[VSA] Volume Spread Analysis Part II

[Bearbull 10]

If an effort has been made to identify the right support/resistance zones , then price will move from one level to another irrespective of which timeframe chart you are reading, however if one is operating from say a 1min chart , then obviously a no demand or no supply bar can only be employed for scalping. In my last post the prices plummet and there is no "No Demand" bar in sight, however within each candle on a smaller timeframe there is no doubt there will be such bars present as prices are brought to a dull period prior to burst of activity representing continuation or reversal.

[Sledge 13]

Bearbull-

Kudos to you for that OUTSTANDING string of posts. I have had those bars form in real-time and had the same "conversation with myself" It was eerie actually. Much thanks for all the time and effort to put those up. Excellent points about S&R as well, in addition to, looking at the landscape vs. the one bar at present!

 

Sledge

[Gary 10]

BearBull,

You must be exhausted half way thru the day trading like that. Perhaps it's not VSA that frys you, but your emotional trading? I don't think any method would work when a trader is like an emotional pinball machine, bouncing up and down getting high or down on each and every bar. I've been working with VSA for about 3 years and have found it to suit me best. It really doesn't phase me about what the rest of you say about it. I just thought this was a forum about trading VSA, not one to trash it. Despite your counterclaims, that is really what you are doing. But, as I say, to me it really doesn't matter whether you like the method or not, it suits me fine.

 

So BearBull, here is how I approached yesterday. This may be long, but since you went to so much troubel with all your charts and stuff, I want to give you a fair repsonse. First, I knew there was resistance at the 1422-24 area. There were highs there from May 2 & 6. If price was going to fail going higher, it would do that here. If price was going to break through that level, it would need to do it with some demand behind it - seen by increasing volume on up bars and wider spreads with good closes. I watched the 30 minute chart and didn't see that come together. The 30 minute was pretty interesting. Volume was not confirming higher prices, although the closes were up throughout the day. Then price shot up on the 30 minute at 1:30, but the next bar was weak on sustained volume. Then, the next bar (2:30)closed lower, again on sustained volume. This was the first down bar on the 30 minute all day. This said to me that a reaction was coming.

 

You could see weakness as I pointed out on the 5 minute chart. This was especially clear on the up thrust with high volume (2nd W). I saw the no demand bar at 1, as you pointed out. You could have taken a short trade there, and there would have been nothing wrong with that. Your stop would be above the last high, and if you had sat through all sideways action for the next 40 minutes, you would have been fine. I don't take those because of just that. I saw the up thrust and no demand, but this did not meet my trading plan requirements, so I let it pass. But, its a personal choice.

 

So, if you did take that trade the next bar (2) is a down bar which confirms the no demand. You say it is no supply because of the low volume, but this is a misreading of the bar. There is weakness in the background, not strength. VSA talks about this in some detail. It's a question of understanding the nuances of VSA, I guess. The bar to follow is also down, so even if you did think that 2 was a test, it is now a failed test.

 

So the market slides down to 3 and some buying comes in. There is a little shelf of support, so this is potentially a bullish bar. However, the next bar 4 is another no demand, so it negates any strength on 3. Also, there is relatively high volume now on 4, which is an indication of supply (narrow spread, up bar). There is still weakness overall.

 

Price next falls to 5 and makes a lower low. But, there is a bottom reversal. This could be buying coming into the market and a concern. If I were short from 1, I would definately cover on the close for a half-point scratch. The bottom reversal indicates that price might try to test the high.

 

The next bar (3rd W) is an up thrust on increased volume. This is followed by a down bar, close on the lows. The bottom reversal has failed. This more weakness. The up thrust catches stops from early shorts and sucks in new longs. The rapid down bar that follows confirms the up thrust.

 

So here, in recap, is what you have: 1) A higher time frame resistance area. 2) Weakness on the 30 minute chart. 3) Some stopping volume on the lower time frames. 4) Up thrust and no demand bars. 5) Potential strength that did materialize (at 3 and 5) were wiped out by further weakness. 6) Lower highs and lower lows.

 

With all that in the background, bar #6 was a perfectly logical place to short the market. The next five bars to follow were all down and confirm both the short and significant weakness seen in the charts. If you missed 6 because your emotions were getting in the way or you just couldn't read the chart well, then look at 7. This bar was another no demand - a low volume up bar, close off the highs with significant weakness in the background. This bar is telling you that the market is not going very high - it can't on no demand. And there is no demand there, despite what others say. That was a nice trade in a liquidating market that made you good money.

