[VSA] Volume Spread Analysis Part II

[gassah 10]

.... 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 ?

amateur at vsa here

 

As you gain experience you'll find that setups are rarely "very very clear" because you will come across similar examples where the market goes in the opposite direction. There are only probabilities, no certainties.

[winnie 10]

Dear Eiger ,

Thank you for you kind effort to explain the VSA.

However as you said that :

"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."

I do not understand that why high volume on an up bar indicate supply is great instead of demand is great ? Traditional , high volume on an up bar should be good for an uptrend

.

Thanks again for your kind help

[mister ed 10]

Dear Eiger ,

Thank you for you kind effort to explain the VSA.

However as you said that :

"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."

I do not understand that why high volume on an up bar indicate supply is great instead of demand is great ? Traditional , high volume on an up bar should be good for an uptrend

.

Thanks again for your kind help

 

 

 

Hi Winnie - good question and one I am sure many have. A good resource to study is Master the Markets as it answers many questions such as yours.

Edited June 6, 2008 by mister ed

[winnie 10]

Dear all VSA expert ,

I have read the book "Master the markets" and I don't understand why the Smart money need to test the market before the uptrend finally move . Below is the passage from the book:

"The best way to find out is to rapidly mark the prices down. This challenges any bears around to come out into the open and show their hand. The amount of volume (activity) of trading as the market is marked down will tell the professional how much selling there is. Low volume, or low trading activity, shows there is little selling on the mark-down . "

How do they know the selling pressure is small when they mark down the price ?

Thanks for all your kind help

[gassah 10]

There are only probabilities, no certainties.

 

Didn't have to wait long for that lesson.

[elovemer 10]

...it seems that the big boys accumulated.... only to provide themselves with an exit before the drop.... possible

....to those who took the rocket ship up to get short.... nice job....

.... those who act... are the ones who deserve the gains....

... anyway... VSA provided a great opportunity to you who knew how to read it...

.... i will look to the next opportunity as i misread the speed of this rise....

... thanks for your response gassah....

.... i think that this drop would have been much more surprising had it not been preceded by the manufactured exit which followed the accumulation (i realize the market does not care what i think :0) )

....had the market tanked immediately after the accumulation period... it would have been more confusing to me (i was hoping for more upside:0( )....

 

... thanks for this thread and all the contributors.... i appreciate the education you all provide

... and thanks for putting up with noobs like me

Didn't have to wait long for that lesson.

[Eiger 10]

Last week (and earlier this week), we were talking about the weakness that was becoming evident in the market:

 

• an UpThrust-like bar on May 19

• a rounding over at the highs

• a break of the Demand Line from the mid-March Spring on wide spread and increased volume

• achievement of the first phase count to the downside on the FC

• a Top Reversal on the weekly chart, followed by weekly No Demand.

Some buying came in on Wednesday and Thursday, but persistent high volume indicated supply remained present. There was no test to show supply had been drained out of the market. We had weakness in the background, and as Tom Williams points out, the background doesn’t go away.

 

Friday’s break was on the widest spread and heaviest downside volume since the rally off the mid-March Spring.

 

The 5-point FC (S&P cash market) has a count across the 1415 line that was broken into two phases. Phase A indicated sufficient cause to drop to the 1375 level, and this was achieved by the market. As noted, a market will frequently stop around the first phase objective and build a “stepping stone” count and confirm the second phase, if it intends to go lower. This is also a useful timing indicator. The market has built that stepping stone cause to confirm the Phase B objective of 1325.

 

The 3-point of the 5-point FC (not shown) shows a cause to the 1310 level and there are larger counts on both the 5-point and the 3 x 5 FCs, but, being prudent traders, we always use the more conservative count

 

On the daily cash chart, the ½-way correction point is just below, and this coincides with the Demand Line of the downtrend channel drawn. The Phase B objective of the 1325 area is also were we saw demand reemerge after several days of corrective action.

 

Will the market get to 1325? I don’t know. This is a roadmap that I find useful for the intermediate term, but it is always best to keep an open mind.

