[VSA] Volume Spread Analysis Part II

[wunderlich 10]

Sledge:

 

I think the same: market "will DROP".

But "Timing" for short was some bars to early (now 5 to 6 bars)?

for my taste; this is what I - also timely - would say.

 

By the way, if trading short, with which scenario? where Stoploss? where Profittarget? etc.

 

An other question: which datafeed / market do you exactly use in your chart?

w.

[CandleWhisperer 10]

........In all seriousness, my question was sincere as I enjoy lurking this thread, but have yet to see any real trading being done besides after the fact type stuff. It's REAL easy to find those S/R levels after they've been confirmed. But what about when they are forming? Is the trader in real-time jumping in to see if they do hold or not?

 

..............I'm just asking the questions that anyone would ask of a trading methodology.

 

I read somewhere that VSA is a big tent. I like that. It is clear that most of the traders on this thread do not do things exactly the same. And if you include DB (not a VSA trader per se, but a Wyckoff trader/supply/demand trader using PV) this becomes even more evident. That is, DB is doing incredible work far beyond most. It is elegant, simple and effective.

 

As far as drawing support and resistance in real time, there are many ways to do it. After reading the first thread and posts by Nihabashi, I prefer to look at WRBs and Long & Shadows now. There are many things I can't say about them and far more things that I do not know as yet. But what I can say is this. Those that use candles can easily see a WRB appear. The definition is simply A WRB is body (open to close) that is larger than the prior three intervals. A Long Shadow (upper) would be an upper shadow that is larger than the prior three long shadows (only). And the opposite would be true for a Long Shadow (lower).

 

Now, there are various was to determine what makes one WRB more significant than any other one. Two of the main things I look at is size and volume. Hence, in real time if there is a WRB that happens to have high to ultra high volume or is larger than the last three WRBs it is significant. The three prior WRBs is flexible, but once one decides on a criteria, one should stick with it. It may be different for the individual instruments traded. Subsequent price action will tell you that.

 

So one can easily determine what is a significant WRB, or Long Shadow. As far as trading it, it is always best to let the market prove it. Why go short simply because price is rising towards a supply/resistance area? Many "pivot" traders make this mistake. Just because price is moving towards R1, doesn't mean go short. Price can continue doing what it is doing: going up. However, one can become more attuned to price action as price approaches R1.

 

Take a look at the chart below. These areas were easily plotted after the appearance of the WRB or Long Shadow. As so many seem to not want after the fact learning experiences, I will say nothing about a trade set up. It is labeled and if asked I will give my $0.02

 

[bertg 10]

And that may account for the difference between us. I couldn't care less about the reasons for price's movement. When I see selling drying up at support, I go long. When I see buying dry up at resistance, I short. If price is drifting aimlessly, I do nothing. No jargon. No software. No colored arrows. No indicators (bar or otherwise).

 

DB,

 

Going through this thread again and on post 183, you said the above.

 

You say "when I see selling drying up at support." Some see supply or demand coming in based on where the bar closes (from what I've seen, you don't care about bars or where they close). Some use bid/ask, and I don't think you look at that, either.

 

So, then I assume you mean volume drying up while in a down-move and while approaching support.

 

Ok, I'll stop interpreting/assuming and ask you directly: how do you "see selling drying up?"

 

Thank you for your help.

Bert

[Sledge 13]

Sledge:

 

I think the same: market "will DROP".

But "Timing" for short was some bars to early (now 5 to 6 bars)?

for my taste; this is what I - also timely - would say.

 

By the way, if trading short, with which scenario? where Stoploss? where Profittarget? etc.

 

An other question: which datafeed / market do you exactly use in your chart?

w.

 

W-

Platform is a Metatrader4.

 

As far as timeframe: I actually use a much larger timeframe to get a "feel" of the overall market first and then "drill down" It was much easier to illustrate the amount of volume and those bars significance using a 15 minute chart instead of say a 4 hour or Daily Chart.

 

Where you decide to enter the market or how many bars you use to make your determination is strictly a matter of personal opinion. Since I use a larger timeframe and know that I am looking only for shorting opportunities (presently,) I look for particular bars or sequences of bars- when they appear I am poised and ready. You may be different. I'm learning not to be scared to let a trade ride overnight or carry over past EOD. I only care about being right with the trend.

