[VSA] Volume Spread Analysis Part II

[Bearbull 10]

I have to say I disagree about the Welsh Wizard. An out and out scam artist with a similar modus operandi as the "Chief Wizard" (which has been well documented in various places).

 

I see he has further simplified VSA to 1000 indicators (per instrument type!) With 100 lines of algebra for each. That certainly trumps tradeguider. Of course there is no evidence that his software or book for that matter exist.

 

Do you know the guy? I see you are from Wales too. God forbid, you arent the WW are you? Kind of worried that you have started promoting this con man.

 

Blowfish, you certainly have had your fair share of these scams artists, I presume the chief wizard was either Socrates (Alber Labos) or that guy from Scotland who imitated Martin Cole's strategy and marketed as his own:)

 

BTW we got an email from you friend, the one who simplifies trading, professional trader and VSA expert: Only one place left for the california summit so hurry:

Vince Rowe, presenter at http://WWW.BIZRADIO.COM Interviewed Dr Gary Dayton and Gavin Holmes, CEO, TradeGuider International about tracking "Smart Money" using Volume Spread Analysis.

Here these interviews (MP3 files) and then see an archived recording of Dr Gary Dayton giving bar by bar analysis of the e-Mini Dow using the Wyckoff Principles.

The links to download these MP3 files are below, over 350,000 Podcast downloads from Vince's show:

 

Dr Gary Dayton - MP3 Files (Audio no video)

 

http://www.tradeguider.com/gavin_webinar_files/gary1.mp3

 

(Please note that the first MP3 has 3 minutes of music at the beginning so you may wish to scroll in 3 minutes)

 

http://www.tradeguider.com/gavin_webinar_files/gary2.mp3

 

http://www.tradeguider.com/gavin_webinar_files/gary3.mp3

 

http://www.tradeguider.com/gavin_webinar_files/gary4.mp3

 

Gavin Holmes - MP3 Files (Audio no video)

 

 

http://www.tradeguider.com/gavin_webinar_files/gavin1.mp3'>http://www.tradeguider.com/gavin_webinar_files/gavin1.mp3

 

http://www.tradeguider.com/gavin_webinar_files/gavin2.mp3

 

http://www.tradeguider.com/gavin_webinar_files/gavin3.mp3

 

http://www.tradeguider.com/gavin_webinar_files/gavin1.mp3

 

Webinar Archive (Audio and Video)

 

TradeGuider presents Wykoffian trader Dr Gary Dayton who will be explaining how he trades the e-Mini Futures using Volume Spread Analysis and Dr Harvey Loomstein who will be discussing how Volume Spread Analysis lifts the fog off the market so you can see the intention of the composite operator, in any timeframe. The Archive is viewed as a Windows Media Player File:

 

Archive URL:

 

http://www.tradeguider.com/gavin_webinar_files/dallas.wmv

 

Special Announcement

 

 

TradeGuider has had a late cancellation for our sold out event in San Francsico, we have one place remaining, so to find out more and book your place go to http://www.tradeguider.com/sf or contact Darren at the email below.

 

 

To book your one to one online consultation and demonstration of TradeGuider please email Darren at darrenh@tradeguider.com and include your name, phone number and convenient time to call.

 

Good Trading,

 

The TradeGuider Team

[CandleWhisperer 10]

Dear all,

I still have problem in identify the strength and weakness background. I have attached a chart for all your attention. I really do not know that if I see an ultra high volume bar follow by a low demand bar, in a downtrend, should I take the sell signal in the no demand bar. I feel confused is that :

1) Ultra high volume bar with wide spread , follow by an up bar should indicates there is professional demand in the ultra high volume bar , am I right ?

2) an no demand bar in a downtrend , show it is a bearish signal

 

When (1) and (2) combine, it become very confused. Hope you can help me crap:

I have find that in VSA club, there is a lot video which are very useful. I am not a member but just want to share with all you .

