[VSA] Volume Spread Analysis Part II

[Sledge 13]

Newbee here

i am studying the methodology in original VSA thread & applying to my trading.

Heres a trade i took for a measly profit.

 

Naveen-

One of the keys to trading is to "bank money" in which you surely did! Good for you. You didn't let a positive trade potentially turn into a losing trade! Once you get more comfortable with yourself and your ability, you'll be more confident in letting it ride longer.

 

Remember- the broker and B.S. world has filled your mind with the idea that unless you hit homeruns everytime you trade- you are no good. Block that out now. Take the base hits like you did and as you learn, the home runs will come soon enough!

 

Please continue posting your charts and your analysis, everyone can learn from them and the folks who reside here- will be more than happy to help you learn too!

Sledge

[dandxg 10]

From my third post on this thread:

 

"JJ:

 

I managed to save a few screen shots from PP from other sites and this one. I have been studying his posts diligently. I have gone so far as to set up my charts exactly like his/hers. Are you saying he or she was not a real trader? I would hate to be trying to emulate a keyboard jockey."

 

But thanks for the comparison. I spend a lot of time reading his or her posts.

 

Too funny, thanks for correcting me. :rofl:

[Eiger 10]

My take on today, FWIW. This is the 10-minute ES Chart:

 

A – An up bar closing midrange on an increase in volume. This looked like supply, but the market had just broken above the Globex high and the next bar is up.

 

B – Fairly wide spread up bar closing midrange. Volume has receded. This again looks like supply may be entering the market, but the next bar disconfirms this.

 

C – Test on volume less than the previous two bars. Tom Williams points out that a Test following weakness indicates strength, and that is what occurs here. Next bar rallies higher.

 

D – Another up bar closing midrange. Volume is lighter on this push up. Again, it could be supply coming in, but we know better by now

 

E – Test on volume less than the previous two bars. Expect another rally.

 

F – This is a No Demand bar, but given the strength of the market, it is a “polar bear in Hawaii” and can be discounted. Next bar rallies higher with a proportionate increase in volume confirming the No Demand should be ignored.

 

G – UpThrust closing on the low and back within the range of D on a sudden increase in volume. Supply and weakness begin to enter here. Reverse Trend Lines are drawn from D & G, with a parallel from the low after E.

 

H – Down bar on low volume indicates a Test. Despite the weakness at G, another rally can be anticipated.

 

I – On the rally, I is No Demand, so like F, it is discounted.

 

J – An UpThrust closing on its low on significantly increased volume. Market is in an overbought position. This is supply.

 

K – No Demand where we would expect it – after supply at an overbought level.

 

L – I am not sure what you call this bar, but it is a definite change in behavior. This is the first time since the open that the market has fallen on a substantial increase in volume. In his book, Tom Williams says that bearish volume increases on down bars and decreases on up bars. The rally following L shows decreased volume on up bars. Also, Tom Williams says that increased volume and wide spread as you approach a support line, signals that it will be broken, which eventually happens here.

 

M – No Demand where it should be.

 

N – Market falls to N where some demand comes back in at N indicated by the midrange close on heavy volume, as well as the bar before (down bar on significant volume), and then slips down to O on heavy volume. It looks to me as if there was buying at the end of the day in the area of N & O (down bars on heavy volume).

[jjthetrader 10]

So glad to see this thread is back to VSA. Nice work guys.

Great contribution Eiger. This is the type of thing I like to see.

[Sledge 13]

OK VSA'ers. I'm stumped in this one. It was a wacky and weird day for the GBP/USD with almost a zero sum game today. Ugly bars abound and no "fluid" movement.

 

Any thoughts on these bars/charts? One is an hourly chart. The other is a daily so that you can get a "feel" for the current state of the market!

 

Thanks!

Sledge

 

[Eiger 10]

So glad to see this thread is back to VSA. Nice work guys.

Great contribution Eiger. This is the type of thing I like to see.

 

Thanks, JJ. Yes, let's focus on VSA Actually, I am hoping some of you will find things missed or errors in my VSA analysis. I really hope you do, as there is no better way to learn.