 

This is how I analyze the market and how I work a trade. I look to stack stuff up in my favor by using VSA. I hope I've been able to make this clear to you. You don't need anything else if you develop the skills. I've worked very hard at this and it works well for me. If you want something else to float your boat, then do that. As I say, its a personal choice and it doesn't matter to me. If you want to talk about VSA trades and analysis, I'm all for it. But if you all just want to trash it then I won't waste my time.

[BlowFish 10]

Mr Ed, its the magnitude of the buying/selling climax and the characteristic of the accumulation base that might indicate the magnitude of the move. (Mainly length, Whycoff used P&F to measure the base if memory serves me right). You might also add the 'importance' of the S/R - a yearly low is likely to see a good size reaction.

 

A no demand bar, or test for that matter, is more of a 'trigger' and so is far less important than what occurred in the 'background'. Thats all imho of course and with the caveat that I am not really a 'pure' VSAer, if one at all.

Edited May 15, 2008 by BlowFish

[Eiger 10]

It was a straightforward question. No, I didn't interpret everything you included as an attack on VSA, the last two lines did, in fact, answer the question. The rest of your answer was couched in terms of an attack on VSA (again), asking if it was 'worth it', gaps between theory and application is exceedingly wide...etc. Like I said, you have made your dislike of VSA very clear, I do not know what your agenda is, but it is tiresome for those of us who see value in using VSA and would like to move forward.

 

I agree. It is tiresome. There is another thread to criticise VSA. Everytime time a little positive activity comes onto this thread, DB jumps right in and starts criticising VSA. It's all attention-seeking behavior. Very, very boring.

[BlowFish 10]

Good post Gary - it seems clear (to me at least) that people that lean heavily on VSA (or completely for that matter, I know a couple of 'purists') don't really look at individual bars. Well they do, but build a kind of composite picture from them of who is currently in control. Sebastians videos illustrate this quite well. This is probably why some people find it 'difficult'.

[mister ed 10]

build a kind of composite picture from them of who is currently in control. Sebastians videos illustrate this quite well. This is probably why some people find it 'difficult'.

 

Nice one BlowFish - "composite picture" is a good way of putting it.

[Gary 10]

Good post Gary - it seems clear (to me at least) that people that lean heavily on VSA (or completely for that matter, I know a couple of 'purists') don't really look at individual bars. Well they do, but build a kind of composite picture from them of who is currently in control. Sebastians videos illustrate this quite well. This is probably why some people find it 'difficult'.

 

Its really important to think this way. When Tom and Sebastian discuss this, they always emphasize the background. The individual bars are important, but not until you have the strength or weakness come in. If you don't have strength or weakness in the background, then you are making low probability trades. I see that in some of these posts - "well, here's a no demand and it didn't work." Of course it won't work if you have strength in the background. The background trumps the individual bars, but the individual bars that are consistent with the background are what you want to think about when making trades. It really is pretty logical stuff.

[bertg 10]

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.

 

Gary,

 

Can you tell me how/where you saw strength (post 1129 in this thread, and I also posted your chart again)? I would have been afraid to go long in a downtrend.

 

I am also glad you learned a lot from the VSA lectures and got your money back already.

 

Thank you,

Bert

 

[Sledge 13]

Its really important to think this way. When Tom and Sebastian discuss this, they always emphasize the background. The individual bars are important, but not until you have the strength or weakness come in. If you don't have strength or weakness in the background, then you are making low probability trades. I see that in some of these posts - "well, here's a no demand and it didn't work." Of course it won't work if you have strength in the background. The background trumps the individual bars, but the individual bars that are consistent with the background are what you want to think about when making trades. It really is pretty logical stuff.

 

This is an excellent point. You must always "look left to trade right!" If you see a "no demand" bar with Strength in the background (Strong Downward move-) well the market just isn't ready to move upward YET, so look for more signs of testing and drawing out of floating supply. When you are aware that further testing will occur, it is much easier to "time your entries" instead of riding the testing/shakeout period.

 

Sledge

[Bearbull 10]

BearBull,

You must be exhausted half way thru the day trading like that. Perhaps it's not VSA that frys you, but your emotional trading? I don't think any method would work when a trader is like an emotional pinball machine, bouncing up and down getting high or down on each and every bar. I've been working with VSA for about 3 years and have found it to suit me best.