Thanks

Winnie:

 

Take a look at the chart.

 

The first bar you identified is a wide spread down bar on ultra high volume with the next bar up. It is true that Demand did enter on this bar. The next bar does not have volume less than the previous two bars and therefore IS NOT No Demand.

 

The bar after does have volume less than the previous two on a down bar and is No Supply.

 

Two bars later, we see a Test, but the volume is a bit high. Markets can rise slightly on high volume tests and then come back and re-test that area. Thus, after we see this test, we can expect to see price come back into this area if it moves up.

 

Six bars later, we move back down into this same area and have a down bar with volume less than the previous two bars, closing off its lows. While it is not a test, it is a No Supply bar. The BBs are finding no more supply in an area where there once was (high volume test). Thus the market is now poised to take off.

 

Also not the very next bar. This also looks like a test. Notice that the volume is up from the previous bar, but LOWER than the first test.

[jjthetrader 10]

I have to say I disagree about the Welsh Wizard. An out and out scam artist with a similar modus operandi as the "Chief Wizard" (which has been well documented in various places).

 

Do you know the guy? I see you are from Wales too. God forbid, you arent the WW are you? Kind of worried that you have started promoting this con man.

 

Blowfish, I think you may be misinformed. For one I can guarantee that Tawe is not the WW. Second, the Welsh Wizard doesn't sell anything. He doesn't use indicator or algebraic equations. So who could be be scamming?

You may just have the guy Tawe is talking about mixed up with someone else.

[BlowFish 10]

Yeah I am an out and out sucker! Things have to be really bad to warrant my ire however.

 

The penultimate tradeguider promo had Pruden speaking, I listened to that one (but I have to fast forward through our buddy the 'professional trader and VSA expert' wittering on about ...err...well nothing very much). First time I have heard Pruden speak and was quite impressed.

 

Funnily enough Pruden is running a Whycoff conference just before the TG summit ....the cost $250 including membership to a non profit TA association ($120 if you are a member already). Speakers include fund managers and real trading professionals (as opposed to people who deride there income from selling stuff and pretending to be trading 'professionals').

 

http://www.bestofwyckoff.com for those interested. If it didn't mean a trip halfway round the world I'd certainly pop along to see what was cooking.

 

Compare that to the TG summit. I'll leave it up to you to draw conclusions.

[winnie 10]

Dear CandleWhisperer,

 

Firstly, thank for your time to answer my question. It is very helpful.

However, I still have some question in your answer.

 

As i said if the bar after the ultra high volume down bar is a no demand bar, should we still take a short position. The question is, if we combine the ultra high volume bar and the next no demand bar together, we would think this two bar will be strength. However , if we only consider the no demand bar, we will think it is a bearish signal. This really make me confused.

:doh:

Another question is in my chart which I have attached.

In the test bar, how do we define the volume is high or low. Do we use the same standard as no demand/no supply bar, volume less than previous two bars ?

Thank for your kind help and concern.

Winnie

[BlowFish 10]

Blowfish, I think you may be misinformed. For one I can guarantee that Tawe is not the WW. Second, the Welsh Wizard doesn't sell anything. He doesn't use indicator or algebraic equations. So who could be be scamming?

You may just have the guy Tawe is talking about mixed up with someone else.

 

I swapped a couple of PM's with Tawe, he is not the WW, phew! WW most certainly does sell stuff and I am sad to say I have the bank statement to prove it (yeah I know I'm a sucker, it was quite a long time ago and I had specific reasons.).

 

From his web site :haha:"All the indicators together make up an "indicator library", and each type of financial instrument will have its own library, which in turn will house an average of 1000 indicators, with each indicator itself having up to 100 lines of seperate algebraic formulae which are computed to analyse each and every bar". If that dosent ring alarm bells I am not sure what would actually its pretty funny no?:)

 

No mix up I can assure you, just an out and out scammer.