 

As far as target and stoploss- same trading personality traits apply. If you see $200 profit plop into your lap- do you take it and close out? Do you feel strongly enough in your analysis that you know you will eventually make $1000 on that trade? I personally "roll with the punches" If I'm in on a short and I have cleared 85-100 pips at EOD, I can do one of two things- either move my stop loss to protect capital or close out and look for another entry if I anticipate a pullback. As with any system you have to realize that it MUST be flexible. YOU must be flexible. Anyone who tells you that you bailed early and are a "wuss" is a moron. If you are happy with the trade- you are the only one who makes or loses the $. No person on a message board is going to pay your bills.

 

When I started trading I was a blitzing moron, I got in, grabbed 4 or 5 pips and closed out. I was trading 20-30 trades a day! I did well at it, but talk about mentally exhausted!

 

My best advice to you or anyone new trying to learn this is the following: Learn to read the bars, what do they tell you? What does that bar with its related volume tell you? Tom Williams isn't B.S.ing you when he says all you need to do well is a chart and volume associated with it! After a while- if you stick with one or two things you trade, you will get to know that instruments "personality" (i.e. how it reacts, how it moves.)

 

Hope this helps!

Sledge

[Sledge 13]

 

Take a look at the chart below. These areas were easily plotted after the appearance of the WRB or Long Shadow. As so many seem to not want after the fact learning experiences, I will say nothing about a trade set up. It is labeled and if asked I will give my $0.02

 

 

Candle-

I would indeed like your $0.02. Please do tell us what you see on your chart-I think that anything you see will help people learn from the knowledge you have to offer!

 

Sledge

[DbPhoenix 42]

DB,

 

Going through this thread again and on post 183, you said the above.

 

You say "when I see selling drying up at support." Some see supply or demand coming in based on where the bar closes (from what I've seen, you don't care about bars or where they close). Some use bid/ask, and I don't think you look at that, either.

 

So, then I assume you mean volume drying up while in a down-move and while approaching support.

 

Ok, I'll stop interpreting/assuming and ask you directly: how do you "see selling drying up?"

 

Thank you for your help.

Bert

 

Rather than take the thread off topic again, I'll suggest that you look over the running commentaries I've been making regarding each day's trading in the Dailies section of my Blog (there are only eight of them). This will enable both of us to be specific about what and where and when rather than end up with the usual bumper-sticker response.

[DbPhoenix 42]

 

In all seriousness, my question was sincere as I enjoy lurking this thread, but have yet to see any real trading being done besides after the fact type stuff. It's REAL easy to find those S/R levels after they've been confirmed. But what about when they are forming? Is the trader in real-time jumping in to see if they do hold or not?

 

I'm just asking the questions that anyone would ask of a trading methodology.

 

Your question may not be answerable with regard to VSA since VSA doesn't address support and resistance -- other than in a general way -- except with regard to trendlines, and whether trendlines provide support and resistance or not is debatable.

 

But if you're asking about RT trading with the bars and bar signals, then, yes, that would be interesting to see.

[zeon 10]

I read somewhere that VSA is a big tent. I like that. It is clear that most of the traders on this thread do not do things exactly the same. And if you include DB (not a VSA trader per se, but a Wyckoff trader/supply/demand trader using PV) this becomes even more evident. That is, DB is doing incredible work far beyond most. It is elegant, simple and effective.

 

As far as drawing support and resistance in real time, there are many ways to do it. After reading the first thread and posts by Nihabashi, I prefer to look at WRBs and Long & Shadows now. There are many things I can't say about them and far more things that I do not know as yet. But what I can say is this. Those that use candles can easily see a WRB appear. The definition is simply A WRB is body (open to close) that is larger than the prior three intervals. A Long Shadow (upper) would be an upper shadow that is larger than the prior three long shadows (only). And the opposite would be true for a Long Shadow (lower).

 

Now, there are various was to determine what makes one WRB more significant than any other one. Two of the main things I look at is size and volume. Hence, in real time if there is a WRB that happens to have high to ultra high volume or is larger than the last three WRBs it is significant. The three prior WRBs is flexible, but once one decides on a criteria, one should stick with it. It may be different for the individual instruments traded. Subsequent price action will tell you that.

