[VSA] Volume Spread Analysis Part II

[Seb Manby 11]

Hi JJ;

 

The SP emini daily chart does look weak, but the Dow cash does appear to have the potential to rally, there was a shake out on Friday on the intraday chart so I do expect Monday to open higher, but I do not agree with your trend channel, I am using the last trend channel that has appeared.

 

Regards Sebastian

[habi 10]

Hi JJ;

 

The SP emini daily chart does look weak, but the Dow cash does appear to have the potential to rally, there was a shake out on Friday on the intraday chart so I do expect Monday to open higher, but I do not agree with your trend channel, I am using the last trend channel that has appeared.

 

Regards Sebastian

 

Hi Sebastian

 

There are different ways to plot a trend channel in the ES chart and another solution is a wedge, which is brocken to the downside as already presented by Eiger.

 

I have most problems to understand your comment about the Dow cash. I agree, that there is some weaknes in the ES chart, daly and weekly. But the Dow looks even worse then the ES, outperformance comes from the NQ. If the Dow has some rally potential, then the ES should have the same too. I can't see any signs, that the Dow will be stronger the next days than the ES.

[jjthetrader 10]

Hi JJ;

 

The SP emini daily chart does look weak, but the Dow cash does appear to have the potential to rally, there was a shake out on Friday on the intraday chart so I do expect Monday to open higher, but I do not agree with your trend channel, I am using the last trend channel that has appeared.

 

Regards Sebastian

 

If you don't mind my asking, where do you see the weakness entering on the ES daily chart?

 

I see your point on the YM intra-day chart. I guess with the daily chart to back it up I was wondering what kind of a move you're looking for.

 

I argree with Habi, the Dow looks less likely to rally than the others but again, where do you see professional money taking a position on one side or the other here? The highest volume we've had in 2 months occured on a downbar with what appears to be a bottom reversal shortly afterwards (see chart).

 

On both the YM and ES our most recent 'background' has been strength, back in March. Has there been a cause for a downmove established? I'd actually like to hear from Eiger if he's around to.

I wouldn't mind a VSA analysis of what one might be seeing, to give the impression of weakness, apart from a trend channel.

Maybe it's our defenition of weakness to. Are we all talking about a correction as weakness?

[Seb Manby 11]

If you don't mind my asking, where do you see the weakness entering on the ES daily chart?

 

On the 19th

 

I see your point on the YM intra-day chart. I guess with the daily chart to back it up I was wondering what kind of a move you're looking for.

 

I'm not looking for a move, I am stating my observations. I do not have opinions.

 

I argree with Habi, the Dow looks less likely to rally than the others but again, where do you see professional money taking a position on one side or the other here? The highest volume we've had in 2 months occured on a downbar with what appears to be a bottom reversal shortly afterwards (see chart).

 

There does not appear to any support from the players that matter on the daily chart, the the longer term picture remains bearish, the market appears to be resisting the upside because there are weak bars as the market goes up to the bottom trend channel.

 

On both the YM and ES our most recent 'background' has been strength, back in March. Has there been a cause for a downmove established? I'd actually like to hear from Eiger if he's around to.

 

I don't see any strength appearing, there is high volume on a down bar that you are pointing out, but there is no back up to your bar, no confirmation of strength, you cannot look at bars on an individual basis.

 

I wouldn't mind a VSA analysis of what one might be seeing, to give the impression of weakness, apart from a trend channel.

 

Sorry, but I don't have the time to do bar by bar anymore.

 

Maybe it's our defenition of weakness to. Are we all talking about a correction as weakness?

 

It appears to me that you all seem to have a view, or opinion, this can be dangerous as you get sucked in to your belief and that is how the herd get slaughtered, don't be one of them.

 

Regards Sebastian

[firewalker 10]

Regards Sebastian

 

Excellent post imo. I think a lot of people are looking for 'opinions', while sharing observations in itself can also be very beneficial.

 

Here are couple of personal observations on the charts you posted:

 

 

 

It shows a slightly weaker DOW.

[jjthetrader 10]

Regards Sebastian

 

Thanks Seb. The bars that I noted as strength but you pointed out didn't have follow through, could this be attributed to professionals adding in volume at different times in a move than we're used to in a bull market? In a bull market pros add volume at the bottom but in a bear market they trade differently. How do you adjust your observations on VSA, and avoid false signals, in a bear market?

Thanks

JJ

[Seb Manby 11]

Hi JJ;

 

Low volume up bars closing off the highs indicate that the smart money are NOT intrested in the up moves, also, no shake out of the market on bad news is absent, please note that the real volume is absent on the Dow, but I am collecting the real volume now.

