - A sudden increase in volume, fairly narrow spread, poor close. Professional traders capped the market here.

N - The rally back up to the weakness seen at M is on low volume, narrow spreads indicating low odds of rallying past the weakness at M. The market declines.

O - The decline halts at O where we have No Demand on the 5-min chart. This area is better read on the 3-min chart

P - 3-min chart - Increased volume and strong closes after the market had been declining for an hour indicates stopping volume and buying

Q - 3-min chart - Compare the volume between Q and PP. Note the close on Q. Strength has come into the market

R - A No Demand after strength and the market rallies, as it should.

S - 5-min chart - Compare the bars and volume at S with the bars and volume at N. Can you see why at S the market signaled it would break through the oppositon formed by the old top at M-N and at N it signaled it wouldn't?

[Eiger 10]

In the above post, both O (5-min chart) and R (3-min chart) are mis-labled as No Demand. That's incorrect. The correct lable is Test. Sorry, it was late, I was tired, and I had been working on another project that focused on the No Demand bar, so that was on my mind ... The edit function seems to be missing?

[tawe trader 10]

Seeing as recent posts have been regarding no demands and I haven't posted for a while I thought I'd share a quick no demand short trade I carried out on the FTSE yesterday afternoon. This was also a multiple timeframe trade.

 

First chart is a 15 min, at 2.30pm (UK) when the US mkts open we have a possible weak bar.

 

Why is this weak ? even though it closes near the top, it has very high volume and as Tom W says 'mkts don't like very high volume up-bars, there could be hidden selling involved'. Also the next bar closes down, which confirms the weakness. (If it had been on lower volume and the next bar closed up, it would have been seen as a bullish bar and a 'test' in a rising mkt).

 

I am now looking for a no demand bar for my short entry. There is a borderline no demand at 3.15pm. I decide to drop down a timeframe to investigate further.

 

The next FTSE chart is a 10 min timeframe and at 3.20pm there was a clear no demand, so after seeing this I decided to go short with a target of 20 to 25 pts. I exited for a gain of 21 pts and the mkt never really went much lower for the remainder of the afternoon.

 

Tawe

[Seb Manby 11]

Hi Guy's

 

Late buying on the close today ES contract, should mean higher open Thursday.

 

Regards Sebastian

[winnie 10]

Dear all experts,

In looking for a no demand bar or no supply bar, beside volume do we need to consider the close of the bar . Do we need the close of the bar be lower than the middle point of the bar to confirm a no demand bar ?

 

Thanks for all your kind help

[speres 10]

  Seb Manby said:

Hi Guy's

 

Late buying on the close today ES contract, should mean higher open Thursday.

 

Regards Sebastian

 

 

Hey Seb

 

whats your next step after VSA or are you happy with where your at? on a personnel level I won't rest until a full understanding of all the games that are played is achieved...... might take a while tho..:crap:

 

all the best

[speres 10]

  winnie said:

Dear all experts,

In looking for a no demand bar or no supply bar, beside volume do we need to consider the close of the bar . Do we need the close of the bar be lower than the middle point of the bar to confirm a no demand bar ?

 

Thanks for all your kind help

 

The close does'nt really matter to be honest Winnie, a low vol pullback is the same...

[Eiger 10]

  Seb Manby said:

Hi Guy's

 

Late buying on the close today ES contract, should mean higher open Thursday.

 

Regards Sebastian

 

And we are up 8 points in the overnight, 4 hours before the US open

[Eiger 10]

  winnie said:

In looking for a no demand bar or no supply bar, beside volume do we need to consider the close of the bar . Do we need the close of the bar be lower than the middle point of the bar to confirm a no demand bar ?

 

 

Volume is most important. A close in the middle or below adds to the No Demand, but isn't necessary. Successive lower highs on the No Demand and the bar preceding the No Demand (i.e., a small downtrend) work best; the reverse for Tests/No Supply.