[VSA] Volume Spread Analysis Part II

[Turning Point 10]

Hi. I would like to sell my Trade Guider Boot Camp CD. If any one interested please let me know. Many thanks. My email address is "marketintime@telkomsa.net"

[Sledge 13]

Could I ask a couple questions regards your post here Sledge please? It’s an interesting view of events.

 

I don’t in any wish to distract this thread or disrupt the flow, but am (casually) curious as to your meanings/definitions on a couple points.

 

What or who is the ‘professional $’ you refer to, & who are these Bulls that they’re setting a trap for?? Are you tick boxing Funds, Leveraged money or 2nd tier accounts here?

 

And what do you mean by “proving the vsa theory” blah blah? In the context of yesterdays pre-NFP activity, what is it supposed to be highlighting? and who are "the herd" ?

 

I'm not attacking your commentary or anything, just curious.

 

You'll have to excuse me, but I've only ever seen this vsa stuff mentioned on retail boards, I don't know any of the heavyweight, serious money who pays attention to this stuff & we speak to quite a few folks over the course of an avg business week.

 

I think you’ll find that the only money playing tag yesterday, especially pre-NFP, was dumb or gambling money. Funds, accounts & serious leveraged players will have jobbed & worked their positions into the box into Thursdays NY trade & wouldn’t be participating again until next week.

 

A good percentage of them have upper (2.0100 to 2.0220) & lower (1.9975 back to 1.9710) boundaries snagged & tagged where the real supply-demand clips lie.

 

Most of the activity inside those vibration channels are jobbing or averaging levers depending on which side of the fulcrum (& their relevant trend) the respective money is geared. But then, there are very different agenda's & scenario's playing out...which makes me wonder bout the validity of all this disecting & autopsy procedures on specific bars etc.

 

Still, whatever gets you thru the day I guess.

 

I’m not suggesting any of your work or research is low key or anything, because I don’t know which angle you’re coming in off, but there was very little activity y’day from the real money. Well certainly not in the cash (spot) mkt anyhow.

 

Milliard-

Oh you won't offend me. Basically, with the members of this thread who study VSA have listened and learned (or are learning) the teachings of Tom Williams (Richard Wyckoff based) who as far as I have seen is the most non-BS, straight-shooter on the plant when it comes to telling it like it is. He is a former syndicate trader who has kindy decided to teach his students about how to read charts using volume and the spread of the bar.

 

Professional money is sometimes called "the smart $" folks who know both sides of the market and can see the order flow- something a retail trader like myself- cannot.

 

Their are many camps of how people trade, some rely on MACD or Stoch. Some live breathe and die by trendlines or pivot points, some folks read charts by chart patterns etc etc. This method literally changed the way I traded. By what I posted on the chart and my analysis. This was a textbook markup to entice the "herd" as Tom Williams calls them to go long. The herd he states is made up of:

1. Joe Average Traders

2. Mutual fund managers

3. And others

 

It is pretty in-depth to try and explain all in one post. But if you are inclined to learn more, I'd suggest getting ahold of a copy of the e-book (somewhere ou can get it for free) of Master the Markets by Tom. It will be an eye opener for sure.

Sledge

[Sledge 13]

I doubt professional money has any knowledge of these figures before the are released...

 

You are kidding right?

[mister ed 10]

But if you are inclined to learn more, I'd suggest getting ahold of a copy of the e-book (somewhere ou can get it for free) of Master the Markets by Tom.

 

Free, printable PDF version of Master the Markets available here.

[zeon 10]

You are kidding right?

 

Well ehm, no. To be honest I'm not. I'm not as paranoid to believe that some have access to more information than others. Besides, there are definite regulations concerning the release of news figures. Perhaps we ought to do a poll on this topic

[Nvesta81 10]

Well ehm, no. To be honest I'm not. I'm not as paranoid to believe that some have access to more information than others. Besides, there are definite regulations concerning the release of news figures. Perhaps we ought to do a poll on this topic

 

Ever watch how the market reacts prior to a scheduled news event? It always seems to go slightly in the direction of the post-news reaction. Maybe I'm just paranoid but I always figured some people are in the know and are affecting the market prior to the release, the evidence can be found on the chart. I didn't back-test this so I have nothing concrete. I usually stay out of the market before news anyway...but perhaps it's something worth exploring.