 

Reagards Sebastian

[Eiger 10]

 

There are different ways to plot a trend channel in the ES chart and another solution is a wedge, which is brocken to the downside as already presented by Eiger.

 

 

Hi Habi,

 

I don't think I referred to a wedge - I don't usually put much stock into wedges, flags, triangles, etc. They really don't have much meaning for me.

 

I was talking about the downside break through the Demand Line from the mid-March lows on the daily chart. Since there was some rounding over at the highs in May, an UpThrust-like bar on the 19th with the next bar down, and then a break of the trend line on an increase in volume and wide spread, it indicated bearish implications. I believe this is the widest spread down bar with the largest volume since the beginning of the rally, mid-March. Thus far, there has been no successful Test of this, so to me, there is weakness. There was also quite some volume on Friday on a very narrow spread, and now this morning the response is down. So that seems like more weakness.

 

There is also the weekly chart. Two weeks ago, the market made an effort to go higher early in the week, but the result was that we closed under the lows of the previous three weeks. So, weakness on the higher time frame via a Top Reversal, as well.

 

Eiger

Edited June 2, 2008 by Eiger

[habi 10]

I don't think I referred to a wedge - I don't usually put much stock into wedges, flags, triangles, etc. They really don't have much meaning for me.

 

 

Hi Eiger

 

I was referring to your post 1224, I had this chart with the wedge in my head. But I see now, that it was this exercise explaining action/reaction.

 

I fully agree with your analysis, I had similar ideas too. I was most surprised about Sebastians statement (post 1276): "The SP emini daily chart does look weak, but the Dow cash does appear to have the potential to rally..." In my opinion, if the Dow had some potential to rally, then the ES should have about the same potential too.

[Eiger 10]

I think Sebastian was probably referring to the small shake out at the end of Friday that would typically lead to a rally the next morning. I think maybe everyone is talking different time frames.

 

The Dow and S&Ps generally do move togther, but not always. On the recent top on May 19, the S&Ps moved higher, but the Dow did not. At the mid-march lows, the S&Ps made new lows, but the Dow held higher. You can see other differences as well, but these two examples stand out.

 

I also think Sebastian makes an excellent point:

 

It appears to me that you all seem to have a view, or opinion, this can be dangerous as you get sucked in to your belief and that is how the herd get slaughtered, don't be one of them.

 

This is really important to always keep in mind.

 

Eiger

[habi 10]

I think Sebastian was probably referring to the small shake out at the end of Friday that would typically lead to a rally the next morning. I think maybe everyone is talking different time frames.

 

The Dow and S&Ps generally do move togther, but not always. On the recent top on May 19, the S&Ps moved higher, but the Dow did not. At the mid-march lows, the S&Ps made new lows, but the Dow held higher. You can see other differences as well, but these two examples stand out.

 

I also think Sebastian makes an excellent point:

 

It appears to me that you all seem to have a view, or opinion, this can be dangerous as you get sucked in to your belief and that is how the herd get slaughtered, don't be one of them.

 

This is really important to always keep in mind.

 

Eiger

 

Hi Eiger

 

Yes, I now, that the Dow don't move exactly the same way like the SPX/ES, but mostly the main direction is the same. In this case, the Dow was a little bit weaker then the SPX. If you look at last weeks candles in the daly chart, then it's hard to find some differences.

 

It appears to me that you all seem to have a view, or opinion, this can be dangerous as you get sucked in to your belief and that is how the herd get slaughtered, don't be one of them.

 

Look at Sebastians statement in post 1276: The SP emini daily chart does look weak, but the Dow cash does appear to have the potential to rally, there was a shake out on Friday on the intraday chart so I do expect Monday to open higher

 

This is a view or opinion too. You need to have an opinion/view. If you say the market is strong or weak, or it has some potential to rally/fall, then you have allready a view or opinion about the market condition. Since may 5 (in the dow possibly earlier) the Dow and SPX turned bearish and we have to find out, how long this is valid. If we see some strengt at one point then we have to change our view.

[Eiger 10]

Hi Eiger

 

 

.. You need to have an opinion/view. If you say the market is strong or weak, or it has some potential to rally/fall, then you have allready a view or opinion about the market condition. Since may 5 (in the dow possibly earlier) the Dow and SPX turned bearish and we have to find out, how long this is valid. If we see some strengt at one point then we have to change our view.

 

Yes, I agree we all develop an opinion or a view ...

