[VSA] Volume Spread Analysis Part II

[jjthetrader 10]

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

 

 

Textbook VSA actually. But VSA always tends to be 'wait for the confirmation bar'. So that wasn't a test (in their Williams eyes until confirmation). There's a tradeoff to waiting. Best to zoom down to a smaller timeframe to narrow your entry.

I use a 3 min chart and it was clear as a bell to enter there.

 

I always struggled with an entry without the confrimation bar. But if you look at it, your bar F was the high probability direction there. A long position on my end would have been taken when the high of F was taken out, this would have been confirmation enough for me.

 

Good trade.

[brownsfan019 17]

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).

 

Eiger

 

Eiger (and others if interested) - you know what could make life a little easier? Convert your chart to a candle chart and just like that you have a very high volume hammer. Doesn't get any prettier (or easier) than that. Instead of wondering if A vs B and compared to D along with the VSA principles that may or may not apply here, candlestick analysis says - BUY.

 

 

Good trading!

 

 

Note - I took this very hammer for +8. Who knows, maybe got out TOO SOON! :rofl:

[zeon 10]

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.

 

 

Here are two examples of what I'm talking about.

 

In the first chart, we have a series of WRBs and high volume, but support is not breached, rather the opposite. The volume is relatively high, look at the "normal" amount of contracts being traded on the right hand side of the chart.

 

In the second chart: volume is low and eventually, support is broken and we go lower! The rectangle is where I'd take a long trade.

[jjthetrader 10]

Here are two examples of what I'm talking about.

 

In the first chart, we have a series of WRBs and high volume, but support is not breached, rather the opposite. The volume is relatively high, look at the "normal" amount of contracts being traded on the right hand side of the chart.

 

In the second chart: volume is low and eventually, support is broken and we go lower! The rectangle is where I'd take a long trade.

 

In your second chart you're in a downtrend. Sometimes bars will appear this way in a downtrend as there's not a whole lot of selling pressure and nobody's able to get a bid going. You would also want to look to the background. If there's weakness there then you'll get bars that look like no supply but they're not, they just keep drifting lower slowly.

It's a little hard to apply the methodology to trading because there's no hard and fast rule. All the 'rules' must be applied in context. The whole 'WRB phenomena' may distort things a bit to. WRB are like VSA bars, they need confirmation to have much value. I personally don't pay attention to them in the way that most do. I think Pivot Profiler turned me off to them.

[jjthetrader 10]

Here are two examples of what I'm talking about.

 

In the first chart, we have a series of WRBs and high volume, but support is not breached, rather the opposite. The volume is relatively high, look at the "normal" amount of contracts being traded on the right hand side of the chart.

 

In the second chart: volume is low and eventually, support is broken and we go lower! The rectangle is where I'd take a long trade.

 

I thought I'd add this to your chart. I think you were focusing on support too far back and missed the most recent swing low break which signals weakness. The low volume pullback to that area was a great short entry.

[Guest Tresor]

Hello Everyone,

 

I am new to this Forum. The VSA looks prety amazing. I was wondering if there is a signal or indicator for this available for either TradeStation or MultiCharts.

 

Regards

[Turning Point 10]

Hi. I am also new to VSA. I bought the books and the boot camp cds. The cds really helped me a lot. I must have seen them upteen times.

[jjthetrader 10]

Hello Everyone,

 

I am new to this Forum. The VSA looks prety amazing. I was wondering if there is a signal or indicator for this available for either TradeStation or MultiCharts.

 

Regards

 

Only if you learn it and program 'indicators' yourself from your own observations of how VSA works in real-time. VSA is not an indicator based trading system. It's not mathmatical. It's very discretionary.

Please read VSA thread #1 onwards and Tom Williams Master the Markets to get better aquanited with what we're talking about here. Links for the book are in the first VSA thread.

Good reading.

[jjthetrader 10]

Hi. I am also new to VSA. I bought the books and the boot camp cds. The cds really helped me a lot. I must have seen them upteen times.

 

Welcome Turning Point. This thread is a great place for someone in your position. Are you trading with VSA yet?