[jjthetrader 10]

No mix up I can assure you, just an out and out scammer.

 

Good to know.

[winnie 10]

Dear all,

if anyone has time, could he give me some advise on my chart and question.

Thanks for all your kind help.

[Eiger 10]

...if anyone has time, could he give me some advise on my chart and question...

 

 

See attached chart. I see no strength in this chart.

[Tasuki 10]

See attached chart. I see no strength in this chart.

 

Excellently useful analysis, Eiger. Thanks.

What does "Ice" mean?

[winnie 10]

Dear Eiger,

Thanks for pointing my mistakes. It is very useful. I think I need more experience in learning to determine the background. I always focus on the definition on no supply and no demand by just watch the volume is lower than previous two without consider the background. It is really useful, thanks for your time.

 

Winnie

[Eiger 10]

...

What does "Ice" mean?

 

"Ice" was coined by Robert G. Evans, a major figure in the Wyckoff Method from the early 1940s into the 1970s. Bob Evans worked very hard at making the Wyckoff Method more user-friendly. He focused heavily on Wyckoff principles (e.g., Selling Climax, Test, Sign Of Strength, Last Point of Supply, etc) and discussed these principles and the Wyckoff Method in weekly tapes from about 1940 through the 1960s.

 

One of the (many) wonderful things about Bob Evans was that he was a real educator. He deeply wanted traders to understand the Method and looked for ways to help explain the Wyckoff prinicples. One of the ways he did this was to create stories that traders could relate to. These were rather "folksy" and involved characters like boy scouts and scuba divers. The Ice Story is one of these.

 

The Ice story is basically about a boy scout walking along a frozen river. The ice supports his weight easily as he travels along. But, he then comes upon a thin section of the ice, walks over it, and falls through. He drops down into the cold water, drifts downstream a bit, and tries to swim back to the top. When he returns to the top, however, the ice is no longer thin. He is unable to surmount the ice, fatally bumps his head while trying, and sinks down, down, down.

 

So, Ice is a support line that serves to hold price until price "falls" through the support. As we know, many times what was formerly support becomes resistance (it's ice, afterall ) and price will be unable to rally back up above the resistance if supply is now in control. After a failed attempt to rally above resistance, the market typically sinks lower.

 

So, we use "ice" as shorthand for support, and especially for support that has turned into resistance, with the implication of lower prices.

 

FWIW: The Bob Evans tapes are truely outstanding. He lived and breathed the Wyckoff method for 40 years. He knew Wyckoff personally, understood what was important, and strived to convey this to traders. In the tapes, you can see how a true Wyckoff expert reads a chart and applies Wyckoff (most tapes come with charts of the then current stocks and market). The tapes are still available from the Wyckoff/Stock Market Institute. They are known as the Evans Echoes Tape Series. They are inexpensive, now in MP3, and really fun to listen to because he was not only a true master, but he was also so enthusiastic about teaching the method. In my judgement, they are just as vital today as they were in 1950 and are a great way to learn the Wyckoff Method.

 

Hope this is helpful,

 

Eiger

[Eiger 10]

Dear Eiger,

... I think I need more experience in learning to determine the background...

 

Most of us do. It is easy to fall prey to looking for the countertrend trade. In my trading, I look for the obvious support and resistance areas. Yesterday's high & low, and the 45-min or 60-min support/resistance areas. It also helps to identify any trend channels on the 45/60-min time frame.

 

Then watch to see how price trades around those levels. This will help you set up the background. If price approaches higher time frame support and starts to have wider spread and heavy volume in this area, odds are good for a reversal or at least a bounce. Then look for Tests, Bottom Reversals, Hidden Tests, etc.

 

Rather than focusing only on No Demand and Tests/No Supply, try to build a VSA/Wyckoff "Story" about the market. For Example, look at the attached chart showing 10/22 and 10/23 on the 5-minute ES market:

 

Oct 22 had an afternoon sell off that ended in climactic action (not highlighted). The sell off was precipitated by a fall below support at A and an inability to rally back up above the Ice (support becomes resistance) at B.