 

So one can easily determine what is a significant WRB, or Long Shadow. As far as trading it, it is always best to let the market prove it. Why go short simply because price is rising towards a supply/resistance area? Many "pivot" traders make this mistake. Just because price is moving towards R1, doesn't mean go short. Price can continue doing what it is doing: going up. However, one can become more attuned to price action as price approaches R1.

 

Take a look at the chart below. These areas were easily plotted after the appearance of the WRB or Long Shadow. As so many seem to not want after the fact learning experiences, I will say nothing about a trade set up. It is labeled and if asked I will give my $0.02

 

 

 

I think there might be several ways of defining S/R but there is only one place where 'true' S/R resides, and that's the price level/zone/area where most of the action took place. For me, this usually means a congestion area of some kind, although it's not always that visible.

 

I used to think S/R can be found in calculated pivot points or levels from the previous day, like the high and the low. Basically I spent a whole lot of time studying charts and noticed some peculiar reactions to those price levels. But perhaps they were only coincidential? I have also observed price bouncing off a trendline, but dbphoenix' point of view I believe is that trendlines don't provide S/R.

 

Yours is apparently yet another way of viewing this concept. I'm sure a lot of traders will say "whatever works for you". But why would a WRB be any more significant than a not so wide body? Forgive me for saying, but when I see WRB and price is rapidly falling or rising, its my impression that there is a LACK of S/R in that area. Price seems to move from one area to another and these areas in between where price plunges or skyrockets don't provide any S/R for the reason that there's nothing but "air" in between.

 

This is my view, don't shoot me now please I'm just stating my opinion and although I thought I had a good feeling in trading (based on my results last year), since this bear market started I'm kinda lost... so perhaps I got it wrong after all. Comments appreciated!

 

PS: Oh and sorry if all of this is off-topic, but I'm just replying to another post. Seems like a whole lot is off-topic so perhaps we need to (a) change the name of the topic or (b) start a new thread?

[port80 10]

I was wondering if you folks could provide some insight with what is going on with this stock using VSA. CPHD. I am a newbie at this just starting to pour over master the markets so please forgive my ignorance. I originally found this stock using float analysis which I find iffy at best except in some cases where stocks are bottoming or topping and the float turnover is obvious to someone even like me.

 

Sure enough this stock had a float turnover at the top and the bottom dropped out. Its reached a support level but I am confused as to what is going on. I feel like this stock is definitely being marked up or down by professionals. However it almost seems like there is a buyer/seller battle now going on. Any insight would be greatly appreciated. I'm unsure where this stock is going at this point. So I've exited most of my position at a profit but I still have some longer term puts open.

[heretodaygone... 10]

I think there might be several ways of defining S/R but there is only one place where 'true' S/R resides, and that's the price level/zone/area where most of the action took place. For me, this usually means a congestion area of some kind, although it's not always that visible.

 

I used to think S/R can be found in calculated pivot points or levels from the previous day, like the high and the low. Basically I spent a whole lot of time studying charts and noticed some peculiar reactions to those price levels. But perhaps they were only coincidential? I have also observed price bouncing off a trendline, but dbphoenix' point of view I believe is that trendlines don't provide S/R.

 

Yours is apparently yet another way of viewing this concept. I'm sure a lot of traders will say "whatever works for you". But why would a WRB be any more significant than a not so wide body? Forgive me for saying, but when I see WRB and price is rapidly falling or rising, its my impression that there is a LACK of S/R in that area. Price seems to move from one area to another and these areas in between where price plunges or skyrockets don't provide any S/R for the reason that there's nothing but "air" in between.

 

This is my view, don't shoot me now please I'm just stating my opinion and although I thought I had a good feeling in trading (based on my results last year), since this bear market started I'm kinda lost... so perhaps I got it wrong after all. Comments appreciated!

 

PS: Oh and sorry if all of this is off-topic, but I'm just replying to another post. Seems like a whole lot is off-topic so perhaps we need to (a) change the name of the topic or (b) start a new thread?

