[VSA] Volume Spread Analysis Part II

[Seb Manby 11]

Hi Gary

 

Glad you enjoyed the event.

 

regards Sebastian

[zeon 10]

wednesday 30th April

 

Fed lowered interest rates today, so what? well there was a selling climax at the end of the session today, and so thursday will open higher at the bell, this could even extend through Friday. SP Emini contract.

 

FOMC always a good shakeout opportunity for the professionals to rid the market of the herd.

 

Regards Sebastian

 

 

Looks like a good call :thumbs up:

 

I wonder how many people still think this is a bear market and not a bull market correction. With the S&P at 1400, the DOW almost above 13000 and the NQ shy of 2000, is there any stopping to this? Even all the bad news couldn't push this market lower.

[Eiger 10]

I've been away from this forum for a while, but thought I'd step in and say hi to everyone. Here's an update on the SPX - sort of a back then and now. If you recall, back in mid-March and again in early April, I indicated that the technicals looked good for higher prices above the 1395 highs in the SPX. It must be quite frustrating for the bears who are still calling for shorts! Will they ever learn? The news has been bad and the market continues to show strength from the lows in mid-March. This should tell them something. The only real concern was the high volume up day after the Fed cut rates dramatically (Mar 20), but the subsequent reaction was on narrow spread and low volume (a test), as has been the character of every reaction in this uptrend since. The period of absorption came later than I originally noted, but you can see that the market nonetheless bought its way through the supply area between 1370-95.

 

Today, the market bounced off the longer-term Supply Line (now support) with some vigor. The market has been trending up and has not been in an overbought position nor shown signs of major supply or ending action. I don't see any concern to long positions taken at lower levels. Rather than hugging tight to a bias and looking for anything that would confirm that bias (known in Psychology and Behavioral Finance as the error of "Confirmation Bias"), I think it best just to follow the market day-by-day using Wyckoff/VSA principles.

 

Eiger

[Gary 10]

I made two trades today based on what I learned at the VSA Symposium. These are the first trades I made since the event.

 

The first trade was a short on the emini on the 10 minute chart. I entered on the close of the no demand bar and trailed a stop until the volume spiked and I covered.

 

The second was a long trade on the 3 minute chart. I took a test after strength appeared in the background. The spread on the test was maybe a bit wide, but it worked out OK. The trade was closed a couple of ticks below resistance because it was getting late and with the big move down, the resistance traders would be shorting there.

 

I learned a lot at the symposium, as today's trading shows. Plus, the cost of the training was more than covered today.

[gassah 10]

The only real concern was the high volume up day after the Fed cut rates dramatically (Mar 20),

Eiger

 

 

Hi Eiger,

 

Your first attachment has a minor creek drawn across the 3/20 region but I have to disagree that this was a jump of that minor creek. There wasn't any volume on the jump and creeks are where the volume comes in. I wouldn't count the volume of 3/20 because it was below the creek you drew and because it was an expirations day and doesn't show up on any charts except with the NYSE volume.

 

The markets may continue to rise but the range depicted is not one of those classic bullish ones taken out of the SMI/Wyckoff course. It looks more like trading range activity that can still have bullish components to get from the low end to high end, but without having the oomph to convincingly jump the major creek, at least where one can confidently predict it, IMO.

[BlowFish 10]

Glad you enjoyed it Gary. If you have a moment I'd be interested to hear what you particularly liked or better still any really valuable lessons you might want to share!

 

I presume you have a methodology based on VSA already? Are those trades you would have taken prior to the symposium did it just give you more confidence?

 

EDIT: PS second trade you didn't have your stop under the test bar? Did you have it way back under the swing low before? Just wondered how you handled price moving against you a couple of bars later.

Edited May 8, 2008 by BlowFish

[Gary 10]

Hi Blowfish -

The symposium was organized around the 10 principle signs of weakness and 9 principle signs of strength that are discussed in the Tom Williams book and in the TG software. There were very detailed discussions with several examples of each principle, and this was quite good. There was lots of discussion on supply and demand and how this is seen in the principles. It wasn't just about price bars, but what is going on behind the scenes, so to speak. I came away from that portion of the seminar with a good understanding of the different types of strenghts and weaknesses and why they appear when they do - much better than what I thought I knew when I went in.

 

The second day was spent on applying these principles in trades. Tom Williams did a presentation on how and when to combine the principles for high probability trades. This was basically the way has traded as a syndicate trader and for his own account for 35 years. This was excellent. He is an awesome trader. Sebastian Manby seemed to tell everything he knows about trading and presented a highly refined way of trading with VSA that was simply brilliant. The two trades above were based on his refinements, which I didn't know about before. There was also a presentation on psychology and one quite good session on developing a trading plan with lots of important details, which I am completing.

 

There was also a lot of right edge chart analysis, and three different afternoon sessions of live trading in different markets. This was good to see the principles set up, and the actual trades. If anyone needed proof that this works so well and can be traded, there it was.

 

I'm just giving an overview and leaving a lot out, but this was highly professional. It certainly was the most complete and practical seminar I have ever gone to.

