[VSA] Volume Spread Analysis Part II

[Eiger 10]

I like to keep an eye on the higher time frames during the day. Even though I don't trade off them (because the stops would be too wide), they can often give a good indication about what might be coming later in the day or tomorrow. Strength or weakness on these time frames tend to continue for a while.

 

Today's 60 & 30 minute charts in the ES gave a nice clue about the sell off. The 60-min showed weakness during the first hour (A), and then had an UpThrust (B). The 30-minute chart showed the first hour weakness even more clearly (1 & 2), and showed continued weakness as the volume fell off on the rally to retest the highs at 2. The 30-minute chart then gave a Top Reversal at 3, with the high higher than the previous bar and a close below the low of that bar. From that point, weak bars on the lower time frames could be shorted with added confidence.

 

Eiger

[Eiger 10]

Hi everyone,

 

I'm interested in learning more about VSA ...

Jeff

 

As others have said, get the book. In addition to these recommendations, look up and study Sebastian Manby's nightly VSA analyses that he did mostly in Nov-Dec last year and Jan this year. You can find them on the T2W site and Elite Trader (use Google). There might also be a couple here, too. These are invaluable.

 

Eiger

[Seb Manby 11]

Market took a big hit today, i have posted a 10m chart, and this chart shows very high volume on an up bar which I have placed the cursor to highlight. This shows supply and a negative bias into wednesday. There was also more weakness 25 mins before the close. On the daily chart we have a down bar on high volume close off the low, the close bounced off a low going back to 27th May, this could be interesting to follow if this holds or not. I did not see smart money buying into the close, this tells me that they are not interested in a high open wednesday, Although, we could have a shakeout within the first 2 hours of wednesday's session. If the market is really weak, it will just continue down, lookout for 1370.5 as a low. most important: Keep an open mind.

 

Regards Sebastian

[tawe trader 10]

European mkts and US futures are currently well down this morning.

 

There was a VSA 'clue' on the FTSE yesterday. The FTSE closed up on the day with a good rally to finish but there was ultra high volume on the upbar close.

 

This is a very good indication of potential weakness (this ties in with what Seb has mentioned above, on the ES) which has appeared today and the FTSE has dropped over 100pts (1.6%) from yesterdays close.

 

I closed out a profitable long trade at the mkt close yesterday and obviously with hindsight, I should have opened up a new short trade, to hold overnight. :crap:

 

Tawe

Edited June 4, 2008 by tawe trader
.

[Eiger 10]

The discussion over the past few days about having a view, market bias, the ego, Marty Schwartz, etc has been a good one, I think. It caused me to think quite a bit more about the subject. It is so important to our trading, because it is the easiest thing to take us astray. In VSA trading we are trying to follow the footprints of the professional money, but when we have a view or bias, we become part of the herd, don't we? It's just the opposite of what we are striving to achieve. In my thinking, that becomes a major trading Mistake.

 

So, i spent last night reviewing the section of my trading plan that speaks to this, and made a few adjustments. It is copied below. You'll see that there is quite a bit of Mark Douglas, Schwartz, and others in there -- standing on the shoulders of giants, for sure. I would, however, appreciate comments. Is there any additional ideas that would be worth considering?

 

My trading methodology is based on probabilities and there is an important paradox in trade outcome that I must manage psychologically. The paradox is this:

 

With a large sample size, the probability of a trade set-up can be determined, but the outcome of any individual trade is not able to be known in advance. This means that the outcome of an individual trade meeting all the criteria of my trade set-up is always uncertain; it may or may not result in a win. However, over a series of trades meeting the criteria of my trade set-up there is a definable winning edge.

 

Thus, I must operate within the paradox that the market is relatively uncertain and unpredictable in the context of an individual trade; but over a large sample of trades, it is certain and predictable. This means that when I put on a trade, I do not have to know what is going to happen next in order to make money. What I do know is that over time with a large number of trades, the higher probabilities associated with my edge will prevail and I will make money.