 

So you believe 'true' s/r has to be accompanied by volume(action). Does the amount of time price stays at a particular level/zone/area irregardless of action hold any s/r for you? Does price/volume s/r that happens overnight come into your s/r calculations? Do you include "news announcement" volume in your calculations? good post.

[zeon 10]

So you believe 'true' s/r has to be accompanied by volume(action). Does the amount of time price stays at a particular level/zone/area irregardless of action hold any s/r for you? Does price/volume s/r that happens overnight come into your s/r calculations? Do you include "news announcement" volume in your calculations? good post.

 

 

Thank you. I'd be interested to hear if others agree or disagree.

I have looked at overnight action and found that this sometimes comes into play during the first hour of the opening of the session. Especially if price consolidated somewhere. Yesterday I noticed a bounce on the ES seemingly in mid-air 1-hour into the session. This happened exactly at a level where price formed a congestion area premarket, so it looks like I wasn't the only one paying attention at that

 

The amount... that's a difficult question... In the past I used to think of each swing point as support or resistance. But nowadays I think the sharper the less potential, because they don't make up as many trades. However, at other times it does proof to be support, so I haven't quite decided on this yet.

 

As for news, that's usually all around the place, so no. But again, sometimes the spikes on news hit important S/R levels and bounce off those. It's not that I could trade off them, but sometimes the spikes confirm the S/R zones if you know what I mean...

[zeon 10]

DB,

 

Going through this thread again and on post 183, you said the above.

 

You say "when I see selling drying up at support." Some see supply or demand coming in based on where the bar closes (from what I've seen, you don't care about bars or where they close). Some use bid/ask, and I don't think you look at that, either.

 

So, then I assume you mean volume drying up while in a down-move and while approaching support.

 

Ok, I'll stop interpreting/assuming and ask you directly: how do you "see selling drying up?"

 

Thank you for your help.

Bert

 

That's an interesting question... In fact I'm struggling with that myself. If I see volume drying up after a downmove with price on support it means (a) there is no participation from the smart money to buy here or (b) there isn't any selling pressure, so this could be a long entry. The same could be said about volume dry-up's at resistance, but the other way around.

 

I'd like to attach a chart from 30 minutes ago. This is the ES and the horizontal lines are where I had drawn my resistance levels. There's a noticeable dry-up in volume after a peak. So is this

 

(a) professional money sold into that peak and is know waiting to short?

(b) there's no one around to sell and this can go up because there's no selling pressure. There's not much buying either.

 

These kind of situations always confuse me... if anyone could clear this up - once and for all - I'd be most grateful.

[DbPhoenix 42]

Price reigns. If "professional" money is buying, price will rise. Eventually. If it's selling, price will fall. The amount of trading activity (volume) can be irrelevant. For example, if price hits support or retests support after what appears to be a selling climax, volume can be huge and price doesn't fall, or volume can be slight and price doesn't fall. What matters is that price doesn't fall, i.e., selling pressure isn't there, or it's countered by a more-or-less equal amount of buying pressure.

 

"Volume" bars can actually be a distraction if one attaches too much importance to them. At best they are a measure of participation. What is more important is the behavior of price. If this presents what appears to be an insurmountable obstacle, take volume off your charts for a while. Forex traders, after all, have to do without it entirely.

 

To say that on a VSA thread, though, is probably heresy . . .

[CandleWhisperer 10]

...........Yours is apparently yet another way of viewing this concept. I'm sure a lot of traders will say "whatever works for you". But why would a WRB be any more significant than a not so wide body? Forgive me for saying, but when I see WRB and price is rapidly falling or rising, its my impression that there is a LACK of S/R in that area. Price seems to move from one area to another and these areas in between where price plunges or skyrockets don't provide any S/R for the reason that there's nothing but "air" in between.

 

Simply, you are reading it wrong. The shift in the supply/demand dynamic creates the support/resistance zone that is evident GOING FORWARD. So yes the WRB may appear to be not meeting resistance, it is however creating a zone where the BBs are doing something. It is thus a place where they will be paying attention to in the future.

 

 

...........PS: Oh and sorry if all of this is off-topic, but I'm just replying to another post. Seems like a whole lot is off-topic so perhaps we need to (a) change the name of the topic or (b) start a new thread?

 

Actually Tom Williams says the two most important things to understand are : (1) volume and (2) support and resistance.