[DbPhoenix 42]

Except you can't even be sure you're looking at the right picture, because you framed it yourself. It might hold a great insight, or it might hold nothing at all. Preconceived notions might rule out what you're trying to find.

 

So do you stare harder at the picture if you're not getting the kool-aid feeling, or do you question your frame?

 

A scientist comes across an unexplained phenomenon that challenges his current beliefs. Does he try to explain away the phenomenon using known theorems, or does he branch out in a new direction and willingly threaten his body of assumptions?

 

In most cases the accepted assumptions go unchallenged and the answer is assumed to be within their folds, until and unless the phenomenon becomes too unsettling or too painful to ignore. Then the stage is set for creative destruction and paradigm shift, a new way of thinking that radically alters or even replaces what came before it.

 

Not all advances in knowledge build on the prior structure. Some tear it down completely. A lot of traders probably live in fear of seeing their sand castles demolished. (darkhorse)

[Eiger 10]

Earlier, it seemed like every post I made was followed by posts referencing the 1-minute chart. But suddenly I see 5-minute charts. Yay! That’s very good for talking about VSA. Keep up the good work!

 

Now, however, it seems that most of my posts are followed with comments about hindsight analysis

 

Well, OK …

 

On March 8, I said “real time” that the Naz was in a Spring position (post 357). This was immediately dismissed, however, with a chart indicating a bearish outlook. A few days later, the S&Ps also made a Spring, and the Naz confirmed, which I noted in “real time” (post 517). The next morning, I posted a chart of the Spring in the ES (first chart, attached). As you can see in this chart from mid-March, the next few weeks of potential market movement were outlined and Wyckoff principles were labeled. The current chart of the S&Ps is attached. Compare the two and judge for yourself how this evolved and whether or not this was “real time” enough.

 

So where are we now? The Naz made its Spring first, and has clearly responded better than either the S&Ps or the Dow (QQQQs pushed above resistance, the others have not). It is the relative strength leader among the three averages at this point, so it is good to keep our eyes on this market. For the S&Ps, I posted a chart of the cash SPX with NYSE volume. This highlights the heavy volume Sebastian pointed out on the Dow (at “A”) better than the ES. Sebastian was looking for No Demand after this volume, but that never materialized. Instead, the market drifted down all last week, but on receding volume, testing that volume and the Spring and also holding support from February 7. VSA teaches that when the market is successfully tested after apparent weakness, the market is in a position of strength. Tuesday confirmed this strength and the test with a nice rally.

 

But that rally stalled after one day, and we sat at resistance the rest of the week. I think the odds are good that we are seeing absorption take place here. There are several resistance points in this area (Creek), all indicating potential supply to be over come if the market is to go higher. The market has rallied near to the top of the trading range, and VSA teaches that there are many trapped traders at these levels looking to get out of poor trades (supply).

 

The market did not rocket through this supply area, so it can either react or absorb at resistance. Wyckoff first described absorption in the 1931 market. He did this in hindsight, but I think it is a worthwhile analysis nonetheless, and I hope you do, too In my own work, I have taken his brilliant 1931 case study and reformatted it so that each section of his analysis can be read and studied without the influence of subsequent action. And, for my personal use, I have added some of my own observations. I’d like to share with you the page of that analysis that discusses absorption, which you might find helpful at this moment in the market. The 1931 market rallied after this point in the analysis.

 

I really have no idea if this is actually going to pan out as absorption and go higher, or react from here. No one does. However, what we do know is that we have had a Spring and a Test. The market made a higher low at A, then a higher high (March 24), another higher low on the test, another high last week, and last week’s gains have held. Rallies have been stronger than reactions, and on the weekly chart the market has closed last week’s bar on its high. This gives us strength in the background, and the odds seem good for higher prices.

 

The last two days had a bit of No Demand, but the background is now strength, not weakness. Any reaction should, therefore, not go too far. If the market does react, how it reacts will be important and can give us clues to the immediate future.