 

Therefore, it is always important to remember that being right about a trade has no meaning in my trading. Further, holding onto a bias about market direction is also meaningless. Maintaining an open mind and patiently waiting for my trade set-ups is the productive way to operate in the market. Winning trades are always in front of me. I know this because of my trading edge. It is never painful to take a small loss, and it is never a Mistake if the loss occurs as a result of a trade taken because it met my trade set-up criteria; it is just a cost of doing business.

As I said, comments and ideas would be much appreciated.

 

Eiger

[MA1 10]

Hello, thank-you all for these great threads on VSA. I am reading through both 1 and 2, so much to learn. If I may have a question, how much relevance do people place on the close price, specifically on the intra-day charts where it is not really a close at all? What would be the effect of using this sort of analysis if there was no close price placed on the intra-day chart and traders only looked at the high/low range with volume, no open or close? Would the VSA/Wyckoff method lose much if 'close' on intra-day bars was not considered? Thankyou - Mary

[jjthetrader 10]

Hello, thank-you all for these great threads on VSA. I am reading through both 1 and 2, so much to learn. If I may have a question, how much relevance do people place on the close price, specifically on the intra-day charts where it is not really a close at all? What would be the effect of using this sort of analysis if there was no close price placed on the intra-day chart and traders only looked at the high/low range with volume, no open or close? Would the VSA/Wyckoff method lose much if 'close' on intra-day bars was not considered? Thankyou - Mary

 

Hi Mary, personally I don't get too fundamental about VSA and thus the close only gives me an indication or sorts. Multiple bar closes give you a better idea. If 3 bars are closing off the highs that's more of an indication of something than 1 bar happening to close off the high. We have to read it as a whole and not put too much emphesis on any one factor. Close in relation to other closes tell you a great deal. Great question.

[Eiger 10]

Hello, thank-you all for these great threads on VSA. I am reading through both 1 and 2, so much to learn. If I may have a question, how much relevance do people place on the close price, specifically on the intra-day charts where it is not really a close at all? What would be the effect of using this sort of analysis if there was no close price placed on the intra-day chart and traders only looked at the high/low range with volume, no open or close? Would the VSA/Wyckoff method lose much if 'close' on intra-day bars was not considered? Thankyou - Mary

 

Hi Mary,

 

Welcome to the VSA forum.

 

The close is pretty vital to VSA. We place a lot of emphasis on whether a bar is an up bar or a down bar, and this is determined by the close. Many of the VSA indications are based at least in part on the close of a bar. The 60-min chart of the ES has a few examples. The close at bar A shows that, although an up bar, the close below the middle and high volume indicates there was weakness on that bar. The next bar is an up bar, but on No Demand. No Demand only occurs on up bars. Had this bar closed level or on its low, it would have a different meaning. Bar B closed on its low and is an UpThrust. It we didn't have the close on this (or any of the bars) and only had the spread, it would be difficult to read the bar. We wouldn't know, for example, that A and B were weak bars because we wouldn't know how they closed. Finally, bar C is an up bar and is a Hidden Test and indicates strength. So, for VSA the close is important.

 

I think if you just looked at the range of the bar with volume, you wouldn't be able to read the chart. That being said, you can read the intraday market in another way, which doesn't use the close. VSA is based on Wyckoff and Wyckoff did develop what is known as the Wave Chart for intraday trading. This tracks the intraday swings or waves, and is a very helpful way to read the intraday market. When tracking and comparing intraday waves, you would be looking at support and pressure via price, the length of time for each wave, and the volume associated with the wave. I personally use a wave chart, but it is not a standard part of VSA.

 

Eiger

Edited June 4, 2008 by Eiger

[Eiger 10]

Chart for above

[Eiger 10]

Nice short set-up on the 3-minute in ES:

 

A - Weakness on above average volume.

B - Effort to rise on low volume, poor result.

C - 2-bar UpThrust on above average volume, followed by:

D - No Demand

E - No Demand.

 

Lots of synergy in this. Weakness in the background at A-B. The overall volume at C on the attempt to break to new highes was insufficient. VSA indications in the right place at C, D, & E.