 

The next day on Oct 23, the market rallies back into the area where we saw supply the day before (the ice area). As we approach that area, we see an ultra wide spread and very high volume at C - potential supply coming in at an area where we saw supply yesterday.

 

The very next bar D attempts to rally higher, but closes on its lows. The volume is sustained at a very high level - supply has definately entered the market at this point. The next bar at E is No Demand. Professional money has seen the weakness and has withdrawn form the market. (The bar at E could be an aggressive short entry, but the risk point is more than 5 points away.)

 

Price rallies higher to F, where we see less volume (inability to sustain a rally) and a very poor close (this is almost a Top Reversal/2-Bar UT; it would have been better to close below the low of the previos bar, but this is still quite weak). Market goes sideways. The question now becomes: is it going to hold its gains and absorp supply in order to rally higher, or is the apparent weakness going to take prices down?

 

This is answered for us at G when price makes a lower low after putting in a lower high - a clear sign of weakness. Note also that price was unable to sustain any close above the Ice line in this area. A Supply Line is drawn at F and at H, the ideal entry with a well-defined risk point arrives in the form of No Demand.

 

Making a Wyckoff/VSA Story involves piecing together several elements on the chart:

 

• Supply area from yesterday
  
• The Ice Area
  
• Heavy Volume/Wide Spread into the old supply/Ice area
  
• Weakness as it attempts to rally through the Ice
  
• Lower High & Lower Low
  
• Small downtrend line
  
• No Demand
  

 

Try to expand your anaylsis like this to tell a story, rather than simply focusing on one or two VSA indications. Tom Williams always emphasizes the background and always cautions about reading the indications in isolation from the background.

 

Hope this is helpful,

 

Eiger

[winnie 10]

Dear Eiger,

Very very useful for me. I will continue to work hard:thumbs up:er and ask questions. Trading is not easy but very interesting.

 

Thanks:thumbs up::thumbs up:

Wnnie

[winnie 10]

Dear Eiger,

Do you think we need to evaluate bar by bar (5 minutes) ? That means to drop down what the market is going to do in every bar . In addition, in your chart , at point E and H, both are no demand bar. In actual trading, would you sell the no demand bar at close or wait the low of the no demand bar be broken ? In this example, wait for the low be broken can save us from the losing trade at E as its low never be broken.

 

Thanks

Winnie

[Eiger 10]

In my trading, I am watching the 3, 5, 15 & 45 minute charts. I am watching what happens on each bar, but I don't get interested in the market until I see price nearing support/resistance or high volume comes in. Then I am looking at every bar quite carefully.

 

I generally take No Demands and Tests on the close. You can take it on break of the spread-that is legit. Taking it on the break would have kept you safe at E. Note that although E met criteria from a VSA perspective, from a money management perspective, it didn't fly. The stop was far too wide making that trade have too great a risk. Both the setup and the risk have to be balanced. For me, if both don't meet my criteria, I let the trade pass.

 

One other thing to note, taking a short at E would have been more of a scalp trade (which, given the wide protective stop needed made the profit:loss ratio relatively poor). Weakness had come into the market, but at that point, we didn't really have extensive weakness, just a couple of high volume bars at C & D. Thus, a short taken at E would have a target of around the last high made below E (i.e., the closest support point).

 

Although weakness had appeared on C, D & E, there had not been much of a cause built. "Cause" relates to the sideways movement that allows professional traders to unload or distribute contracts bought lower to buyers attracted by the rapid up move at C, and to build an inventory of contracts for the anticipated down move to be covered lower. Bar E was a tad early, though occassionally we get a V-spike reversal (as we did on the lows of yesterday). By the time H occured, there was a nice sideways line, much more evidence of weakness, and the market was poised on the Springboard for lower prices.