 

Tom does spend some time in the book on this and trend lines in particular. It is true that Gavin has not spent much time on it. He has said he will make more of an effort to talk about this. If you are familiar with the software than you know about trend clusters which are support/resistance areas based on previous trend lines.

[Bearbull 10]

Price reigns. If "professional" money is buying, price will rise. Eventually. If it's selling, price will fall. The amount of trading activity (volume) can be irrelevant. For example, if price hits support or retests support after what appears to be a selling climax, volume can be huge and price doesn't fall, or volume can be slight and price doesn't fall. What matters is that price doesn't fall, i.e., selling pressure isn't there, or it's countered by a more-or-less equal amount of buying pressure.

 

"Volume" bars can actually be a distraction if one attaches too much importance to them. At best they are a measure of participation. What is more important is the behavior of price. If this presents what appears to be an insurmountable obstacle, take volume off your charts for a while. Forex traders, after all, have to do without it entirely.

 

To say that on a VSA thread, though, is probably heresy . . .

Price is indeed the Truth, have observed on countless occasions, especially in bull runs, prices crawling up all day long on low vol, previously used to look upon those tiny bars with low vol as no demand especially against some resistance to the left,, short it only to see price sailing past my stops on low vol, then it dawned that low vol is the reflection of paucity of sellers and rising price was that of buying pressure. As you keeping saying volume is not intent.

[heretodaygone... 10]

That's an interesting question... In fact I'm struggling with that myself. If I see volume drying up after a downmove with price on support it means (a) there is no participation from the smart money to buy here or (b) there isn't any selling pressure, so this could be a long entry. The same could be said about volume dry-up's at resistance, but the other way around.

 

I'd like to attach a chart from 30 minutes ago. This is the ES and the horizontal lines are where I had drawn my resistance levels. There's a noticeable dry-up in volume after a peak. So is this

 

(a) professional money sold into that peak and is know waiting to short?

(b) there's no one around to sell and this can go up because there's no selling pressure. There's not much buying either.

 

These kind of situations always confuse me... if anyone could clear this up - once and for all - I'd be most grateful.

 

 

I'll have to go with (b) but it all comes down to context. Compare your chart to this one :

http://www.traderslaboratory.com/forums/34/vsa-volume-spread-analysis-part-ii-3428-6.html#post31133

 

 

What is similar and what is different? How do you define supply? demand? fear? greed? If you were long, would you be selling or buying more? If you were short would you be covering,reversing, or adding to your short position?

what is value?

 

Don't you hate when others answer questions with more questions:confused:.

Welcome to trading!

[CandleWhisperer 10]

Candle-

I would indeed like your $0.02. Please do tell us what you see on your chart-I think that anything you see will help people learn from the knowledge you have to offer!

 

Sledge

 

Well, since you asked .

 

We start off with the large WRB that creates a support/resistance zone. WRBs signal possible shifts in supply/demand. From a straight VSA point of view, a wide spread down bar on high volume usually means selling. Master the Markets, Tom Williams, P. 166. This is confirmed with the next bar being down.

 

Skip to point A: Notice that we have a down bar on very high volume that closes near the middle of its range. This signals strength. Demand entered on this bar. Now note that the high of this bar is at the upper cyan line. The cyan lines represent a particularly important type of support/resistance area. Although Mark has mentioned it in the WRB thread, I will not.

 

Next we have B: After some demand has entered the market we see a wide spread up bar that closes in the middle of its range. Two interesting things also happen. (1) the high of the candle, which forms a Long Shadow is at the midpoint of the dark WRB. (2) The close of this candle is not only in the middle of the range, but it at the low of this "special" support/resistance area.

However, leaving those aside, we can see that there must of been some selling to have the bar close on its mid range rather than on or near its highs. Especially with the demand that entered on the prior candle.

 

Lastly we have C: A doji. A narrow spread candle that closes up on volume less than the previous two bars. This is no demand. The BBs are not interested in higher prices at this time. Again, note that the top of this no demand is at the upper cyan line and the close is within this channel. Plus, the Close is with the zone of the Long Shadow created on the previous bar. The upper line of the Long Shadow is in purple and low line is not seen, because it is equal to the lower cyan line.