 

But if you all just want to trash it then I won't waste my time.

 

You have completely the import of my posts, they were meant for newcomers to VSA, not to dissuade them from studying the various VSA principles but apply them in proper context and also try to make effort to study the original source: Wyckoff.

 

When I first studied candlestick charting back in 1993, I went through the same epiphany, saw those doji, engulfing bars etc on hindsight charts at the right locations prior to large price moves up or down, ofcourse those that were present at other locations remained blurred.

Same happens with VSA for many folks, you have obviously overcome the obstacle, so good luck to you.

 

As for the posts and emotional trading, have Tom's book as of 1998, do you still think I trade bar by bar as illustrated in the charts;) and also that after having acquired sound understanding of Wyckoff. :helloooo:

It was meant to bring to the attention of any newcomers like winnie.

Once again there is no intention to bash VSA, however your defensive response is more of emotional nature than my trading as it blocked the real message of the posts both mine or others who understand VSA and Wyckoff inside out;)

once again best of luck to you

 

Hasta La Vista

[Gary 10]

Gary,

 

Can you tell me how/where you saw strength (post 1129 in this thread, and I also posted your chart again)? I would have been afraid to go long in a downtrend.

 

 

Bert,

Sure. I put up two five minute charts that might help to see it clearer, but you can see it on the 3 minute too. The first shows the down trend with tendlines. As you said, we were in a pretty good trend down. But they all have to end somewhere, don't they. At the bottom, it got very oversold. It went through the original support line and then thru another parallel support line.

 

The second chart shows the detail. On the bar marked B it is way oversold. The volume spikes and the close is in the middle. Buying came in there. On the next bar, it dipped lower than B and then closes right near its high and almost at the high of B. This confirmed the buying and strength on B. It is also a bottom reversal. Because the volume wasn't excessive on the second bar, supply was not swamping here, and it could go up. I waited for a test to confirm and this was seen on the 3 minute chart, as I posted earlier.

 

Just to be clear on why this was strength. Look 11 bars back from B (sorry, didn't label this one). It's another down bar on even higher volume, oversold, close in the middle. Was this buying? I think so, but look at the next bar. Look at how low it went and look at the close. Whatever buying was on the previous bar failed on this bar. Next bar was no demand and it comes off again. If you compare the B and the bar to follow with these two bars, you can see strength vs continued weakness.

Edited May 15, 2008 by Gary

[Sledge 13]

Alright all- I'm going to place my stones on the stump and attempt to spark some discussion that has seemed to elude VSA in training seminars and MTM in detail. I feel there is quite a bit of highly skilled VSA traders in this thread and I'd like to get feedback on trading styles in regards to:

ENTRY POINTS

 

I suppose this applies mostly to currencies as it is a 24 hour market and we all have to sleep SOMETIME. But my own personal information goes something like this on these examples:

 

The overall long term trend is UP and I'm looking to go long on these particular examples. I know that the NY session has peaked and the market has started to cap (at least for today) That evening you will no doubt see some markdown, or shakeout action to flick off the weak and scare the would be bulls. But say your account can't handle riding a storm out? Say you are a new trader and when the testing occours and the accent begins again- you are 40 winks into the night. The IDEAL entry will come sometime in the London Session, but you'll be sawing logs and not be able to capitalize on it- you won't be there to see the price action unfold. When you wake up, the testing is over, the London Boys are tidying up the loose ends before NY opens and gets its hands dirty with it. They hit the market hard and if on perfect entry, you would have snagged say 100 pips+ on the trade!

 

So, other than placing a Buy Stop order at some "random location" and hoping you are correct. Can I open a line of discussion on where most folks intend to place thier "Long" Order on these charts.

 

Charts Mr. Sledge You say: Well of course. I'll make this random and only let you know this is a 1 Hr Chart. You should have enough background information to make decisions. I'll post the "Answer" charts after we get rolling.

 

This has always been a subject that as a VSA fly on the wall, seems to be overlooked or sort of "won't talk about" Which is fine- that is why all of you are here and may have insight of your own- with your own trading style, and Money Management.

 

Here are a few charts to get your juices flowing- Take the charts and save them- mark them up, this is your "live edge" of the chart- so what would you do with it?:

 

 

Sledge

[winnie 10]

It is my pleasure to say thank you to all you. It is really helpful.

[mister ed 10]

I suppose this applies mostly to currencies as it is a 24 hour market and we all have to sleep SOMETIME.