 

The stop on the second trade was under the low of the bar previous to the test/entry bar. This was still quite tight and gave enough room for that little dip. Putting it under the swing low would have been more risk than I would have wanted and not really neccessary.

[Bearbull 10]

Gary, having seen the videos, I thought the short trade setup should be taken after a buying climax i.e SOW, upbar on high vol, why did you choose to go short after a downbar on high vol.

Also any particular reason why the first trade is on 10min and the next one , a long setup on a 3min.

[BlowFish 10]

Thanks, for taking the time to reply in detail. I'm glad it was valuable to you. I must say I was a wee bit sceptical as any companies first loyalty is to the shareholders. Having said that you can can count on Tom and Sebastian to deliver.

[Gary 10]

The short trade setup was taken because there was weakness in the background. There was no strength. One trade set up on a 10 minute chart, the other on the 3 minute.

 

During the seminar they turned off the software indicators. They didn't talk about the software and try to sell it. They put out a high quality product with this symposium in my opinion.

[winnie 10]

Dear Sir,

I am really new to VSA method, and find it seems very useful in confirming signal in my Market Profile Analysis. Is there any books or material , I can learn some basic idear about such method ?

 

Thanks for all your kind help

[Eiger 10]

Hi Eiger,

 

Your first attachment has a minor creek drawn across the 3/20 region but I have to disagree that this was a jump of that minor creek ... The markets may continue to rise but the range depicted is not one of those classic bullish ones taken out of the SMI/Wyckoff course. It looks more like trading range activity ...

 

Hi Nic,

Thanks for the reply. I agree with you that this market has not had a classic bullish response as per the SMI/Wyckoff Course. We talked about the lackluster response earlier.

 

I think the main point is that the rallies all have been stronger than the reactions since the Spring in mid-March. You can be right and this may turn into a trading range (though I think the Dow and Naz indicies suggest otherwise). In any event, I am not trying to pick a top. When there is a significant SOW and the market next rallies on weakness, I will be first in line to shout BEARISH, but not until then. To me, confirmation is important and this market has continued to confirm the upside.

 

The bears have been suspect of the market from before the outset of the current rally and have made bearish calls at any temporary weakness. Unfortunately, they are trapped by their bearish bias. Bias is killer for a trader (do I ever know about that!). Brett Steenbarger has posted some useful ideas today about self-assessment at the end of the quarter. In one of his comments, he suggests that traders ask themselves the following:

 

Have I adapted well to market changes?

How have my markets changed over the last quarter, and what did I do to adapt? Which of those adaptations do I need to emphasize in the next quarter? Which further adaptations can I make next quarter to deal with market changes?

 

All traders should undertake this type of periodic self-assessment. Those who found themselves consistently on the wrong side of the market in this recent rally might find particular utility in this excercise.

 

I have not seen real weakness on the intermediate term. Maybe yesterday was the start of it, but maybe it will just give us a repeat of April 30. I don't know. Right now I remain bullish, and the stocks I bought lower down - for the most part - are doing fine. Do let me know, though, if you see any Grizzlies roaming about

 

Eiger

[Gary 10]

There was a nice emini trade that set up this morning after the down move started. On the 10 minute chart there was a weak rally and no demand. The 5 minute had a great top reversal to confirm. I like using the different time frames to set up trades like this.

[Sledge 13]

Gary-

Thanks for sharing your charts! I need to get back to posting a few in this thread again as well. Have any entry/results on these trades you want to share?

Sledge

[Tasuki 10]

Just a quick chart of QQQQ. Today's action looks like "no demand" to me.

Taz

[winnie 10]

I have read the book " Master the Markets ". In the book , it said that when the bar is up with big volume and follow by a down bar , the market is near the top. It said that the "smart money" is actually selling in the big volume , big range bar. However, it make me confuse that how the "Smart money" selling with such big range up bar ? If they are selling , how do the bar go up with big volume and up close ?

Thanks.

[Gary 10]

Hi Taz,

Technically, I think you are right. Its an up bar on volume less than the previous two. From what I understand, it's not one to read too much into, however. It may knock the market down slightly for a bar or two. That would be expected because of this bar and the fact that QQQQ rose over the last two days but volume isn't rising. But, since QQQQ is in an uptrend and there is no sign of weakness, its not a safe bar to take a short on. Also, the high is higher than the previous bar - it would be a stronger no demand if the high were lower.

 

On that trade from yesterday, I went short on the 10 minute no demand bar and covered on the reversal. I basically got in an out on the close of each bar and made a little over 4 points. It was a nice trade. I didn't really see anything else worth risking money for yesterday.

[zdo 20]

I have read the book " Master the Markets ". In the book , it said that when the bar is up with big volume and follow by a down bar , the market is near the top. It said that the "smart money" is actually selling in the big volume , big range bar. However, it make me confuse that how the "Smart money" selling with such big range up bar ? If they are selling , how do the bar go up with big volume and up close ?

Thanks.