 

Hope this is helpful

Eiger

[ubetido 10]

Hi all

 

I have recently come across this VSA analysis of the market and have found it interesting.

 

I am having difficulty working out when the entry and exit points would apply. i generally look at daily charts but still not clear to me.

 

Whilst i understand that one bar doesn't give you the clue how many bars back does one need to go to establish some significance in what they are looking at.

 

Any help would be appreciated.

 

Cheers

U

[Eiger 10]

"The best way to find out is to rapidly mark the prices down. This challenges any bears around to come out into the open and show their hand. The amount of volume (activity) of trading as the market is marked down will tell the professional how much selling there is. Low volume, or low trading activity, shows there is little selling on the mark-down . "

How do they know the selling pressure is small when they mark-down the price ?

 

Hi Winnie,

I think that section of the book must be referring to a Shake Out, which I find to be the most difficult to see real time.

 

The market is marked down rapidly before a mark up to make sure there is no more supply and to take trades away from the average trader by catching stops. When the professionals mark the market down, they are looking to see if supply jumps onto the mark down. We read this in both the spread and especially the volume. If a Shake-Out, volume is generally less.

 

The attached chart is the 15-min ES with three Shake-Outs. It is important to remember that these come in "varying intensities." The first Shake-Out comes after a fall in the market. It occurs on the open. Note that the volume is less than the earlier down wave (though definately still high), and that the bar closes on its highs. The market then goes sideways for a day, before beginning a mark-up. Whatever stops (and there were thousands) were under the lows of the previous two days are now in the inventory of the professional traders, which they are happy to sell back to the herd at higher prices, thank-you very much!

 

Note that a severe drop like this would cause bears to jump onto the downside and sell into it, if there was supply in the market. It would be an opportunity for selling to take control and bring the market down. But, it didn't happen. Thus, it is a Shake-Out.

 

The second Shake-Out occurs at the end of the trading range, just before the market rallies. The Shake-Out closes on its lows and looks as if it will casue the market to fall (in real time), but the bears do not join into the selling. You can see this by the low volume. It is a way for the professional traders to know whether or not there is still supply in the market, which would swamp them as they tried to take prices higher. The next bar is up and the market rallies.

 

The third Shake-Out is similar. A fairly wide spread down, closing on the lows. The lower volume, and the next bar being up, closing on its highs, indicates that this is a Shake-Out. Selling did not materialize when it had the opporutinity to take control and bring the market down. So instead, it risies.

 

Eiger

[Eiger 10]

I keep a running account in a notebook and on an annotated chart of the VSA indications on the 60 & 30-minute charts. I think it is a useful practice and helps me keep track of the structure of the market and what we might expect next. This analysis compliments and gives more refinement to the daily and weekly chart analysis that I posted earlier, along with the figure chart. Keeping this current throughout the day will help you see a change in trend, which you can then look to shorter time frames (10, 5, & 3-min charts) for trades.

 

Here's last week's annotations:

 

The week prior (May 30th) ended with the market in an Apex. An apex simply means an area where price has narrowed its oscillations and comes to a "dead center" point. You can see this fairly easily by drawing a line through the price bars. Wyckoff originally wrote about the apex or “hinge” as one typical area where price is "on the springboard” for a rapid move. Here, price actually gave an indication at the very end of the day that it was weakening.

 

On Monday, price fell out of the Apex and moved easily down (Ease of Movement - Down) on an expansion in volume. Supply swamped demand. Note: here the wide spread and high volume would not indicate a climax because price is just breaking out of an Apex.

 

1 - The market goes sideways, demonstrating an inability to rally. Lower lows and closes indicated supply, and the 30-min chart had an UpThrust bar that initiated lower prices.

 

2 & 3 - The market rallies (note the overall weak character of the rally), but as it comes back into the area where supply swamped demand, supply again comes in at 2 with an increased volume, close well off the highs. The 30-min chart shows this nicely. We next see No Demand at 3 and then an UpThrust on the 60-min chart and a Top Reversal on the 30-min chart. Weakness in the background is confirmed by these VSA indications.

 

We have a Selling Climax that gets tested, but as discussed earlier, there was still quite a bit of supply on the tests.