[jjthetrader 10]

Thanks, JJ. Yes, let's focus on VSA Actually, I am hoping some of you will find things missed or errors in my VSA analysis. I really hope you do, as there is no better way to learn.

 

Well in that case, you're reading everything wrong! Just kidding:o

 

These first few bars that you labeled 'no demand' which were later discounted are something that in real time you might just label as 'potential no demand'. I remember Sebastian saying you could drain your brokerage account very fast if you don't wait for confirmation. A bar doesn't actually become no demand until you get that second bar closeing but I know you know that. The tradeguider software won't paint until the confirmation bar either.

 

I don't see anything wrong with you labels though. That first bar you pointed out that appears to have supply on it was basically that, a bar with supply on it. Tom says things like an upthrust isn't an upthrust unless there's weakness in the background so in this instance a bit of supply was hit but with no weakness in the background it's not enough to do much.

 

I like your post because then I go over it myself to see if I see anything different and it helps me learn to.

Cheers

[jjthetrader 10]

OK VSA'ers. I'm stumped in this one. It was a wacky and weird day for the GBP/USD with almost a zero sum game today. Ugly bars abound and no "fluid" movement.

 

Any thoughts on these bars/charts? One is an hourly chart. The other is a daily so that you can get a "feel" for the current state of the market!

 

Thanks!

Sledge

[ATTACH]5602[/ATTACH]

 

[ATTACH]5603[/ATTACH]

 

Hey Sledge,

 

Beautiful top reversal on the daily. It was textbook with the second bar closing below the low of the upbar. I bet you were short there.

 

Not quite sure what you're looking for? I know you know what you're looking at here so I won't go into it too much.

 

On the hourly chart you have massive volume coming in on that downbar and it closes above the middle with the next bar up. That next bar up also closes above the high volume bars high.

I see you have a line drawn up there around the upthrust area. So obviously we have a bit of supply which forms the thrust. But it doesn't continue down that far after the thrust because there is still strength in the background.

FX is not really my thing and I know that timing has something to do with what bar occurs in what trading session so someone in tune with this market, like yourself, would be able to give more weight to the VSA signals.

 

cheers bro

[Sledge 13]

Thanks JJ-

My mind must be clouded by the flu. Yep I was lucky enough to see that beautiful top reversal last week and ride that baby down.

 

Now the big ugly bar on the hourly chart you see the market drop but then closes in the middle, so their must have been buying on that bar, and as the afternoon pans out you see the market rise, although the volume has trailed off considerably even since I posted these charts.

 

Looks as if overall we are at the end of "Stage 1" and all parties are jockying for their positions. Some are buying on the low hoping for a rally, some are gathering on the high for the downward drop. It may take a few more days for all of this to pan out with more sideways movement before we get to proceed with "Stage 2"

 

Thank you for your insight!

Sledge

[Eiger 10]

Well in that case, you're reading everything wrong! Just kidding:o

 

These first few bars that you labeled 'no demand' which were later discounted are something that in real time you might just label as 'potential no demand'. I remember Sebastian saying you could drain your brokerage account very fast if you don't wait for confirmation. A bar doesn't actually become no demand until you get that second bar closeing but I know you know that. The tradeguider software won't paint until the confirmation bar either.

 

I don't see anything wrong with you labels though. That first bar you pointed out that appears to have supply on it was basically that, a bar with supply on it. Tom says things like an upthrust isn't an upthrust unless there's weakness in the background so in this instance a bit of supply was hit but with no weakness in the background it's not enough to do much.

 

I like your post because then I go over it myself to see if I see anything different and it helps me learn to.

Cheers

 

Thanks, JJ. I actually didn't know that no demand requires a second bar for confirmation - thanks for that. I did understand that an upthrust is more of a secondary signal and that weakness has to be alive in the background. Since I prefer to short, I have to keep myself in check on those bars I registered for the TG symposium (London webcast), and hope that Sebastian will go over confirmation, when to pull the trigger, and the other fine points of VSA trading.

 

Thanks for the review, I really appreciate it.

[Eiger 10]

OK VSA'ers. I'm stumped in this one. It was a wacky and weird day for the GBP/USD with almost a zero sum game today. Ugly bars abound and no "fluid" movement.