 

Eiger

[tawe trader 10]

Thus, I must operate within the paradox that the market is relatively uncertain and unpredictable in the context of an individual trade; but over a large sample of trades, it is certain and predictable. This means that when I put on a trade, I do not have to know what is going to happen next in order to make money. What I do know is that over time with a large number of trades, the higher probabilities associated with my edge will prevail and I will make money.

 

Therefore, it is always important to remember that being right about a trade has no meaning in my trading. Further, holding onto a bias about market direction is also meaningless. Maintaining an open mind and patiently waiting for my trade set-ups is the productive way to operate in the market. Winning trades are always in front of me. I know this because of my trading edge. It is never painful to take a small loss, and it is never a Mistake if the loss occurs as a result of a trade taken because it met my trade set-up criteria; it is just a cost of doing business.

 

As I said, comments and ideas would be much appreciated.

 

Eiger,

 

Excellent advice, I try to trade this way everyday but it's easier said than done. Note to self - must try harder.

 

Trading is simple, but not easy...............which is why I presume, the majority don't make it.

 

I'm not sure if Marty Schwartz said the following but I have it written down in a notebook of mine, under one of his quotes:-

 

THE SOLE OBJECTIVE OF TRADING IS NOT TO PROVE YOU'RE RIGHT, BUT TO HEAR THE CASH REGISTER RING.

 

Regards

Tawe

Edited June 4, 2008 by tawe trader
.

[Seb Manby 11]

This evening, I am going to concentrate on the daily chart, because I think it is more intresting than the intraday chart. Today we had a down day but look at the close, it is close to the close of the previous day, but the volume is high, this tells us that there has been support at the lows of the session, also that the low of the previous bar has not been broken, this is a potential sign of strength, yes there is still supply around, but buying off the lows we should be alert. If thursday is an up day, then danger for the bears, we would be then looking for a low volume down day to follow, closing off the lows on low volume, this would tell us the the lower trend channel could be revisited, look for signs of strength as it approaches the lower trend channel if this happens. we would be back into an up trend, and the news channels will of course be well behind the curb as usual.

Non farm payrolls on Friday, this could push the market up and through the lower trend channel, after a shakeout.

There was late buying in the last hour of the trading on the 10m chart, meaning Thursday could open higher on the open.

 

Regards Sebastian

Edited June 4, 2008 by Seb Manby

[Seb Manby 11]

Hi Mary,

 

Welcome to the VSA forum.

 

The close is pretty vital to VSA. We place a lot of emphasis on whether a bar is an up bar or a down bar, and this is determined by the close. Many of the VSA indications are based at least in part on the close of a bar. The 60-min chart of the ES has a few examples. The close at bar A shows that, although an up bar, the close below the middle and high volume indicates there was weakness on that bar.( you must explain to Mary what weakness is, why it appears, after all she is new and may not understand what you are talking about) The next bar is an up bar, but on No Demand.( Again, what is no demand to someone new?. i would not know what you were talking about) No Demand only occurs on up bars. Had this bar closed level or on its low, it would have a different meaning. Bar B closed on its low and is an UpThrust. It we didn't have the close on this (or any of the bars) and only had the spread, it would be difficult to read the bar. We wouldn't know, for example, that A and B were weak bars because we wouldn't know how they closed. Finally, bar C is an up bar and is a Hidden Test and indicates strength. So, for VSA the close is important.

No offence Eiger, but these can be quite technical terms to someone with no experience, I remember when I first got Tom's program back in 96, I could not make head or tail of it, I just sat there watching it hoping that something would make sense.

 

I think if you just looked at the range of the bar with volume, you wouldn't be able to read the chart. That being said, you can read the intraday market in another way, which doesn't use the close. VSA is based on Wyckoff and Wyckoff did develop what is known as the Wave Chart for intraday trading. This tracks the intraday swings or waves, and is a very helpful way to read the intraday market. When tracking and comparing intraday waves, you would be looking at support and pressure via price, the length of time for each wave, and the volume associated with the wave. I personally use a wave chart, but it is not a standard part of VSA.

 

Eiger

 

Don't take offence from my post, it is not mean't to be offensive or rude, but we must consider others with less background than ourselves, in time this will change.