 

In the bigger picture, there are a few things that raise caution flags that I think are worthwhile to also keep in mind. The first is the high volume noted by Sebastian. That may very well continue to be a drag on the market. The second is the response to the Spring. It has definitely been constructive, but also somewhat lackluster for a Spring (compare to springs on Mach 14, 2007 – S&P/Dow, and July 18, 2006 – Dow). So, there still seems to be some amount of supply in the market. Also, we remain in a trading range that goes back to January, and we are still in a downtrend (consult the weekly chart). There are enough yellow flags here that a conservative trader would likely not be overly long, and maybe not long at all.

 

If we do run higher from here and Jump across the major creek, we would next anticipate a reaction on lower volume and narrowed spreads as a test of the JAC. This is highlighted on the current SPX chart. Those actions would be very constructive for the bullish side. Like virtually every up move whether on the daily or the 5-minute charts, there is no one entry point. There are likely to be several opportunities if this turns out to be a bona fide intermediate up move.

 

So, there you have it: evidence of “real time” analysis going back into early March as well as several current points of “real time” analysis for both the immediate and near future.

 

*******

 

Now, a quick note on “real time” calls and hindsight analysis. Clamoring for as well as making predictions is a fool’s game, in my judgment. What is much more constructive is to follow the market and try to apply logical analysis to it, but always remembering that this is still a game of probabilities. As Mark Douglas has said, “Anything can happen,” and it often does.

 

Thinking in terms of probabilities and what is likely to happen next, what we need to see to confirm that likelihood, and what might disconfirm it is a much more useful practice than trying to make predictions, however appealing that may seem. Approaching the market in this way doesn’t mean we shy away from pulling the trigger. Rather, this approach helps us to better analyze the markets so we know when to initiate high odds trades. And, maybe more importantly, this approach also trains us to better manage trades while in the heat of the moment. By trade management, I mean that we look for confirmations and also disconfirmations to our position while our trade is live, and take appropriate action. We learn to do this proactively, in part, by studying the market in this way as we go along. We can also learn much from so-called hindsight analysis. After all, if we didn’t have hindsight analysis, we wouldn’t have our beloved Wyckoff texts, or the VSA material – all of which was written and is studied in hindsight. So, please give hindsight analysis the respect and attention it deserves. Over time, it can definitely serve you well

 

BTW, I have spoken at Wyckoff conferences with Weis and Fullett, so dropping their names doesn’t impress, though both are fine traders and excellent people. That being said, please be assured I am definitely no expert in Wyckoff and VSA – far, far, from it. I am only a student of the craft. How do I know this? Oh, let me count the ways: I miss many moves. I frequently get in late, and sometimes too early. I take profits too early on too many trades, and I miss-read the market. Some days end up as losers. I still make bonehead trades and get myself into tight situations, even though I vowed never, ever to do that again. I work on these things just as hard as I do on my technical skills, which means all the time. You may see these as weaknesses, but I would say that that is your problem. I am sure I always will be working on something (otherwise, how do I improve?). Fortunately, there are a few good trades that help even the score

 

So, being a student first and foremost – and definitely quite flawed in my trading, I wish to continue to learn in a supportive environment. There are many aspects and situations in the market I don’t understand. I seriously doubt any one person “knows it all,” despite how well they may regard themselves. Moving forward, I suggest that we simply watch what happens in the market and keep our focus on the bars, volumes and backgrounds and what they are telling us. Set diversions aside and let’s all keep learning VSA.

Wyckoff on Absorption Section.doc

Edited April 7, 2008 by Eiger

[BlowFish 10]

Milliard, I think the term "smart money" which I believe Williams himself coined does VSA a dis-service. It is a naive term and not very descriptive. This has been discussed a couple of times on the two VSA threads.

 

I prefer to a adopt Larry Harris' term from the book Trading Exchanges & Market Microstructure for Practioners. He uses the term "informed traders".

 

Of course he goes much much further and identifies the subgroups of this overall category. He also goes on to show how they make prices informative and how they directly effect market efficiency. He also discusses a whole variety of other stuff in this particular section including risks they present to other participants particularly liquidity providers. Fascinating stuff.

 

Actually it's an absolutely outstanding book if you want to learn more about markets and there participants. Should be mandatory reading!

[milliard 10]

Milliard, I think the term "smart money" which I believe Williams himself coined does VSA a dis-service. It is a naive term and not very descriptive.

 

Sledge, appreciate your reply.

Blowfish, yeah I’d surely agree with that comment.