 

Get short on close of no demand bar. Place stop just above the high of Long Shadow. Start your chant, "'cmon price go lower". :o

[CandleWhisperer 10]

Price reigns........... "Volume" bars can actually be a distraction if one attaches too much importance to them. At best they are a measure of participation. What is more important is the behavior of price. If this presents what appears to be an insurmountable obstacle, take volume off your charts for a while. Forex traders, after all, have to do without it entirely.

 

To say that on a VSA thread, though, is probably heresy . . .

 

Volume is nothing more than activity to be sure. This is why tick volume is a suitable substitute for actual volume. However, do not confuse the lack of available volume information with the IMPORTANCE of volume information. In fact, the lengths some go to keep volume from the individual trader only goes to show how important it is.

 

With that said, Price action is certainly important. Price/Volume/Volatility they all go together.

[DbPhoenix 42]

Volume is nothing more than activity to be sure. This is why tick volume is a suitable substitute for actual volume. However, do not confuse the lack of available volume information with the IMPORTANCE of volume information. In fact, the lengths some go to keep volume from the individual trader only goes to show how important it is.

 

With that said, Price action is certainly important. Price/Volume/Volatility they all go together.

 

Don't worry, I'm not confusing anything. But debating volume on a thread that's devoted to it is probably not the most polite course to follow.

[zeon 10]

Price is indeed the Truth, have observed on countless occasions, especially in bull runs, prices crawling up all day long on low vol, previously used to look upon those tiny bars with low vol as no demand especially against some resistance to the left,, short it only to see price sailing past my stops on low vol, then it dawned that low vol is the reflection of paucity of sellers and rising price was that of buying pressure. As you keeping saying volume is not intent.

 

 

Well, that accurately describes how I felt when I was looking at price today! However, I've also seen price turn around in a so-called 'decreasing volume top'... very little activity, tiny bars, decreasing volume... and all of a sudden there she goes.

 

I still think it's difficult to tell which is which though...

[zeon 10]

I'll have to go with (b) but it all comes down to context. Compare your chart to this one :

http://www.traderslaboratory.com/forums/34/vsa-volume-spread-analysis-part-ii-3428-6.html#post31133

 

 

What is similar and what is different? How do you define supply? demand? fear? greed? If you were long, would you be selling or buying more? If you were short would you be covering,reversing, or adding to your short position?

what is value?

 

Don't you hate when others answer questions with more questions:confused:.

Welcome to trading!

 

Something's wrong with the link you provided. Could you perhaps let me know which post it is (just the number), that way I can look it up.

 

All your questions depend on tactics I suppose... and you're right. It does depend on whether you are already in a trade or not. But before going there, I really wanted to know how others viewed the chart with the circled area. Is this a volume dry-up because there's no demand or because there's no supply? I like Bearbull's description of his observations. They are in line what what I observed today, but as always things have to be taken into context.

[CandleWhisperer 10]

Price is indeed the Truth, have observed on countless occasions, especially in bull runs, prices crawling up all day long on low vol, previously used to look upon those tiny bars with low vol as no demand especially against some resistance to the left,, short it only to see price sailing past my stops on low vol, then it dawned that low vol is the reflection of paucity of sellers and rising price was that of buying pressure. As you keeping saying volume is not intent.

 

"...but rest assured this approach has its limitations too, because at times the market will go up on high volume, but can do exactly the same thing on low volume, Prices can go sideways, or even fall off, on exactly the same volume!

 

Price and volume are intimately linked and the interrelationship is a complex one." Master the Markets, Tom Williams, P 16

 

"To understand what the volume is saying to you, you have to ask yourself again, 'what has the price done on this volume'?" Master the Markets , Tom Williams, p 18.

[zeon 10]

"...but rest assured this approach has its limitations too, because at times the market will go up on high volume, but can do exactly the same thing on low volume, Prices can go sideways, or even fall off, on exactly the same volume!

 

Price and volume are intimately linked and the interrelationship is a complex one." Master the Markets, Tom Williams, P 16

 

"To understand what the volume is saying to you, you have to ask yourself again, 'what has the price done on this volume'?" Master the Markets , Tom Williams, p 18.

 

Let me give you a couple scenarios. How would you - in real time - identify each one of them?