 

BTW, I didn't post Seb's quote as a comment about you, Habi. It's something i always have to remember for myself, and I know that a lot of traders fall into the trap of having a bias, including some excellent traders from time to time.

 

... The best traders I have seen and worked with have a view, but are lightening quick to change that view when market conditions tell them to do so. If you look, for example, at Sebastian's VSA analyses (on other forums) you can see him change his view about the market being strong or weak throughout the trading session. As the bars unfold, he says in sync with the market and allows the market to tell him what to do.

 

How many traders do you think stayed short and added to shorts yesterday, despite the SC just before 1:00? The morning session was weak and it looked like it might continue lower to retest late May lows. But the climactic action told us to consider changing our view.

 

Much of the problem we have as traders is that our ego gets involved. We want to be right more than we want to make money. It's at the heart of many, if not most trading difficulites. It is, for example, why we tend to cut our profits short and let out losses run. Our ego always has a view and is always trying to tell us what the market should do.

 

Dave Mathys, the Director of Trader Education at Wyckoff/SMI in the 1970s, encourged traders to anticipate rather than to predict. Anticipating the market's next move gives us a little more flexibility than predicting it. Prediction is specific and finite; anticipation is more dynamic. The ego, of course, loves to predict

 

Eiger

[tawe trader 10]

... The best traders I have seen and worked with have a view, but are lightening quick to change that view when market conditions tell them to do so.

 

George Soros springs to mind...............

 

I've read numerous interviews with traders who have worked with (and for him) and they all say that Soros is the world's best at changing his mind.

 

Perhaps he learnt many years ago, to leave his trading ego at home every morning.

 

Tawe

[Eiger 10]

George Soros springs to mind...............

 

Perhaps he learnt many years ago, to leave his trading ego at home every morning.

 

Tawe

 

One of my favorite passages comes from the Marty Schwartz interview in Market Wizards. Schwartz was saying that he basically failed as a trader for about 10 years, and then Jack Schwager asked him the following question:

When did you turn from a loser to a winner?

 

This is Marty Schwartz's reply (pg 264):

When I was able to separate my ego needs from making money. When I was able to accept being wrong. Before, admitting I was wrong was more upsetting than losing the money. I used to try to will things to happen. I figured it out, therefore it can't be wrong. When I became a winner, I said, "I figured it out, but if I'm wrong, I'm getting the hell out, because I want to save my money and go on to the next trade." By living the philosophy that my winners are always in front of me, it is not so painful to take a loss. If I make a mistake, so what!

 

I found a tremendous amount of personal value and meaning in this passage. I thought about this statement an awful lot for a long, long time. It is pasted up on my bulletin board where I keep important reminders. It really helped turn my trading around.

 

Eiger

[Eiger 10]

Nice set-ups on the 3-minute ES chart this morning. Climactic volume and spread over two bars at A, followed by a nice No Demand three bars later on narrower spread, low volume at B, and again later at C. There was also a small tick divergence on the highs.

[jjthetrader 10]

This is a view or opinion too. You need to have an opinion/view. If you say the market is strong or weak, or it has some potential to rally/fall, then you have allready a view or opinion about the market condition. Since may 5 (in the dow possibly earlier) the Dow and SPX turned bearish and we have to find out, how long this is valid. If we see some strengt at one point then we have to change our view.

 

I agree with Habi. We all take a view or opinion. Observing something and then stating something from your minds filter is your view. Thus Seb has an opinion no matter what he thinks. In order to take a position we have to have an opinion and be confident in it. But as Eiger pointed out we need to be able to trun on a dime.

Being interested in VSA we have to be careful not to be part of another herd, the tradeguider kind that is borderline fundamentalists of their views.

[jjthetrader 10]

I'm not sure if anyone trades the ER2 here but I do so I'll post a nice example that gave us a hint at which direction the news would take us.

 

We gap up this morning, above value, and point "A" looks like it might be a top reversal. But then we see that the two bars before "B" dip into yesterdays value area and are rejected closing in the upper half of their range. This is the first hint.

Then look at the volume on Point "B". That is no interest to the downside (no supply) at the moment and the next bar closing up would be further evidence that you should be long. The no supply could have been an entry even without the next bar up in my opinion.

 

Just thought this was a good example and someone may enjoy it.

Cheers.