 

But then to be fair, this stuff isn’t really directed at the (cash fx) market in which we ply our trade, so his claims or comments of this supposed “smart money” cuts no ice across here.

 

I don’t doubt it has a place alongside instruments which track volume data. But that’s not our home.

 

Yeah, one of these day’s I’ll maybe get some time to actually pick one of these trading related books up & have a snout. Thanks for the recomm, I’ll pin that on my corkboard.

 

psssst….don’t tell Mr Krantz though, he’ll assume I’m looking for alternative employment

[DbPhoenix 42]

On March 8, I said “real time” that the Naz was in a Spring position (post 357). This was immediately dismissed, however, with a chart indicating a bearish outlook. A few days later, the S&Ps also made a Spring, and the Naz confirmed, which I noted in “real time” (post 517). The next morning, I posted a chart of the Spring in the ES (first chart, attached). As you can see in this chart from mid-March, the next few weeks of potential market movement were outlined and Wyckoff principles were labeled. The current chart of the S&Ps is attached. Compare the two and judge for yourself how this evolved and whether or not this was “real time” enough.

 

While I hesitate to return to this subject, there is ongoing confusion over predicting v RT trading v hindsight analysis, and it seems that commentary is now being thrown into the mix. So let's address the salient points.

 

First, you did not state in your post 357 that the Naz was in a "Spring" position. You said that Friday's (3/7) action was a spring, followed by qualifications regarding how it could go up or down and so forth. And, yes, I posted a chart of the hinge. Dandxg, heretoday, and rsi also expressed caution. And several days later we made a new low. This is not to say that you were "wrong", but neither were you "right". You provided commentary which covered all the bases. But this is neither forecasting nor RT trading. It is what it is.

 

As for post 517 (in its entirety: "The odds may be favoring a Spring on the daily ES & NQ charts"), they certainly might have been. Or not. As it turned out, they did, largely because of the evidence of exhausted selling and strength in demand that was shown on the 14th and 17th that was not in evidence on the 7th and 10th (I'm sure you covered this somewhere). However, the "Wyckoff principles" expressed in post 529 have nothing to do with creeks and jumping and so forth. The Wyckoff principle that applies is that what you're calling the "spring" is the test/retest, and that's the entry, i.e., what Wyckoff does call the "springboard" (the posts made on the 17th are informative to those who are interested, and I appreciate your thanking me for the 1m chart I posted of that morning's activity).

 

Again, this continuing back-and-forth has nothing to do with who's right and who's wrong. It's about RT trading v hindsight analysis. And the only question that anyone trying to trade this approach should concern himself with is whether or not he's able to translate what he's learning into consistently profitable RT trading. If he isn't, then there is something missing in his understanding of the principles involved or, perhaps, the principles are incomplete. The trader needs to ask himself, for example, if he picked up on the lack of enthusiasm among sellers and the increased enthusiasm among buyers on the 14th, 17th, and, I hope, the 18th. And if the trader finds himself making consistently poor entries and exits, then he needs to address the disconnect between what he thinks he's learning and what he's actually doing in RT.

[Sledge 13]

Well ehm, no. To be honest I'm not. I'm not as paranoid to believe that some have access to more information than others. Besides, there are definite regulations concerning the release of news figures. Perhaps we ought to do a poll on this topic

 

Their is one and only one video on YouTube of Tom Williams speaking at some type of seminar or meeting (doesn't give the location) I think it is somewhere between 3 and 5 minutes. It will give you his thoughts on this topic. Go there and search "Tom Williams Market Manipulation"

 

He also is very blunt about the fact in almost any of the speeches, lectures or seminars he speaks on regarding this.

 

I believe that in one webinar or speech he states that it is naive to believe that the market makers are unaware of the reports prior to release. He stated somewhere else that when Greenspan was the chair of the Fed Reserve and he gave a speech- some of those "market makers" more often than not wrote the speech for him.

 

This world- is far greater and far "bigger" than any of us. Our job is to know what is the truth and what is bulls**t and do our best to be on the right side of the trade.

 

If you want further proof- test this theory. It will be hard because you will so desperately want to trade the move because you see activity, but I assure you- if you keep your finger off the mouse- and just watch this happen- you will learn one of the greatest lessons in trading:

1. Look for a very high volitility news event that tends to move markets (Like the NFP!)

2. An Hour before the news release- start watching a one hour bar, watch how it moves, watch it bounce up and tick back down.