 

Any thoughts on these bars/charts? One is an hourly chart. The other is a daily so that you can get a "feel" for the current state of the market!

 

Thanks!

Sledge

[ATTACH]5602[/ATTACH]

 

[ATTACH]5603[/ATTACH]

 

I don't follow this, but did see the well developed Wyckoff/SMI story that was unfolding last week and posted the first chart of the daily GBP. It has come down a little more than the ideal, but still looks constructive.

 

Looking at your daily chart (second chart), it is sitting right on top of support (S) that is highlighted by the dotted line. Bar A looks to me like a bit of bag holding, as there was still high volume on that bar and the bar was narrow with a good close. I am thinking that this market is coming back to test the pretty high volume in both the support (S) areas - there seemed to be a lot of activity there.

 

I think B is an important bar. I wouldn't want to see it close below this low. That wouldn't be very constructive. It could dip below this low, however, close back above, and spring the support area. That would be quite positive, assuming volume remains tame. I don't really know this market -- just dabbling here but it looks pretty good.

 

Eiger

[zeon 10]

Also, Tom Williams says that increased volume and wide spread as you approach a support line, signals that it will be broken, which eventually happens here.

 

Eiger, thanks for the interesting analysis!

 

One paragraph got me thinking though. When price approaches support on increasing volume and wide spread down bars, why doesn't this mean that demand is coming in? After all, professional money stands for high volume right? I'm seen selling climaxes occur on support a lot, and in most of these cases they happened after a couple of WRB formed.

 

And, I've also found the opposite to be true. When volume is relatively low and price bars are small, the chances seem higher for price to break support.

[Eiger 10]

When price approaches support on increasing volume and wide spread down bars, why doesn't this mean that demand is coming in? After all, professional money stands for high volume right?

 

Because if you are in an uptrend and price is approaching the Demand (support) Line, you should be seeing a recession of volume and narrowing price spread - this is what is normal in an uptrend. It might be helpful if you think in terms of Effort vs Result. In bullish moves, volume (i.e., effort) expands to the upside and retracts to the downside and you should see price (i.e., result) act accordingly. This means you should see with wider spreads and expanding volume as price advances (indicates demand) and narrowing spreads and lower volume as price reacts (indicates lack of supply). When you see price approach the Demand Line with increasing volume and wider spread, it means supply is swamping demand and the support has very good odds of breaking, as it did yesterday.

 

Background is critial, too. Yesterday saw a Buying Climax where price was overbought (at J) after more than 3 hours of trending, No Demand (at K) after the climax, and a "mushrooming" or crowning over at the top - all of these indicated the market was likely to react and all preceeded the breaking of the Demand line.

 

I'm seen selling climaxes occur on support a lot, and in most of these cases they happened after a couple of WRB formed.

 

That seems normal, too. Reactions will often end in a selling climax of some degree of intensity at support, especially support on a higher time frame, which is a good place to look for climactic action. This may seem contradictory with the above, but it is about position in the trend and degree of intensity of the stopping volume. The background and context are vital, and we don't have that information in this discussion, so it seems vague. Post some charts about this and then everyone on this thread can help with some answers and benefit from the analysis.

 

And, I've also found the opposite to be true. When volume is relatively low and price bars are small, the chances seem higher for price to break support

 

I'd like to see what you are referring to, here, so again, please post some charts. We will all be able to learn that way

 

Eiger

Edited March 25, 2008 by Eiger

[Sledge 13]

I don't follow this, but did see the well developed Wyckoff/SMI story that was unfolding last week and posted the first chart of the daily GBP. It has come down a little more than the ideal, but still looks constructive.

 

Looking at your daily chart (second chart), it is sitting right on top of support (S) that is highlighted by the dotted line. Bar A looks to me like a bit of bag holding, as there was still high volume on that bar and the bar was narrow with a good close. I am thinking that this market is coming back to test the pretty high volume in both the support (S) areas - there seemed to be a lot of activity there.

 

I think B is an important bar. I wouldn't want to see it close below this low. That wouldn't be very constructive. It could dip below this low, however, close back above, and spring the support area. That would be quite positive, assuming volume remains tame. I don't really know this market -- just dabbling here but it looks pretty good.