 

Eiger

Edited October 26, 2008 by Eiger

[kuky969 10]

Eigar

outstanding reading thank a lot

just a small question (maybe off topic--sorry)

I thought about Vspike-reversal and please how do you think about it ??. How is possible then sometimes start raly up without some litlle sideways(base) or test of bottom.??? As you wrote on the lows of yesterday. In this case I always wait for some small acumulation but sometime didnt.

When I read your post everything seems very simply and I dont understand why I didnt see this situation in real time in market maybe experiences

Thank

[kuky969 10]

Eigar

I study your chart and in real time I maybe took short on A bar . It was no demand too. But it was not very good entry. What save you from this entry ?? was there bad ratio profit:loss ???

[winnie 10]

Eigar

outstanding reading thank a lot

just a small question (maybe off topic--sorry)

I thought about Vspike-reversal and please how do you think about it ??. How is possible then sometimes start raly up without some litlle sideways(base) or test of bottom.??? As you wrote on the lows of yesterday. In this case I always wait for some small acumulation but sometime didnt.

When I read your post everything seems very simply and I dont understand why I didnt see this situation in real time in market maybe experiences

Thank

 

I have the same feeling, cannot find such good setup in real time. I just take all the signal and use strict money management stop to trade only. Hope one day I could smart as Eiger. In real time, I always focus on catching the top and bottom. When I use multi time frame, I always find conflict signal. Hihger time frame down trend, but 5 minutes seems to form bottom. This make me do not know which side to trade, buy or short ???

 

Anyway still learning

Thanks

[Eiger 10]

...I maybe took short on A bar. It was no demand too. But it was not very good entry. What save you from this entry ?? was there bad ratio profit:loss ???

 

 

Nothing would save you from that entry at A on your chart. It was perfectly fine. At that point, we have clear weakness, and the No Demand at A was a good trade. Not every trade works out, and that is perfectly fine as well. We never know how any individual trade will work out, but over a large number of trades, we know that VSA has an edge and we will be profitable. You really can't be concerned with the outcome of each and every trade. This is the psychological crux of trading.

 

That being said, there was also a clear indication on the next bar (Hidden Test - dipping below the lows of the last several bars and closing on the highs) that indicated that the market would attempt another rally. Note the cluster of closes at A, the bar before A, and this bar after A. These closes plus the Hidden Test are indicating a reluctance to go lower at that point. If short on A, there was opportuntiy to exit on the next bar.

 

But, even if you didn't exit and took a small loss (always use stops because no setup is 100%), you would have easily made it up on the trade at H. This is why we are vigilent in cutting losses short, and do not let them run into a level that is difficult to recover. You have to know (via practice) that you have an edge with VSA (and you certainly do). When you know you have an edge, taking a small loss becomes inconsequential. With lots of practice, you will be able to exit out of a trade the moment you see it not working (as in the bar after A) and cut losses even more.

 

I was in Dallas last week and got to meet a fellow there who runs a training program for traders. He is very serious and very concerned that traders be taught properly - he is quite against the snake oil sales. The first thing he teaches new traders is how to lose money. It sounds odd, but it really is a necessary skill. Once we learn to take loses properly, we can then focus on making profits. A worthwhile idea to think hard about, in my judgement. It requires thinking in terms of probabilities, which is not an easy task.

 

Hope this helps,

 

Eiger

Edited October 27, 2008 by Eiger

[Eiger 10]

...In real time, I always focus on catching the top and bottom. ...

 

We all think this is the best thing to do, but it really isn't. Rather than focusing on the tops and bottoms, focus on strength and weakness. You really do not have to pick a top or bottom to make good money in trading. In fact, i would say that a focus on tops and bottoms will do you more harm than good.