 

"They" can do it. See attached one tick chart. Thousands of contracts in about a minute (on what is clearly an upbar on a longer time frame chart such as an hourly). Note: this is not necessarily an illustration of the VSA setup you described above. It is only meant to show how size can sell into an up move... hth

[winnie 10]

Dear Zdo,

Thank you for your advise. Do you mean when the "Smart Money" is selling with big volume in a up Bar, actually the non-professional are buying ? However, while the bar close at the top ? Does it means the non-professional 's buying power is very strong ? otherwise the price cannot close at the high of the bar.

[Gary 10]

I have read the book " Master the Markets ". In the book , it said that when the bar is up with big volume and follow by a down bar , the market is near the top. It said that the "smart money" is actually selling in the big volume , big range bar. However, it make me confuse that how the "Smart money" selling with such big range up bar ? If they are selling , how do the bar go up with big volume and up close ?

Thanks.

 

It helps to think differently than other traders when trading with VSA. Wide spread up bars attrack buyers. Everyone dog piles into the market. This is when it is easiest for the smart money to unload their holdings that they bought at lower prices. If they tried to sell out when the market is falling, they would be pushing prices lower against themselves. This is why they sell into big up bars and why the market does not like high volume on up bars.

[DbPhoenix 42]

It helps to think differently than other traders when trading with VSA. Wide spread up bars attrack buyers. Everyone dog piles into the market. This is when it is easiest for the smart money to unload their holdings that they bought at lower prices. If they tried to sell out when the market is falling, they would be pushing prices lower against themselves. This is why they sell into big up bars and why the market does not like high volume on up bars.

 

This is one of those partly true, mostly false ideas perpetuated by VSA Central that confuses novices and usually pulls them down the wrong path.

 

Wide spread up bars are created by buyers. Whether there are a few buyers pushing price higher or a great many is illustrated by the volume. Either way, this leads us to the second part of the misstatement, which is that the "smart money" [sic] is selling their holdings when "everyone dog piles" into the market. Professionals are in fact selling their holdings as soon as price begins its rise, buying first to move the price, then selling into the rise if buying interest manifests itself.

 

What pushes price higher is demand, and it doesn't matter by whom or by what the demand is fueled. What is important to the trader is to determine when the demand has permanently (within that timeframe) exhausted itself (and, no, a "no demand" bar is not enough). Otherwise he will find himself consistently trading counter-trend.

[winnie 10]

Yes, this is a very new concept. Before that, I always looking for a strong up bar with big volume to long the market ! I always buy the high and then the market drop down ! However, evey technical books recommend to look for volume to confirm the buy signal !

[DbPhoenix 42]

Yes, this is a very new concept. Before that, I always looking for a strong up bar with big volume to long the market ! I always buy the high and then the market drop down ! However, evey technical books recommend to look for volume to confirm the buy signal !

 

If you wait that long, you'll be late, and a retracement will not be unexpected. On the other hand, shorting is not necessarily the appropriate choice, either, since the retracement may in fact be nothing more than that, i.e., not a reversal.

 

VSA Central encourages the novice to assume that he's being tricked, and that upmoves on strong volume are traps. This is sometimes but not nearly always the case, and often either leaves the VSA trader standing there with his hands in his pockets as the train speeds away from the station or persuades him to short -- sometimes repeatedly -- what turns out to be a continuing uptrend. In order to understand what's going on, you have to look for more than the obvious signals, since it is the obvious signals which are most likely to be faded.

[winnie 10]

Hi DbPhoenix

Your post is to the point ! The point is how do we know the up Bar with strong volume is trend continue or a trap ? I agree that we cannot counter the trend every time you see a big volume and a big range bar. I agree that a "no demand bar is not enough" otherwise we will always counter the trend .However ,What is the obvious signal to confirm it is a trick ?

[Gary 10]

This is one of those partly true, mostly false ideas perpetuated by VSA Central that confuses novices and usually pulls them down the wrong path.

 

Wide spread up bars are created by buyers. Whether there are a few buyers pushing price higher or a great many is illustrated by the volume. Either way, this leads us to the second part of the misstatement, which is that the "smart money" [sic] is selling their holdings when "everyone dog piles" into the market. Professionals are in fact selling their holdings as soon as price begins its rise, buying first to move the price, then selling into the rise if buying interest manifests itself.

 

What pushes price higher is demand, and it doesn't matter by whom or by what the demand is fueled. What is important to the trader is to determine when the demand has permanently (within that timeframe) exhausted itself (and, no, a "no demand" bar is not enough). Otherwise he will find himself consistently trading counter-trend.

 

I don't know what you mean by "VSA Central," but there is no misstatement. In fact, from the VSA perspective, wide spread up bar are not "created by buyers." Wide spread up bars create buyers. VSA is concerned with looking at the spread and volume to discern the professional interest in the market. What pushes prices higher does, in fact matter to VSA. Prices can be pushed high on strong demand or on no demand, and there is a vast difference. I don't know who you are or what method you trade, but here is a piece of advice: Make sure you know your facts before speaking, and check your arrogance at the door.