 

Sledge

 

OK Sledge, you are trading FX ... answer this simple multiple choice question:

 

Sleep is for:

(a) pussies

(b) weekends

 

No waiting - the answer is b. PM on its way to you to suggest how to move from a to b :haha:

 

OK - I seem to remember you posting something similar a little while back and there wasn't many takers then either.

 

So, background is you want to be long and the market is about to move into the Asian timezone, where men are men and the women are ... will stop there

 

This is my take on it:

 

The first chart, 1:

The best approach is to be awake when the price dips towards the line marked 1, about half-way between where it is now and the line marked 1 - this would be ideal as you could assess what's going on rather than just leaving a buy order. If not awake, though, buy just below the half-way point between where it is now and the the line marked 1, with stop below 2. Line 1 marks (approximately) the 'breakout' from the high volume congestion area at the base of the downswing.

 

 

 

 

The second chart:

Same comments re being awake is best.

Again, background is you want to be buying as the thing is in an uptrend? OK - this, to me, is not as clear as the first example - the stop is below the line marked, but the entry is .... well its probably right about now, maybe get in on a dip below the low of the latest bar to form, but if you want to be long the entry is very close to now. If you really want to be safe the stop would be below the low of the low of this chart, and you could use the blue horizontal as the entry - obvious the risk is not getting set here and I prefer my first entry point instead.

 

[winnie 10]

Is anyone could tell me where I could get some information on Mr.Richard Wyckoff method ?

Any books or web site about it ?

Thanks for your kind help

[firewalker 10]

Is anyone could tell me where I could get some information on Mr.Richard Wyckoff method ?

Any books or web site about it ?

Thanks for your kind help

 

This post would probably be a good starting point:

 

http://www.traderslaboratory.com/forums/34205-post1.html

 

Several documents are attached to the post, one of his books too.

[Bearbull 10]

Is anyone could tell me where I could get some information on Mr.Richard Wyckoff method ?

Any books or web site about it ?

Thanks for your kind help

 

Well winnie, you must feel as if you have opened up a hornet's nest here, you have to ignore all this bickering, anyway to be successful in this arena, courage, self reliance, discipline, persistence and hard work are essential qualities. You have to seek out the right knowledge that makes sense to you and you only and then verify in real market, develop your own strategies/tactics and trade management rules. In the final analysis the choice is yours whether to follow the herd or be independent, it is your career and your money on the line.

 

 

Leave you with this to ponder over:

 

1. ES 1, 14th May The strategy regarding short trade was explained away in terms of previous resistance levels of 2nd and 6 May, sign of weakness, upthrust, no demand etc.(post 1178)

“You could see weakness as I pointed out on the 5 minute chart. This was especially clear on the up thrust with high volume (2nd W). I saw the no demand bar at 1, as you pointed out. You could have taken a short trade there, and there would have been nothing wrong with that. Your stop would be above the last high, and if you had sat through all sideways action for the next 40 minutes, you would have been fine. I don't take those because of just that. I saw the up thrust and no demand, but this did not meet my trading plan requirements, so I let it pass. But, its a personal choice.”

 

2. ES 2 - This is price action on 15th May, study this and then examine 5min charts ,

(note similar times of the day around 1.30-2.30p.m), We have resistance to the left, all the signs of weakness, upthrust, no demand, As per the above strategy, what are the tactics this time????

 

3. NQ1 - similar exercise for Nasdaq,

 

and then watch the ensuing price moves. Hope this helps on your educational journey.

[DbPhoenix 42]

This post would probably be a good starting point:

 

http://www.traderslaboratory.com/forums/34205-post1.html

 

Several documents are attached to the post, one of his books too.

 

There is also a section on Wyckoff in my Blog (click below). This consolidates the Wyckoff material into one place, without the discussion that's included in the Wyckoff thread. I suggest, however, that you post any questions you may have to the Wyckoff thread so that others who are interested may benefit.

[Sledge 13]

 

OK - I seem to remember you posting something similar a little while back and there wasn't many takers then either.

 

 

Well then maybe you and I will have our own offline discussion then

Very nice start to the discussion though. Maybe we can get a few more VSA folks to chime in as well. Thank you sir!

 

Winnie- keep your eye on this, if the conversation blossoms. It may be a swirl of info in your brain right now, but this conversation will become very helpful once you master the basics to "squeeze pips" out of trades

 

Sledge

[Bearbull 10]

Winnie,

Wish I had all this info. available way back in 1998, had to spend years searching

 

Anyway am off to greener pastures for a welcome break from this business, before I leave here are the charts with what happened next.