3. Watch how 5 minutes BEFORE the actual release- you'll get a SURGE and I mean a tidal wave of that bar bouncing up, down, up, down. This is where transferring to the herd really takes shape and is a thing of beauty to watch. Most average joe traders think "Holy crap, they know something- I better get in there!" The Market Makers KNOW THIS- They know the mentality of the herd! It is their JOB to know the psychology of other traders!

4. News time: Market surges in one direction- and it surges hard. The herd rushes in. Professional money is dumping at a fire sale pace. You see it heading north like a banshee.

5. After thousands and thousands of people are locked in- the roof falls in, the market is in freefall- people who were just up 15 or 20 pips suddenly see their positive trade balance spiraling out of control, -$100, -$300, -$500, -$700, -$1000, -$1500, -$2,000 in a matter of SECONDS.

6. Because of human nature- most don't sell, they hang on, they pray for a rebound. They DO NOT like to be wrong!

7. But as Tom Explains- they will never get out- they WILL take a loss- it is now just a matter of how much of one! When will the pain be to great? The market makers ASSURE that if this is a bear move- it will not rise to let you out!

 

Try this on a live news release. And unplug your mouse- so you don't get tempted to get in, just focus on 1-7 above and you'll be amazed!

Sledge

[DbPhoenix 42]

Regarding the chart posted to #837, could you or anyone show where that trendline comes from?

[Sledge 13]

Professional Support Question:

 

We know that higher highs, as well as, the lows do not dip below the low of the previous bars- on an upward trending market means that the Professionals are Supporting the move.

 

Is their such a thing as Professional Support on a DOWN move?

Most logical thing I can think is lower lows and the Tops of the bars do not exceed the highs of the previous bars.

 

Re-reading "MTM" section on Professional Support (PG 94) and am unclear if their is such a thing as Professional Support on a Downward move?

 

Usually markets fall because of LACK of support (on an upward move.) Anyone know?

[DbPhoenix 42]

Professional Support Question:

 

We know that higher highs, as well as, the lows do not dip below the low of the previous bars- on an upward trending market means that the Professionals are Supporting the move.

 

Is their such a thing as Professional Support on a DOWN move?

Most logical thing I can think is lower lows and the Tops of the bars do not exceed the highs of the previous bars.

 

Re-reading "MTM" section on Professional Support (PG 94) and am unclear if their is such a thing as Professional Support on a Downward move?

 

Usually markets fall because of LACK of support (on an upward move.) Anyone know?

 

Of course. Professional support is what puts the brakes on the decline and eventually modifies the slope into what may become an accumulative base. This is why one refers to "climactic action" or "potential climax" rather than a "climax". There may be several "climaxes" on the way to a rest, like tapping the brake when one is driving downhill. Professional support can be detected by the volume.

 

Incidentally, please don't overlook my previous post.

[jjthetrader 10]

Eiger missed me so I'll post just for him:)

 

This trade I made this morning. It's classic VSA. This is the first time I've gotton this setup right in a long time. I didn't used to wait for confirmation and this would usually work against me. Yes weakness always appears on an upbar but this doesn't mean you should enter short on an upbar.

This time however we get a beautiful no demand bar (marked) followed by confirmation down.

Being a short timeframe my target was 4 ticks. I shorted at the pink line. Target reached with ease.

 

I hope someone can benefit from this trade.

cheers guys.

[Sledge 13]

Of course. Professional support is what puts the brakes on the decline and eventually modifies the slope into what may become an accumulative base. This is why one refers to "climactic action" or "potential climax" rather than a "climax". There may be several "climaxes" on the way to a rest, like tapping the brake when one is driving downhill. Professional support can be detected by the volume.

 

Incidentally, please don't overlook my previous post.

 

Thank you!

[Sledge 13]

Eiger missed me so I'll post just for him:)

 

This trade I made this morning. It's classic VSA. This is the first time I've gotton this setup right in a long time. I didn't used to wait for confirmation and this would usually work against me. Yes weakness always appears on an upbar but this doesn't mean you should enter short on an upbar.