[Guest Tresor]

Only if you learn it and program 'indicators' yourself from your own observations of how VSA works in real-time. VSA is not an indicator based trading system. It's not mathmatical. It's very discretionary.

Please read VSA thread #1 onwards and Tom Williams Master the Markets to get better aquanited with what we're talking about here. Links for the book are in the first VSA thread.

Good reading.

 

Thanks jjthetrader

[jjthetrader 10]

Hello Everyone,

 

I am new to this Forum. The VSA looks prety amazing. I was wondering if there is a signal or indicator for this available for either TradeStation or MultiCharts.

 

Regards

 

Here's what I meant by programming your own. In volume spread analysis volume lower than the previous two bars is pretty important when looking for potential exhaustion in either direction.

 

On my charts you can see I've got little dots to tell me if an upbar has volume less than the previous two or a downbar. These are all only potential 'signals' because often they won't get confirmed. They're there just to give me a heads up.

 

I plan on doing a couple more 'signals'. When we've got so much information coming at us it's nice to let the computer so some of the comparing for you.

But in VSA they're only small pointers.

[habi 10]

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

 

Hi Eiger

 

Have a look to a one minute chart. The volume on key bar was more than 30'000. The candle formed a long lower shadow. The low was rejected twice before test 1. A second test occured at point 2 within this long shadow on even lower volume. As you said, this was all in the area of the previous breakout.

 

The following uptrend was not really strong an in the 3 min chart it formed a rising wedge with some upper shadows and not confirmed by the TICK. I tought, that we will retest the lows again. The downmove was not really weak and on low volume and the lows not confirmed by the TICK. The next up candle confirmed the reversal to the upside.

 

Today's up move was not very strong with a lot of overlapping waves, I would not be surprised if we would retest the breakout again.

[Eiger 10]

In the first chart, we have a series of WRBs and high volume, but support is not breached, rather the opposite. The volume is relatively high, look at the "normal" amount of contracts being traded on the right hand side of the chart.

 

 

Zeon,

On the your first chart, we have a Selling Climax into higher time frame support. It is critical to understand the background. On the higher time frames, you see the important trends, support & resistance, and other important features. The first chart is the 30-min (day session only), showing the trend over the last few days. We are in an uptrend, with higher highs and higher lows. Markets usually don't turn on a dime. It takes time for an up trend to turn to a down trend and vice versa. Given that, larger support or resistance in a trend is important to be aware of.

 

Although the 2-min chart looked dramatic, it is only a 2-min chart. It was climactic in volume and spread, and even on the 2-min, you could see buying come in at 10:02 and 10:04 bars. Whenever you see acceleration in price and price falls or rises rapidly like it did this AM, look for a climax. To see how this can be traded, take a look at the trade I posted earlier today.

[jjthetrader 10]

I thought I'd post a counter trend trade I made today to illustrate a point I made a couple days ago.

 

We get our big selling climax this morning, test it and 'rally' (quotations because it wasn't strong). Then you see the bar I marked which looks like an upthrust but as Tom Williams says, an upthrust isn't an upthrust unless there's weakness in the background. At the time of that bar there was still strength in the background. There was pretty decent volume on that bar but it closed on it's low.

I was in the mood for a small counter trend trade and a bar that shows that much supply seemed to indicate time for a small pullback so I went short on the following bar.

 

So we typically see upthrusts at the top of a market AFTER weakness has appeared. This was just price hitting a 'supply pocket', possibly the first profit target of the pros. They don't wait till the very top to unload.

 

Good trading.

[habi 10]

Here are two examples of what I'm talking about.

 

In the first chart, we have a series of WRBs and high volume, but support is not breached, rather the opposite. The volume is relatively high, look at the "normal" amount of contracts being traded on the right hand side of the chart.

 

In the second chart: volume is low and eventually, support is broken and we go lower! The rectangle is where I'd take a long trade.

 

In amendment to jj's comment: Your green support line was tested three times and then broken to the downside. The volume was not ultra high like in today's chart. Once the support line was broken to the downside it becomes resistance and this was confirmed by the low volume pullback.