 

4 - Nevertheless, the market has a rally on Thursday. At 4, we see a wide spread up bar closing on its highs with strong volume. This is price being pushed through the old trading range to the left, and is bullish. This high volume is immediately tested on the 30-min chart. The market goes sideways, maintaining its gains, then a little Shake Out occurs that turns into a Bottom Reversal, and price made its way back up to the supply area of the Apex of May 29-30.

 

Note the character of the action and volume here as it approaches this old top. Compare this with the price and volume at 4 which pushed through an old top. It took a lot of volume and wide spread to push above the trading range at 4. Why would we expect it to overcome the apex trading range that was a clear distribution area on narrower spreads and lighter volume? These are the kinds of nuances we look for in VSA. On the overnight, the market UpThrusted the Apex area.

 

On Friday, the market fell and again we see supply swamping demand. Note the volume is even greater than the June 3rd SC (so we likely didn't have a final SC). Over the noon hour on Friday at 5, just like at 1 earlier, the market showed inability to rally. The market fell during the afternoon on lower lows and lower closes. On the 10-min chart (not shown) some buying came in at the end of the day.

 

So, how does this help us for Monday? We know supply is dominate at the moment, and we have not seen climactic action yet to indicate that the market is ready to turn. We also know from the earlier post that there is more downside potential based on the figure chart and overall higher time frame weakness. Nevertheless, on an intraday basis we are probably oversold (consult your 10 or 15-minute charts and draw tend channels -- we are at the demand line in an oversold position). We also had a little buying come in at the end of the day Friday.

 

So, I would be looking for a test of yesterday's low (or perhaps Globex, if it falls further tonight), and, if successful, a small rally. Because of the overall weakness, though, I would anticipate any rally to be modest and die out in the 1370 area, which is the nearby resistance. If it manages to get above 1370, I would next be looking at the high made on Friday afternoon around 1375-76.50 for a VSA indication to short.

 

Eiger

[hariusa72 10]

Hi Guys

Does anybody here using Hawkeye Traders Volume Spread Analysis? Is it based on Wykoff's theory? Please advice!

 

Thanks

Jennifer

[MA1 10]

Eiger - thank you so much for your post covering the main points of the VSA analysis. I have printed out a hard copy to refer to when studying VSA and for using even in live markets, it is very, very helpful and clear.

[winnie 10]

Dear Eiger,

Thank for your work. It is very very useful. Would you tell me what is the meaning of :

1) S/D

2) T/R : Does it mean Top Reversal ?

3) B/R ; Bottom Reversal ?

4) T W/Supply

Thanks

[winnie 10]

Dear Eiger,

According to your experience, what product volume is used in trading E-mini S&P ? In your daily and weekly analysis , I see you use SPX and NYSE volume . Is is better than use E-Mini futures volume in daily and weekly analysis and use E-Mins S& P volume in intraday analysis ?

Thanks

[Eiger 10]

S/D = Supply swamping Demand

T/R = Top Reversal

B/R = Bottom Reversal

T = Test

 

I use the NYSE volume with the SPX partly because my data provider lags volume by one day on all futures contracts, including the emini, so volume on the daily time frame is difficult to read. I also like to track the actual cash market and the volume of trading on the major exchange. The emini is a derivative of the cash market, and will always come in line with the cash market. If your data provider gives you clean volume data on the emini, then using that across all time frames should be fine.

[winnie 10]

Dear Eiger ,

Thank you ! When you said the bar has no demand, do you mean the up bar's volume is lower than previous bar ? Or the volume is very low ? How do you definite very low volume ?

Thanks

[Sledge 13]

OK VSA'ers I just wanted to post you a chart that will make you seriously Ill- it is an AUD/JPY from today 6/9/08.

 

Sometimes you just see a chart and have to say DAMN! Can you say SHAKEOUT Central!

 

[Eiger 10]

Hi Winnie,

There is a volume rule-of-thumb in VSA for No Demand and also for Test bars. We would like to see volume on the No Demand (or Test) to be less than the previous two bars.