 

I personally think a better focus is building the VSA/Wyckoff Story that i outlined in an earlier post. Look for the clear evidence of a trend change. These usually come slowly with lots of clues. Entries needn't be at the top or bottom - there is usually more than one opportunity to get a good entry. It becomes much higher odds when the evidence based on VSA is overwhelmingly clear. This is what Wyckoff did - he looked for a clear sequence of events to take place. Like trading on a very small time frame, tops and bottoms are much more illusory - we tend to see more than is there in the chart.

 

Eiger

[Eiger 10]

...I thought about Vspike-reversal and please how do you think about it? ... When I read your post everything seems very simply and I dont understand why I didnt see this situation in real time in market maybe experiences

 

V-spike reversals happen only about 12-15% of the time (a little more in volitile periods like now). They are a low probability events and not worth trying to trade (in my experience and opinion). I see them and say, "Oh well. Better opportunities are right around the corner."

 

Hindsight always seems clearer than real time - this is true for everyone. But, it is about experience and, moreso, dedicated practice. Are you practicing VSA every day? Are you marking up charts each night? This is what will get you to the place of being able to read the real time chart well. Nothing else. You must practice. It is like becoming a good tennis or soccer player. You don't just walk onto the tennis court or soccer field and expect to play well. It takes a serious commitment to practice before you start to see and can act on this stuff in real time. But, anyone who really practices, will get good at this. There is no doubt about that.

 

Eiger

[winnie 10]

Dear Eiger ,

thanks for your support. I am practicing VSA everyday in both real time and after market. The hardest part for me is that the VSA concept is different than the traditional one. The hardest part for me is the testing bar. When I first learn technical analysis, it states that when volume is high and there is key reversal in testing the low, it should be bullish. However in VSA, it states that it is a weak bar instead of bull bar. Why does this happen ? Would you explain to me why a test bar with high volume is bearish ?

 

I have attached a chart for your reference. Would you point out my mistake if you have time. Today, I learn from you and focus more on the test bar volume. It works better.

Would you tell me could you see any strength starting from bar A of my chart ?

 

 

 

Winnie

[tawe trader 10]

Hello all,

 

Regarding the Welsh Wizard I would just like to make a quick post to clear a few things up. I am not the WW and I am not promoting anything of his. Yes I am Welsh and do live near him but I've never met him or bought anything off him. I have been in contact with him via email, on-and-off for a couple years and found him to be extremely knowledgeable, experienced and informative. I have recently been in contact with Blowfish and he has clarified a few points regarding the WW.

 

I have been following the WW (free) daily FTSE commentary since 2003 and found it very educational. It is an after-the-event, intraday commentary due to FSA rules not allowing trading/investment advice on a public website but he sometimes gives 'clues' in his commentary and writing. From what I know and read, his trading is based on Wyckoff, supply and demand, support and resistance, trendlines etc.

 

Regards

Tawe

[Eiger 10]

... When I first learn technical analysis, it states that when volume is high and there is key reversal in testing the low, it should be bullish. However in VSA, it states that it is a weak bar instead of bull bar. Why does this happen ? ...

 

I have attached a chart ...

 

When you have a Test bar after a sign of strength and there is high volume on the Test, it indicates there is still a lot of supply at that level. Usually, when that happens, we will either see the market respond sluggishly on the rally, or, more likely, it will come back into the area for further testing. We see this a lot on the daily charts in stocks. High volume on up bars makes us cautious because there has to be supply within that volume.

 

A good example of this is the test bar that occurs 3 bars after Bar A on your chart. It dipped back into the high volume level around A and had a positive close. But, the volume was almost as high as at Bar A. So, although there was a Selling Climax at A, there is still supply in this market and further testing is likely if the market is to turn here and rally to higher prices.

 

I think you read the attached chart pretty well. In general, once we see supply in control, we can ignore tests bars. We are more interested in No Demands and UTs. The reverse is true in an uptrend. When demand is in control, we can ignore No Demands and UTs and look for tests. I've added a few ideas to your chart you can think about.

 

Hope this is helpful,

 

Eiger