Look what happend after the last and highest volume spike. A more than 10 point reversal, although the volume in a 5min chart looks not very high.

Edited March 25, 2008 by habi

[Eiger 10]

In the second chart: volume is low and eventually, support is broken and we go lower! The rectangle is where I'd take a long trade.

 

JJ talked about this very well. The only thing I would add is to look at higher time frame charts. There was no appreciable support for your long trade - it was just the opposite. On the attached 10-min chart, you can see the market ran up after the FOMC announcement the day before and made a new high. The next day, it made a lower high, and then broke through the small support that formed in the morning session. You now have a down trend. Once support breaks, it turns into resistance.

 

Also, it wasn't light volume that broke through resistance. Here's a quick analysis:

 

At A climactic action stopped the down move temporarily. A small trading range formed. The two supports within the trading range (the two Xs) had lower lows (bearish) -- these were Springs that failed (bearish). The top of the trading range was capped by old support, now resistance. It tried to break through this resistance three times and failed (bearish). An UpThrust occured at B. Look at the volume. It increases on the UpThrust. This is quite bearish. Also, look how deeply the UpThrust bar penetrated the preceding bar and closes under resistance - very bearish. The next bar C falls on increasing volume. This down bar © has the largest volume of any down bar since the climax -supply is coming into the market on this bar. Remember that when price approaches support on increased volume and spread, it has good odds of breaking through support. You have that here. On the next bar, D, it does break through on good volume with a close lower than any since the climax. Expect lower prices.

 

I understand why you thought about a long trade, but it was illusory for exactly the reasons i have discussed earlier.

 

All the bearish indications were there: a down trend, overhead resistance, two Springs that failed, an ideal UpThrust, increased downside volume. There was a confluence of indications that told the story to go short. Work through your charts every night and annotate everything you can find in accordance with VSA & Wyckoff principles, and you will soon be able to read the markets in real time.

 

Hope this helps,

 

Eiger

[Eiger 10]

Hi. I am also new to VSA. I bought the books and the boot camp cds. The cds really helped me a lot. I must have seen them upteen times.

 

The Boot Camp CDs are excellent. They also did a Master Class on strength and weakness which was also excellent. It is very helpful to review them and the book frequently.

[Eiger 10]

Hi Eiger

 

The following uptrend was not really strong an in the 3 min chart it formed a rising wedge with some upper shadows and not confirmed by the TICK. I tought, that we will retest the lows again. The downmove was not really weak and on low volume and the lows not confirmed by the TICK. The next up candle confirmed the reversal to the upside.

 

 

I was looking at the 3-min wedge, too, and shorted the UpThrust at 11:39. When that failed to go very far, I knew it would go higher. There was just no supply. I must admit, though, I was still looking for conditions to set up a drop before the end of the day (I just love the short side ).

 

It did seem weak, but actually these creeper type moves can be pretty strong in their own right. There were several nice Tests in a Rising market that offered good long trades pretty much all day long.

 

Eiger

[Eiger 10]

 

Then you see the bar I marked which looks like an upthrust but as Tom Williams says, an upthrust isn't an upthrust unless there's weakness in the background. At the time of that bar there was still strength in the background. There was pretty decent volume on that bar but it closed on it's low. I was in the mood for a small counter trend trade and a bar that shows that much supply seemed to indicate time for a small pullback so I went short on the following bar.

 

So we typically see upthrusts at the top of a market AFTER weakness has appeared. This was just price hitting a 'supply pocket', possibly the first profit target of the pros. They don't wait till the very top to unload.

 

Good trading.

 

This is a very good point for me to remember (see post immediately above). You can't just take any pretty UpThrust that comes along

[CandleWhisperer 10]

Eiger (and others if interested) - you know what could make life a little easier? Convert your chart to a candle chart and just like that you have a very high volume hammer. Doesn't get any prettier (or easier) than that. Instead of wondering if A vs B and compared to D along with the VSA principles that may or may not apply here, candlestick analysis says - BUY.

 

 

Good trading!

 

 

Note - I took this very hammer for +8. Who knows, maybe got out TOO SOON! :rofl:

 

 

BF, you consider that a hammer? To me the upper shadow is longer than the body of the candle and thus it is not a hammer. More like a doji.