 

Regards Sebastian

[Eiger 10]

Hi Seb,

No offense taken at all. In fact, thanks for pointing that out. It is easy for me to slip into the technical terms and not realize others might not have a clue. And, you are quite right that this can seem very foreign when just starting with it - it certainly was for me for a very long time, too. I can see how it could be disheartening, which we don't want. I'll put together some explaination for Mary.

 

Also, I appreciate the daily anaysis you posted.

 

Eiger

[jjthetrader 10]

The ER2 15min gave some excellent signals for a short signal at the top today. It's amazing that the same setup came two days in a row.

[MA1 10]

Thank-youall, jjthetrade, Eiger, and Seb Manby for your responses. Eiger, please do not post more in response I have plenty of reading in the threads and the replies to be getting on with and I think I will find a lot of answers in there. I am very thankful for the responses you all have posted so far and will have more questions so do not want to wear out a welcome.

[Eiger 10]

For Mary,

 

First, my apology if my earlier explanation only served to confuse you. That certainly was not the intent. I’ll do my best to try to explain weakness and some of the technical terms I used. Others should join in and help clarify.

 

Basic Idea behind VSA

One of the unique things about VSA is that is looks at the market as a place where stock is transferred from weak holders to strong holders before the start of a bull (up) move, and also where stock is transferred from strong to weak holders at the end of the bull move and before the start of a bear (down) move. This basically means that strong holders buy at lower prices from weak holders and then sell out at higher prices, again to weak holders. This is a process that is ongoing across the different time frames and markets.

 

Strong holders are professional traders. These could be market makers, specialists, very large trading houses, and similar groups and individuals who are well capitalized, very well informed about the markets they trade, and who are experts at reading the market. Weak holders are often considered the public, the average trader, or the herd. These are traders who are generally not well-informed, can’t really read the market, and tend to act in unison. Because of these characteristics, they frequently enter poor positions and are easily shaken out of or scared out of their positions.

 

Reading the Bars & Professional Money

We want to be on the side of the strong holder, or what we often call “Smart Money,” or “Professional Money”. We do this by reading the spread, the close, and the volume of the bars, and the direction of the bars (from the close). Here is a little shorthand aid you might find useful:

 

• Spread
  wide
  narrow
  average
  
• Direction
  up
  down
  level
  
• Close
  highs
  lows
  middle
  
• Volume
  heavy
  light
  average
  

So, from this we can begin to talk about the bars in a common language. For example, A wide spread down bar, closing on the low on heavy volume (spread means the range of the bar, from high to low). Or, a narrow spread up bar, closing in the middle on light volume. By reading the bars in this manner, we can also follow the activity of the Professional Money.

 

Because of the size of their trading, professional activity shows up in the volume and the spread. Heavy volume and wide spread generally indicates that the professionals are active, either buying or selling, as the case may be. Very light volume and narrow spread generally means that the professionals are not active or not interested in buying or selling, as the case may be.

 

We also are always measuring the supply and demand in the market. The markets operate on supply and demand, nothing else. Supply means selling is dominate, and thus prices are either falling or are about to fall, and demand means buying is dominate and prices are rising or are about to rise. We look for the supply and demand created by the professionals, as this is what counts.

 

Professional Buying and Selling, Strength and Weakness

One of the important concepts to understand is that professionals only buy on down bars, and they only sell on up bars. This is exactly the opposite of what most think. Professionals buy on down bars because they are looking to buy very large quantities of stock. If they tried to do this while the market is rising (on up bars) they would put the price up against their buying, and force themselves to pay higher prices. This doesn’t make economic sense. Thus, the Professional Money looks to buy on down bars when others (the herd) are actively selling.

 

The same is true for selling. If professionals sold on the way down, they are causing prices to fall even lower, against their interests (of either selling out and getting a good price for stock bought lower, or selling short in anticipation of a down move). Selling on up bars (usually when the herd is buying) gives them maximum gain for stock bought lower.

 

So, if we want to follow the Professional Money and they only buy on down bars, then Strength, when it comes into the market, will always appear on down bars. Likewise, weakness, when it comes into the market, will always appear on up bars.