 

Again, the idea of the No Demand is that the professional money is uninterested in higher prices and withdraws from the market. Their withdrawal is seen in low volume and also narrowing spread. Please also keep in mind that a No Demand indication is valid only when there is weakness in the background.

 

Here are two examples of No Demand from today:

 

This morning, we saw weakness come in on the wide spread up bars closing off their highs. These are marked with W. Note the volume is high on both bars, indicating selling coming into the market in the 1369-1371 area, where supply was anticipated. Bar A shows No Demand. This is an up bar on realtively narrow spread and on volume less than the previous two bars with weakness in the background. Although the market sold off only a few points, the principle was nicely demonstrated.

 

In the second example, the last bar shows another No Demand in a slightly differnet context. The market fell out of a trading range and we saw supply swamp demand with wide spread bars closing on their low with increasing volume (this is definate Weakness in the Background). A bit of buying came in on the high volume spike causing the bar to close in the middle. Was this going to be a turn in the market? It was high volume, after all?

 

Well, the very next bar was down and volume remained high - not a good sign for higher prices. Then we see an up bar on good volume (its not excessive volume). This, of itself, is a bullish bar. Next bar is also up, but the volume falls off. More importantly, the spread is narrowing, the high was not greatly higher than the previous bar, and look at the close! The close shows little net gain and is inside the previous bar's spread - not what I would call overly bullish. In fact, this bar can be considered a No Demand bar. Now the next bar: even less upside progress, an even narrower bar, and the volume is significantly low (less than the previous two bars). Note that the volume on the rally is receding. This is a weak rally caped with two No Demand bars and Weakness in the Background - the market is signaling that it will not go much higher. And it falls from here to new lows.

 

Hope this is helpful.

 

Eiger

[Eiger 10]

OK VSA'ers I just wanted to post you a chart that will make you seriously Ill- it is an AUD/JPY from today 6/9/08.

 

Sometimes you just see a chart and have to say DAMN! Can you say SHAKEOUT Central!

 

[ATTACH]6990[/ATTACH]

 

Are those odd wide spreads for real or some data abberation?

 

I've actually been looking at the Aussie$/US$ for some early AM trading before the S&Ps open, but looking at that, maybe I'll just forget it

Edited June 9, 2008 by Eiger

[Sledge 13]

 

Are those odd wide spreads for real or some data abberation?

 

I've actually been looking at the Aussie$/US$ for some early AM trading before the S&Ps open, but looking at that, maybe I'll just forget it

 

Eiger-

I have been keeping my eye on the pair because of the extreme weakness in Yen and the strength of the AUD. This chart just scares me away from trading it- at this point in my trading career. Take a look at the GBP/JPY from today (Daily Bar) ready for these figures:

LOW: 205.80

HIGH: 210.11

 

And nope those aren't a typo!

 

The AUD/USD is ranging pretty hard right now- BUT their is a MAJOR top on the horizon. If timed when it breaks you could be in on a very nice short.

Sledge

[winnie 10]

Would anyone tell me where I could get the volume data (End of the day) in NYSE ? Is there any chart which could display the SPX bar chart and volume in the web ?

 

Thanks

[Eiger 10]

Eiger-

 

The AUD/USD is ranging pretty hard right now- BUT their is a MAJOR top on the horizon. If timed when it breaks you could be in on a very nice short.

Sledge

 

I'll be watching this

[mister ed 10]

Would anyone tell me where I could get the volume data (End of the day) in NYSE ? Is there any chart which could display the SPX bar chart and volume in the web ?

 

Thanks

 

Try stockcharts.com or bigcharts.com or barchart.com - might be what you are looking for?

[winnie 10]

Could anyone tell me those bars are no demand bar or not ? Any things can be seem in this chart ?

Thanks

[Sledge 13]

Could anyone tell me those bars are no demand bar or not ? Any things can be seem in this chart ?

Thanks

 

Winnie-

Yes by VSA standards they are "No Demand bars" as they have volume less than the previous two bars prior to them. The second bar you have marked really appears to be not only a No Demand bar- but also an "indecision" bar- that is not a VSA term- just looking at the bar shows indecision or offloading by pro $