[jtbirk 10]

Hi everyone,

 

I'm interested in learning more about VSA and am amazed at the volume (no pun intended) of information in parts one and two of this thread. I'm a futures emini trader and am looking to implement this methodology but have no idea where to start my educational process. Do I need to just buckle down and start with post #1 in part one of this thread or is there an "understanding and implementing the basics" checklist or something I can start with? I also got an email from a subscription service touting the benefits of their VSA signals but I'm guessing I'll be able to learn it on my own with some help from those on this thread who have more experience than I with VSA. Your thoughts and direction are much appreciated. Have a great trading day.

 

Jeff

[Seb Manby 11]

Hi everyone;

 

I wish to clarify something, I allow the market to tell me it's immediate future, which is what Wyckoff stated, I do not form opinions or views, I state what I can see and what I expect to happen next, based on what the market is telling at that point, if it does not happen, then I wait until the next development or change in conditions, the professional money will always show their hand to those who can read it, usually just before a move in one direction or another, also, no one can control the market, but those who can read the laws of supply and demand can adjust their trading strategies. There is manipulation in all markets, but this can only be for a very short time, else it will be traded out of the market by other big traders watching.

 

In posting my charts, I was not clear as to what to look out for, this is why there was confusion, when I said the Dow had the potential to rally, I should have said the next day should have been up, but it was down instead, this would have wiped out any temporary sign of strength, a down bar on a narrow range indicated that the Dow was potentially supported on that day, meaning that it was not allowed to fall through the floor, this did not appear on the SP Emini, also, on the chart that I posted, there was a small selling climax right at the end of the session (5m chart), this usually means a rally for the opening of the following session. this did not materialize, again an effort to support the market for the following day, but there was too much weakness around which I also observed, again I allowed the market to tell me it's likely direction, but I would be foolish to cling to opinions or views. The market is like a pool of water at the top of a hill, it will not run straight down the hill, it will meander and twist and turn until it finds the path of least resistance to the bottom.

 

I hope this clears up the confusion of my previous posts.

 

Regards Sebastian

[Sledge 13]

ER2

 

Just thought this was a good example and someone may enjoy it.

 

VERY NICE example JJ! Thanks for posting this up for the rest of us to learn from!

 

Aaron

[Sledge 13]

Seb-

I know you use smaller timeframes at times. Do you generally look at the market from a Daily or 4 hr chart and apply VSA principles to them? Or do you trade smaller timeframes?

Aaron

[jjthetrader 10]

Hi everyone,

 

I'm interested in learning more about VSA and am amazed at the volume (no pun intended) of information in parts one and two of this thread. I'm a futures emini trader and am looking to implement this methodology but have no idea where to start my educational process. Do I need to just buckle down and start with post #1 in part one of this thread or is there an "understanding and implementing the basics" checklist or something I can start with? I also got an email from a subscription service touting the benefits of their VSA signals but I'm guessing I'll be able to learn it on my own with some help from those on this thread who have more experience than I with VSA. Your thoughts and direction are much appreciated. Have a great trading day.

 

Jeff

 

Hey Jeff, Master the Markets ebook or "the undeclared secrets that move the market" ebook (same book less TG advertising) is the best place to start really. These forums will complement that.

[tawe trader 10]

Hey Jeff, Master the Markets ebook or "the undeclared secrets that move the market" ebook (same book less TG advertising) is the best place to start really. These forums will complement that.

 

Hello Jeff,

 

As JJ as pointed out, the books mentioned above are an excellent starting point. Master the mkts is currently being given away free on http://www.tradeguider.com/book.

 

There is an ton of priceless info on these two VSA threads but they could be a bit hard to follow without knowing the basics.

 

I suggest you read either one of these books and then come back to TLab.

 

Also any books to do with Richard Wyckoff are well worth reading (as VSA is based on Wyckoff principles). There is a nice (cheap) book called Charting the Stockmarket - The Wyckoff Method by Jack Hutson.

 

Regards

Tawe

[Eiger 10]

Hi everyone;

 

... I allow the market to tell me it's immediate future, which is what Wyckoff stated, I do not form opinions or views, I state what I can see and what I expect to happen next, based on what the market is telling at that point, if it does not happen, then I wait until the next development or change in conditions ...

Regards Sebastian

 

A lot of value in that statement, and quite worth adopting as an approach to analyzing the market. Thank you, Sebastian.

 

Eiger

[jjthetrader 10]

Here's a 15 min ER2. This gives an excellent picture with VSA signals that the upside was limited.

 

"A" was a top reversal and this set our background.

"B" is a confirmed no demand

"C" is a second no demand chance to short if you missed the first one.

 

Today was a beautifully clear VSA day.

 

In my previous example we get a hint at which way the news would take us and this was a perfect opportunity for the professional money to sell into. But their longer term actions showed up on the 15min.