 

Eiger

 

Eiger-

Thanks for your analysis on the chart. Here is what I'm thinking, and I could be wrong (that's why were here right?) but I see this current slight upward move as a retrace and it building momentum to be able to gain enough "steam" to slam down and break that resistance line. Currently, my analysis is that this is a pullback and that we are finished with "stage one" of the drop, and when this "pullback" finishes we may proceed downward.

 

Thoughts?

Sledge

Edited March 25, 2008 by Sledge

[Eiger 10]

I was seeing it more bullish, but I really don't know this market, so probably not correct. This is a critcal area, though. If it can't rally away from this area, it would be weak, in my judgement.

[jjthetrader 10]

I was seeing it more bullish, but I really don't know this market, so probably not correct. This is a critcal area, though. If it can't rally away from this area, it would be weak, in my judgement.

 

I would have to agree on the bullishness part. However, like Eiger, I am not in tune with cable. It seems to trend forever and thus being a reversal trader can be frustrating in this market (I know how much to like to short Sledge).

But the market never actually ends up acting the way we thought it 'should'. You never do know so you take the higher probablilty trade.

 

Keep us up to date Sledge with any trades you make and why.

 

Good trading everybody.

[Sledge 13]

I would have to agree on the bullishness part. However, like Eiger, I am not in tune with cable. It seems to trend forever and thus being a reversal trader can be frustrating in this market (I know how much you like to short Sledge).

But the market never actually ends up acting the way we thought it 'should'. You never do know so you take the higher probablilty trade.

 

Keep us up to date Sledge with any trades you make and why.

 

 

JJ and Eiger-

Ok, I've been known to be wrong- dead wrong. So if two people are seeing bullishness and I am not, would you tell me what you see to indicate the bullishness?

 

 

JJ- you marked a bar strength (that nasty ugly downbar closing down but on the high of the bar) Since then the market has rallied quite a bit (chopping all the way no less) With strength coming in, wouldn't we have seen maybe a temporary rise and then fall?

 

As far as Shorting: Well shorting is fun, so is going long. I really don't care which direction the trend is, as long as I'm "in" on the correct direction!

 

I most certainly will let you all in on any trades. As of this AM. I have no trades riding. I'm waiting for a set-up that I can get in where I want to be- some sign of directional "fluidity" right now the chop is not where I like to trade. Didn't I say that with my "system" it would test my patience- it is right now, patiently waiting for a sign to have a reason to trade.

 

Sledge

[jjthetrader 10]

JJ and Eiger-

 

you marked a bar strength (that nasty ugly downbar closing down but on the high of the bar) Since then the market has rallied quite a bit (chopping all the way no less) With strength coming in, wouldn't we have seen maybe a temporary rise and then fall?

 

Sledge

 

Well according to Eigers Wyckoff analysis you appear to be in an uptrend. So volume like that can stop a down move. You could retest the area. Watch for low volume. If you're not going to retest it then watch for a 'test in a rising market'.

More than likely a sharp move to shake people out before a big upmove will take place.

There's always the option of fading this is it fails.

[NAVEEVIa 10]

If anybody here want charts from previous VSA thread, i can upload them.

I had saved all charts from all contributors till page 144 of that thread

Just let me know

Naveen

[Eiger 10]

Sledge,

On a daily continuation chart there had been a down trend since December, or so. To me, this looked like it ended in a Selling Climax. It then broke the down trend by going sideways through February with successful tests and, in the process, built some cause to go higher. It had a spring (another sign of strength), and then some impulse movements up with volume generally expanding to the upside and receeding on reactions. In this process, it decisively broke the resistance from late January. All of this is bullish.

 

So far, on the daily, I don't see any buying climax or significant crowning over at the top. Those, of course would be signs of the bear (and, for a compatriot who also likes to go short, you know what these look like ). The one thing I worry about for longs is the last reaction (from your chart). It is a bit larger than i would want to see, basically wiping out all the gains made on the last rally. I don't think it kills the strength in the background, but it is what Wyckoff referred to as a "critical area, where it seems a feather can tip the balance in either direction." It's no surprise, then, that it can be seen as bearish as well as bullish.