 

Application

We’ll take a look at the last two days in the S&P e-mini futures (ES) on the 60-minute time chart to see how VSA can be applied:

 

1 – On June 2, the market opened down and fell from the trading range of the previous two days. It falls on wide spread, closes on the lows on high volume. This indicates weakness or supply in the market. Because there are weak holders who took positions in the trading range over the last two days, the market is rapidly pushed down to put pressure on those weak holders who are long, trapping them and forcing them to sell into the downdraft. The next two bars are on narrow spreads and show no ability to rally. This is continued weakness.

 

2 – The market drops farther, again on heavy volume and fairly wide spread. This bar, however, closes off the lows, indicating some buying came into the market. The next bar is up and the market starts to rise. You can track this rally quite nicely by the closes.

 

3 – On this bar, we have a wide spread (compared to the previous bars in the rally) up bar. Although the bar is up, it closes below the middle. There is also a sudden increase in volume. The wider spread and heavy volume indicate professional activity. The poor close indicates supply or selling came into the market. The market has now potentially turned weak.

 

4 – This is an up bar, average spread, with a good close, but take note of the volume. It is low. VSA compares volume over the past several bars. As a rule-of-thumb, when the volume is less than the previous two bars, it is considered significant. In this case, it is signaling that the Professional Money is not interested in higher prices and are withdrawing from the market. We know this because of the general weakness in the background from the open, and the most recent sign of weakness we see at 3.

 

5 – Price tried to go higher, but immediately falls and closes on its low and back within the spread of the previous bar. In VSA terminology, it is called an UpThrust, and it signifies weakness. Note also that this is the first down bar since the rally began. And now we have three bars in a row (3, 4, 5), all signaling weakness – clear supply at 3, No Demand at 4, and a rejection of higher prices at 5. The market then falls.

 

6 – A very wide spread (what VSA calls “ultra” wide spread) down bar, closing on the lows on ultra high volume. The next bar (7) is an up bar, also wide spread and on very high volume. It is the combination of bars 6 & 7 that are important, as they signal buying coming into the market by the professionals. Perhaps you can see this best by comparing the bars and volume at 6 & 7 with those at 1 and the two bars that followed 1. At 1, the market demonstrated no ability to rally. At 7, the market shot up on good volume. It signifies buying likely occurred on 6 and carried over on 7.

 

8 – As a confirmation (in VSA we always look for confirmation), the next bar dips down and closes low on narrower spread, but note the volume. It is low. It is an early indication that supply is draining from the market.

 

9 – Professionals will frequently test the market, especially after the action of 6 & 7. Although buying came in on 6 & 7, there was also a lot of selling (there had to be to produce all that volume). Professionals test because they want to be sure that supply has come out of the market. If they are buying at these levels in anticipation of higher prices, they want to be sure that when the market is marked up, supply doesn’t come in and swamp the mark-up (if it does, professionals will have to buy into the rise – up bars, so to avoid this, they test the market looking for low volume on dips down into previous high volume areas). Bar 8 and again on 9 is a test of that selling. Note that bar 9 dips into the high volume area of 6 & 7. Bar 9 closes on its highs, but there is still a lot of volume, almost as high as the volume on 6 & 7. This level of volume is indicating that there is still selling in the market. This is the reason the market comes back down to the same area on bar 10.

 

10 - A down bar, close near the middle on above average spread, and again on high volume. The close well off the lows indicates buying (remember, professionals buy on a down bar) and tends to confirm the buying seen at 6 & 7, but there is still a fair amount of volume. The market appears to be turning bullish, but it still may need additional testing.

Well, this has turned into a bit of a primer on VSA, but that is OK as it is quite helpful for me, as well

 

One last thing, all who follow and use VSA owe a deep debt of gratitude to Tom Williams. I certainly do.

 

Do ask questions ….

 

Hope this is helpful.

Eiger

[Eiger 10]

Eiger,

 

... I'm not sure if Marty Schwartz said the following but I have it written down in a notebook of mine, under one of his quotes:-

 

THE SOLE OBJECTIVE OF TRADING IS NOT TO PROVE YOU'RE RIGHT, BUT TO HEAR THE CASH REGISTER RING.