 

Obviously you have a handle on what you are doing, but most traders who take a signal like this end up saying candles don't work. That is because that is an unreliable signal. Out of curiosity, can you describe the price action prior to the doji? Of much import is what caused that WRB-a news release of some sort.

[CandleWhisperer 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

 

 

Here's what I see.

 

1: We get an ultra high volume bar that closes down but close in the upper portion of its range. This creates a Long Lower shadow. The close in the upper portion of the range on high volume tells us that demand entered. If there had been selling on this bar, the close should not be in the upper portion of the bar. So we have a down bar that closes in its upper portion on ultra high volume: Strength (demand enters). Now we also have a S/R zone via a Long Shadow. this is our entry zone.

 

2: Next bar is down with volume less than the previous two bars. This is no supply. Personally, I would not enter here as the entire bar is not within the range of the Long Shadow. However, we now have more evidence that the supply/demand dynamic has changed.

 

3: Now we get the key bar. This is a test. Note that the volume is very low. Especially when compared to the first bar (1). Also note that we in the range of that long shadow where we first saw all the volume. This time there is none. The BBs have tested, or checked, for more sellers and have not found any. If there is no supply, the market is free to rise.

 

Long at F is very nice. You may not be the first in the door, but the money is made in the middle. Not for nothing but there is also not heat at F. An entry at B (1) could be cause a loss on the next candle.

[heretodaygone... 10]

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.

 

It would seem that you have formed some opinions on the above. I for one would be interested in hearing about them.

[CandleWhisperer 10]

Just wanted to say thank you to all the contributors to this thread. All the posts add insight and valuable learning. Keep it up ladies and gents.

[Eiger 10]

Here's what I see.

 

Now we also have a S/R zone via a Long Shadow. this is our entry zone.

 

Next bar is down with volume less than the previous two bars. This is no supply. Personally, I would not enter here as the entire bar is not within the range of the Long Shadow.

 

I didn't realize that a long shadow like this sets up a zone for entry. Thanks for that insight. I assume that this is for climactic bars/candels like this?

 

I would not go long on 1 (B). Too risky for me. I used to trade Wolfe Waves exclusively. They have you going in on the climactic bars. I got hurt too many times with what often turned into early entries. The guy I used to trade with and I eventually figured out a better way to enter. BTW, he was a great trader. He would put on a trade and then always say, "Now it's up to the market," and he meant it. He was a very good trader and taught me a lot. Anyway, I learned the hard way that it is very, very risky to buy into a wide spread, heavy volume bar. They are easy to misjudge.

 

I almost bought on Bar 2 ©. After a climax, there is usually (actually, I think always) a technical rally that follows immediately. It's called the Automatic Rally or Automatic Reaction, depending on the type of climax. VSA doesn't talk about this, but it is one of the things that helps to confirm the climax, the other being the test.

 

Is there some logic about Bar 2 © being in the shadow zone, or is this more a convention in candle trading?

[CandleWhisperer 10]

I didn't realize that a long shadow like this sets up a zone for entry. Thanks for that insight. I assume that this is for climactic bars/candles like this?

 

Forget about the term Long Shadow for a moment as Tom does not use candles.

 

What is important is when a wide spread bar on ultra high volume forms the entire range is key. More exactly the area from the low to the close (in this case). Many would look at a bar like that and say that price was rejected from the low to the close.

 

VSA would say that BB buyers stepped in and swamped sellers (demand swamped supply) therefore, that range is of some import (to them). Now if price trades back down into that area and we find low volume than we know that the supply is gone.

 

One might expect to see some who got short on the ultra high volume bar to try and get out at break even. This should mean larger volume not smaller volume. Again the small volume reiterative that there aren't really any sellers in this level.

 

Simply put: Look for low volume (tests, no supply, no demand) within the range of a high to ultra high volume bar.

 

 

Is there some logic about Bar 2 © being in the shadow zone, or is this more a convention in candle trading?

 

See above. But yes, candles draw attention to the most impront part of that range: the long shadow.