It would be easy to explain this away with the help of 60min, 120min etc charts, however when trading realtime, one has to have some advance planning, as to what you want to see at certain price levels, which strategy to apply and tactics to implement that strategy, and what price action would you have to see to negate your original analysis.

Move forward bar by bar on a 5min chart following previous charts and see how you can handle the price action...............it is a different ball game from hindsight analysis;)

 

Good Luck

[Gary 10]

 

2. ES 2 - This is price action on 15th May, study this and then examine 5min charts ,

(note similar times of the day around 1.30-2.30p.m), We have resistance to the left, all the signs of weakness, upthrust, no demand, As per the above strategy, what are the tactics this time????

 

 

BearBall,

I tried to follow your chart, but can't. My data is way differnt than what you post. Are you sure you got that date right?

[Eiger 10]

One reason I have continued to be bullish on the stock market is that it hasn't given us any sign of weakness or change of behavior. It certainly hasn't been the most vigorous rally, that's for sure. But a trend will often continue well beyond where we think it ought to stop. Plus, a successful Spring can be a fairly potent indication of strength. On the SPX chart attached, you can see the longer term Supply Line (in red) and the horizontal resistance line (in blue). You would think that this resistance should have stopped the up move - sell resistance and buy support, right?

 

Look carefully at the character of the price and volume at this resistance area. It didn't react much. Instead, it held its gains and absorbed the overhanging supply. As it came back down to retest the blue horizontal resistance, and then the red Supply Line, it did so both times on light volume and narrowing spreads -- straightforward VSA principles. It did this while holding the Demand Line of the up trend channel (green line).

 

Another thing that has keep me bullish is the point & figure chart. The first figure chart (FC) is a 5 point FC of SPX (a pdf file; use the view tab to rotate). I draw this by hand based off the 15-minute chart. It is updated through yesterday. There is a count along the 1280 line that projects up to 1415. This is where we are currently. Now i am not saying that just because the FC had that projection, that the market would go there. But, just like the daily bar chart, the FC shows a fairly orderly sequence of higher highs and higher lows from the Spring in mid-march. No substantial cause developed on the FC to reinforce a significant bearish view. The FC can be useful in many ways.

 

Currently, the FC is showing we are at a resistance area. There is enough cause to create a reaction consistent with prior reactions, but that would break the current Demand Line on the daily bar chart (green line) and might change the current outlook. That would, of course, depend on the character of the reaction. One of the early Wyckoff/SMI traders used to say that FC count projections were places to "Stop, Look, and Listen" -- meaning you don't just change form bullish to bearish because you hit a FC projection or a resisitance area. You want to assess the market carefully at these areas. Right now, I see no indication of weakness.

 

There is another projection on both the 5 pt FC and the 3 pt of the 5 pt (or 5 pt by 15 pt FC) that indicates a potential move to the 1480-85 level. Will we get there? Who knows. It is at a level where there was a lot of churning before the market fell, so it would be an area where a lot of supply still exists (dashed line on the daily bar chart). We shall see. I will simply continue to let the market tell me what it will do.

 

Eiger

SPX FC 5 pt FC.pdf

SPX FC 3 pt of 5 pt.pdf

[Eiger 10]

Is anyone could tell me where I could get some information on Mr.Richard Wyckoff method ?

Any books or web site about it ?

Thanks for your kind help

 

It's best to go straight to the source. Why would you go anyplace else? The Wyckoff/Stock Market Institute was originally founded by RD Wyckoff (as Wyckoff Associates). It has operated continuously since the 1930s. There is over 100 years of Wyckoff information here. The best place to start is with the Course. Here is the link: http://wyckoffstockmarketinstitute.com/

[Gary 10]

The morning session in ES had good trades. I worked the 3 min chart where things set up best. Yesterday at the end of trading had stopping volume. The morning opened with an up thrust and the market fell off. So weakness was in the background. On the first rally, there were two no demand bars in a row - how sweet can you get it? I took a short on the close. The next rally had another no demand and then an up thrust bar which was a good place to add shorts. (Who says there no such thing as no demand.) I got concerned by the high volume, wide spread and close on the next bar and thought it might be a climax, so all shorts got covered. It did rally and then came off again. The real climax was at 1415. You can see it on the 15 minute chart. I didn't see anything worth trading after that.