 

Regards

Tawe

 

It sounds like something he would say. He wrote a great little book called Pit Bull that is worthwhile reading.

[mister ed 10]

Well, this has turned into a bit of a primer on VSA, but that is OK as it is quite helpful for me, as well

 

Eiger

 

Thanks Eiger - great primer it is too, really helpful thank-you!

[tawe trader 10]

WHAT'S HAPPENING WITH OIL ????

 

UPDATE

 

Following on from my post (1269) on oil, it looks like we may have seen a top (perhaps temporary). Powerful stuff this VSA, after seeing these signals it was a good time to go short or at the very least, exit any long trades and take profits.

 

From high to current low it's down nearly $12 in a couple of days, I guess that is what happens when there is weakness in the background.

 

Tawe

[winnie 10]

Dear Eiger,

Thank for your clear explanation on VSA. However, I would like to ask you :

1) On Bar 5, it is a down bar with lower volume than before, thus it reflects the selling pressure is not strong ?

2) on Bar 9 , it is an up bar with big volume, thus it reflects the demand is strong ?

how do you know the supply is strong in this bar ?

3) what is mean by UpThrust ? it is same as key reversal bar ?

4) if you use this chart to trade, and you hold a short position , would you take profit in the big volume down bar in Bar 6 ?

Sorry for so much information.

Thanks for your time

Winnie

[Eiger 10]

Dear Eiger,

Thank for your clear explanation on VSA. However, I would like to ask you :

1) On Bar 5, it is a down bar with lower volume than before, thus it reflects the selling pressure is not strong ?

2) on Bar 9 , it is an up bar with big volume, thus it reflects the demand is strong ?

how do you know the supply is strong in this bar ?

3) what is mean by UpThrust ? it is same as key reversal bar ?

4) if you use this chart to trade, and you hold a short position , would you take profit in the big volume down bar in Bar 6 ?

Sorry for so much information.

Thanks for your time

Winnie

 

Hi Winnie,

Thanks for the questions - these are good ones.

 

Bar 5 is a down bar on lighter volume. There are two things that are important about this bar. Most important is where it occurs. It comes after two other signs of weakness. Second, is is what VSA calls an Upthrust. An Upthrust is a bar that goes higher than the previous high, reverses, and comes back down to close on its low. The close is also lower than the prior bars high, penetrating into the prior bar's range, and best when the close if lower than the prior bar's close. It signifies that higher prices were rejected. Please keep in mind, though that the background is crucial. Bar 5 occurs after weakness, and essentially is conifming that weakness with the rejection of higher prices.

 

Look at Bar 8. Technically, this, too, is an upthrust. It goes above the prior bar's high and closes within the range of the prior bar and on its low. However, there is no weakness in the background, but strength. Therefore, we ignore this as an upthrust. This is a nuance of sorts, but even if you saw this as an upthrust, the next bar would cancel the upthrust interpretation.

 

Bar 9 - The character of the price bar indicates there is buying. It dips below the previous bar and closes on its high and the close is within the upper half of the previous bar (8). This is bullish. However, there is a lot of volume on this bar. Compare the volume at 9 with the volume at 6, which is the highest volume on the chart. Bar 9 has nearly the same volume as 6. Very high volume on an up bar indicates supply is still present. One of the axioms of VSA is that markets do not like very high volume on up bars -- why? because supply is present and supply (selling) could swamp demand as professinals try to take the market higher. This is why we see another attempt to test that volume at 10. But, as noted, the volume at 10 was also high.

 

On my charts in the volume window, you see three lines - one solid and two dashed. The solid line represents average volume (20 bar simple moving average). The dashed lines are standard deveiation lines, representing 2 SDs and 4 SDs respespectively. You can think of 2 SDs as very high volume and 4 SDs as ultra high volume.

 

I wouldn't actually use the 60-minute chart to trade off. The stops would be too wide. I would drop down to a smaller time frame (3, 5, or 10-minute charts) and look for a VSA trrade set-up there. To answer your question though, I would definately take my trade off if I saw a bar like that. The spread and volume indicate the potential for a reversal. Plus, had i been lucky enough to be in a trade and a bar like this occured, I would consider it a gift

 

Hope this is helpful,

Eiger

[tawe trader 10]

One last thing, all who follow and use VSA owe a deep debt of gratitude to Tom Williams. I certainly do.