This time however we get a beautiful no demand bar (marked) followed by confirmation down.

Being a short timeframe my target was 4 ticks. I shorted at the pink line. Target reached with ease.

 

I hope someone can benefit from this trade.

cheers guys.

 

Nicely done JJ! Thanks for posting the chart and analysis!

[Eiger 10]

Eiger missed me so I'll post just for him:)

 

 

Hey! I have missed you, JJ!

 

That was a nice trade. It took me a little longer ...

 

I was seeing buying at the A bars on the 5-min chart, and was watching for an opportunity as the market dipped a little lower around 10:30. There was less volume there, and price didn't plumet, so I started thinking long. It was also a support area that the market traded around on Thursday and early this AM.

 

B dipped down into the high volume area (red lines) and didn't draw support, and I went long just before the close of that bar. I thought there had been some cause built along the 1377.50 line and so took 1/2 the trade off at first resistance (1380.25), but held the rest. I added a partial postion on the No Demand at C, and took all off at this AM's high.

 

Great to see you post again

[jjthetrader 10]

Hey! I have missed you, JJ!

 

That was a nice trade. It took me a little longer ...

 

I was seeing buying at the A bars on the 5-min chart, and was watching for an opportunity as the market dipped a little lower around 10:30. There was less volume there, and price didn't plumet, so I started thinking long. It was also a support area that the market traded around on Thursday and early this AM.

 

B dipped down into the high volume area (red lines) and didn't draw support, and I went long just before the close of that bar. I thought there had been some cause built along the 1377.50 line and so took 1/2 the trade off at first resistance (1380.25), but held the rest. I added a partial postion on the No Demand at C, and took all off at this AM's high.

 

Great to see you post again

 

Nice Eiger! You meant no supply at C, not no demand correct?

 

This is a cool example because it shows different trading styles. You wait and watch for a cause, get in, and then wait for the reaction to finish what's been built up.

I get in and get out based on an indication of very temporary weakness and take it's reaction.

 

It's beautiful beacuse it's all VSA applied to different timeframes but the principles still work. You've got the psycological makeup to hold that long, I don't. But who cares? We both still get to trade VSA.

[Eiger 10]

Here's the chart showing support along the 1377 area, which actually goes back to Wednesday

[Eiger 10]

You are right, no supply at C.

 

I am working on extending my trades a bit. I only do it when there is a cause built. i also find that taking 1/2 off at an early resistance helps give me the "psychological edge" to stay a little longer.

 

 

 

Nice Eiger! You meant no supply at C, not no demand correct?

 

This is a cool example because it shows different trading styles. You wait and watch for a cause, get in, and then wait for the reaction to finish what's been built up.

I get in and get out based on an indication of very temporary weakness and take it's reaction.

 

It's beautiful beacuse it's all VSA applied to different timeframes but the principles still work. You've got the psycological makeup to hold that long, I don't. But who cares? We both still get to trade VSA.

[jjthetrader 10]

I also find that taking 1/2 off at an early resistance helps give me the "psychological edge" to stay a little longer.

 

Very good tip.

[Sledge 13]

Question on "Taking 1/2 off"

 

I have heard lots of folks say that they close out of half of their position. I have never been able to do this (at least on my platform.) Or is this something along the lines of- when you see an entry opportunity you place 2 seperate orders, closing one when you see fit and letting the other ride?

OR

Is this moving your S/L to half of your gain and letting it ride- knowing full well it may continue upward or downward depending on your order type? Moving my S/L up is the only way I have been able to accomplish this task unless I bought two seperate lots at the same entry.

Sledge

[jjthetrader 10]

Question on "Taking 1/2 off"

 

I have heard lots of folks say that they close out of half of their position. I have never been able to do this (at least on my platform.) Or is this something along the lines of- when you see an entry opportunity you place 2 seperate orders, closing one when you see fit and letting the other ride?

OR

Is this moving your S/L to half of your gain and letting it ride- knowing full well it may continue upward or downward depending on your order type? Moving my S/L up is the only way I have been able to accomplish this task unless I bought two seperate lots at the same entry.

Sledge

 

Sledge, we're trading in contracts so if you buy 2 then you just sell 1 and your other is left on the table. Do you trade multiple lots? You would have to in order to take 1/2 off.