 

The danger now is that Cable drops lower here. I think the danger point is the support line at B-A. It could spring this (penetrate below,but then quickly rally and close well above), and that would be very bullish. (I don't think VSA calls these springs; they may refer to them as tests or maybe shake outs.) It can also rally from here, and then as JJ says, look for a Test in a Rising Market. You had some demand come in on the hourly chart you had put up, so a rally is a good possiblity. What I would not want to see is a deep penetration of B-A and/or a close below that level. That would turn me bearish.

 

Hope this is helpful,

 

Eiger

[Sledge 13]

Eiger-

Helpful? Oh yeah it is man. You see I'm still looking for my niche in finding the right "zoom" on the chart/timeframe mix. I'm going to print your info and do some digging. As I said right now I'm out of all trades. These congestion areas are a particularly difficult aspect of VSA to learn for me. Maybe that is their point from the pro $ side. With my analysis, I really saw nothing that indicated that the sideways action was anything more than a market pause. I envisioned sideways action for a few days- when it broke free last night- I obviously misjudged the move. Luckily for me I have learned now to sit tight- wait for the market to come to me, instead of chasing it or in a worse term- "beat it"

 

But this is how we learn. I am most appreciative of both you and JJ's contributions on this. I need to take some time to just analyze the information you both posted and make it sink in!

 

Sledge

[jjthetrader 10]

Eiger-

Helpful? Oh yeah it is man. You see I'm still looking for my niche in finding the right "zoom" on the chart/timeframe mix. I'm going to print your info and do some digging. As I said right now I'm out of all trades. These congestion areas are a particularly difficult aspect of VSA to learn for me. Maybe that is their point from the pro $ side. With my analysis, I really saw nothing that indicated that the sideways action was anything more than a market pause. I envisioned sideways action for a few days- when it broke free last night- I obviously misjudged the move. Luckily for me I have learned now to sit tight- wait for the market to come to me, instead of chasing it or in a worse term- "beat it"

 

But this is how we learn. I am most appreciative of both you and JJ's contributions on this. I need to take some time to just analyze the information you both posted and make it sink in!

 

Sledge

 

Sledge, Hank Pruden has a book that gives you a nice overview of Wyckoff the way Eiger spells it out. It's worth the money. There's even some FX examples. Maybe see if your library can get it. It's called the Three Skills of Top Trading.

There's a lot of psychology in there that you might appreciate also and Point and Figure Charting.

Put your mouse over Hank Pruden and you'll see it.

[Eiger 10]

Since the S&Ps are sloppy today, here's a question on trade entry I made from this morning.

 

On the ES 15-min chart, there was stopping volume at B and a test of the high volume at E. It looked like the big money was using the Consumer Confidence news at 10:00 AM to accumulate. This area was the rally high from two days ago (1443.75), and a logical place for support (and, an example of climactic action at higher time frame support).

 

This also showed pretty nicely on the 5-min chart. About 88,000 contracts traded on the 5-min at B, which is ultra high volume on this time frame. Look at the close. This has to be strength coming into the market. Next bar, C was a down bar on volume less than the previous two bars, indicating a lack of supply where only 5 minutes ago, it was ultra high.

 

This caused a rally, and then another reaction. Bar E is a down bar back into the the high volume area, and is another Test. Next bar is also down, and does not draw out supply. Bar F is a reversal bar. F goes well into the high volume area and draws no supply. The close was equal to the previous bar, and only 1/2 point lower than E. I like that look of clustered closes, and I went long at the close with a fill at 1344.50. I took it off just below resistance at 1348.50. You can see the entry and exit arrows.

 

My question: Does this correspond to good VSA trading? Was Bar F sufficent confirmation to make a trade? I know the trade was successful, but was it successful from a VSA standpoint?

 

Eiger

[Sledge 13]

JJ-

Thanks, I have been to his site and looked this book over. It appears very interesting. I like the spin on "Behavioral finance"

 

I'll look into the book. Thanks!

Sledge

[Eiger 10]

Eiger-

I'm going to print your info and do some digging. Sledge

 

Send me your e-mail address via a private message and I will send you something you should find useful (you, too, JJ, if interested).