 

Eiger,

 

I agree, us VSA'ers are very grateful to Tom W but I believe all of us (especially any new traders) on this thread, owe a great deal of gratitude to you also, for all your posts. They are truly educational, insightful and very helpful.

 

Plus you are giving up your free time and posting here for no financial gain to yourself. You are not trying to sell anything and in a world full of tricksters, con-artists and snake-oil salesmen (this trading business attracts them like no other), it is very refreshing and fantastic to see.

 

Anyway, I'd just like to say thank-you very much.

 

Tawe

[Eiger 10]

Thanks for the kind words, Tawe. I appreciate them. I must tell you, though, that I get an awful lot out of doing this. When Sebastian suggested a wee bit more clarity was needed (rightly so), I had to think about how to do this. As I did, the structure of VSA and how to apply the principles became even more clear to me. So there is a some self-interest here

 

You know, the more I study and trade VSA, the more I appreciate the incredible work Tom Williams has done and given all of us. What a gift! His original book, The Undeclared Secrets that Drive the Stock Market is simply amazing, and the book that turned my understanding of markets and trading around. Though, as Sebastian said, even having this material in hand, it took me a fair amount of study and lots and lots and lots of miss-steps to begin to really understand it and to begin to apply it in trading. Even then, it wasn't until I tripped across Sebastian's series of daily analysis that I began to truly understand how to apply it. Sebastian is a true master at this. I've studied the work he published on the trading forums, his videos for TG, and TG's London web cast -- he is a remarkable trader and a helluva educator. If you really want to understand VSA, go seek his stuff out.

 

--------------------------------------------------------------------------

 

Yesterday, we looked at the 60-minute chart (ES). One of the cool things about the market is that it is fractal. Tom Williams points this out. Fractal means, in part, that the same VSA principles apply across different time frames. It's a little bit like deja vu, or 'history repeats itself'. Here is a piece of the market (ES) on the 3-minute time frame from today. Compare this with the 60-minute chart posted yesterday:

 

A - an Upthrust (like Bar 5 on the 60-min chart)

B - No Demand (when we see No Demand after weakness has occurred in the background, we know there are very good odds the market will be unable to rally very far)

C - another No Demand

D - Ultra high volume on a wide spread down bar, closing in the middle, next bar shoots up and closes on its highs - Demand has come into the market on the professional side (because of the ultra high volume -- look familiar? Not really sure? Look at Bars 6 & 7 on the 60-min)

E - a Test on volume less than the previous two bars -- supply drying up and the market begins to rally

F - a little supply (weakness) comes into the market - a fairly wide spread up on a sudden increase in volume, closing well off the high (in the middle). There was selling on this bar, and this could be expected as we run into an old congestion area (red line) to the left where we know there are some trapped traders with poor positions.

G - although we see weakness on F, it is immediately tested on G - a narrow spread, down bar on very low volume, close in the middle. Because of the spread and the volume, we know professional money is not interested in the downside. Thus, higher prices must be in the offing. And, of course, they are.

H - another nice test followed by a further rally.

 

Although different, this is almost the same set of principles that occurred yesterday on the 60-min time frame. It doesn't matter what time interval, VSA principles work.

 

Hope this is helpful,

Eiger

Edited June 6, 2008 by Eiger

[elovemer 10]

...before today's big up move.... thursday

.... monday.... average spy volume finished half way up the daily bar

.... tuesday... massive volume.... but closed almost half way up the bar

.... wednesday... doji at lower end of bar....inside bar.... very high volume

.... to me this seems like clear signs of accumulation

 

....although i am posting this ex post facto.... it seems that there may be more to come in the way of upside

....others posted about possible accumulation... but they did not seem convinced

 

.... am i wrong in interpreting this as being a very very clear sign of accumulation?

.... just curious as to why others more knowledgeable than myself with VSA were not more certain about this

..... or was it not as clear beforehand as it seems to be now.... in hindsight ?

 

thanks

amateur at vsa here