 

(a) price is rising slowly on steady but low volume ('good buying'?)

(b) price is going down and the speed of the fall increases sharply on heavy volume

© price is going up sharly, very parabolic rise on huge volume

(d) price is going down slowly, low volume, drifting steadily lower

 

 

Questions:

 

(a) is this move running out of steam or preparing for a jump higher? absence of buying or abscence of selling pressure?

 

(b) is professional money selling or have the already sold? if they have, what is causing price to fall so quickly? how can 'small money' move price so quickly? so it must be the absence of buying pressure right?

 

© who's participating now? does the heavy volume mean that a lot of buying is required to push prices higher or that there's a lot of participation and willigness to bid higher?

 

(d) is this pattern setting up for a fall of a cliff? does the lack of volume mean that the downmove has been exhausted and there is no selling left? or does it mean that the big plunge is yet to come?

 

-

 

What I'm trying to say is that in either of these cases I'm sure you could find arguments for both sides. Unless you bring important S/R levels into play (thus using context), I fail to see how anybody can make any sense out of this.

[Seb Manby 11]

Volume is nothing more than activity to be sure. This is why tick volume is a suitable substitute for actual volume. However, do not confuse the lack of available volume information with the IMPORTANCE of volume information. In fact, the lengths some go to keep volume from the individual trader only goes to show how important it is.

 

With that said, Price action is certainly important. Price/Volume/Volatility they all go together.

 

I don't know who you are, but I think that of all the people posting to these volume analysis threads, I think you will get there quicker, because you are studying the book and applying the context to your charts, that is how I broke through the fog.

Keep going, you'll get there soon enough.

 

Well done

S

[Eiger 10]

I'd like to attach a chart from 30 minutes ago. This is the ES and the horizontal lines are where I had drawn my resistance levels. There's a noticeable dry-up in volume after a peak. So is this

 

(a) professional money sold into that peak and is know waiting to short?

(b) there's no one around to sell and this can go up because there's no selling pressure. There's not much buying either.

 

These kind of situations always confuse me... if anyone could clear this up - once and for all - I'd be most grateful.

 

These situations can be confusing. What you are seeing here is aborption. Unfortunately, you can't really see it with the 2-min chart.

 

I've attached a 5-min chart of the past few days. The area you outlined is boxed in blue. It actually was a little larger than what you have drawn, and the 5-min chart shows this more clearly. The absorption area is highlighted by the green box.

 

VSA teaches that previous resistance areas and areas of active trading will still have locked in traders - traders with poor postions under pressure looking to get out at break even. Sometimes, big money will rocket price through these areas via wide spreads or gaps. Other times, they will absorb the offerings.

 

Yesterday was a trend day down. As a general rule in the S&Ps, the afternoon high (red circle) of any trend day down will be resistance the next day if price comes back into that area. We saw that today at about 11:30, though price did not (and this was a clue that the opposition formed by the resistance would be broken) react very far.

 

On the FOMC day, there was also a fair amount of trading activity in this same area, both before and after the announcement (red oval).

 

The dashed line highlights the area, and if you go back a little farther, you will see that price traded in this general area on previous days.

 

As price came back up into this area again, whatever was offered by traders was absorbed by the CM or big money.

 

How to tell it is absorption? Resistance on the left side of the chart needs to be there. You noticed the declining volume. That is one good clue. You also see rising supports or higher lows as the absorption area progresses. A third clue is that price holds it gains well. Price was holding well (on top of the support of the 11:30 highs), and did not have much of a reaction. Anytime price did dip within that range, it did not draw out any supply (increased volume), so no one was interested in taking price lower. Sometimes, you will see a slight increase in volume at the very end of the absorption area. This didn't happen today, but when that does happen, it usually occurs on the last few bars and those bars typically close mid-range or higher and their lows are almost always higher.

 

At the very end of this absorption range, there was a little shake-out, seen by a wider spread down bar with almost no appreciable increase in volume. It was then followed by a nice reversal bar that indicated absorption was completed.

 

Sometimes you will see absorption before breaking out of a Supply Line. There is always some form of resistance.

 

I hope this is helpful.

 

Eiger

Edited March 20, 2008 by Eiger