[VSA] Volume Spread Analysis Part II

[elovemer 10]

... if you are referring to Daytrader's Bible... already have that....

...thanks for your help ... "in this business"

Do a search on this site and you'll find it. A little bit of work goes a long way in this business...

Edited July 21, 2008 by elovemer

[Flojomojo 10]

Hello everyone,

 

I’ve just found these VSA threads two days ago on my search for hands on tape reading and am currently digging myself through the 150+ pages of the first thread and the summary. Is there any chance that there is a summary of the VSAII thread coming up?

 

First of all I want to thank all of you for your participation and the tremendous input in these threads!!! I’ve read Wyckoff and Neil to start with the topic but have found very little about the application of this “old” approach so far…except here! …where I realized the term “tape reading” has been given new life by Mr. Williams under the name VSA.

 

I’ve arrived at this trading approach after more than a year of applying complicated mathematical formulas to Forex price data in order to predict the future…until the “why does all this happen other than calculated” question popped up :doh: …maybe some of you have gone this path too…

 

As a starting point in this forum I’d like to ask two questions…and I hope to be able to answer some in the future too

Other than eSignal I’ve built my own way of determining Forex volume. Attached you find a 15 and 5 minute chart of this weeks EUR/USD session starting from Wednesday 00:00am until Wednesday 10:00pm (I live in Germany, so GMT+1 hour).

 

1) Can someone of the Forex traders here post a chart of the eSignal volume data during this period? I’m interested in how the volume bars differ from mine.

2) What does a VSA specialists see in reading this market scenario? How do you start? What would be your conclusion for the upcoming Tokyo and Sydney session?

 

Thanks for your valuable input!

Florian

[tawe trader 10]

Hello Flojomojo,

 

Welcome to the VSA club, we are a pretty friendly bunch who hang about around here.

 

This VSA stuff works and on all timeframes (from weekly down to 2 mins) and once you can see the supply and demand waves and the tricks the mkt play you'll understand how regular TA and indicators struggle to compete with VSA.

 

If you can read a chart via VSA you should be able to be on the right side of most of the mkt moves. If you see weakness in the background, look for a short entry and if you see strength, look for a place to go long. If your unclear, stand aside and don't trade.

 

I'm no Forex expert so I'm sorry I can't help you out in that department but Sledge may be able to although he is a busy man. I believe one of the keys to successful trading is sticking to the mkt you know and I mostly trade the FTSE.

 

If your interested I got some thoughts on successful VSA trading:-

 

1. Pick a timeframe (or multiple timeframes) that suits you.

2. Combine VSA with support and resistance

3. Be patient - wait for strength or weakness to be confirmed.

 

Regards

Tawe

.

[Sledge 13]

If your interested I got some thoughts on successful VSA trading:-

 

1. Pick a timeframe (or multiple timeframes) that suits you.

2. Combine VSA with support and resistance

3. Be patient - wait for strength or weakness to be confirmed.

 

I'll second this exact sentiment from Tawe!

 

Sounds simple, but it is indeed effective!

Aaron

[Eiger 10]

Here is a simple way to keep track of the higher Time Frames in VSA. This is the 30-minute chart of the ES over the past several days through this AM. I use a simple annotation system (described below) that I leave on the chart and add to as it progresses through time. I also color-code for indications of weakness and strength.

 

I use the higher time frame to lay out the recent market structure (areas of ease of movement and areas of opposition) and show the path of least resistance. I personally like using the 30-minute VSA indications in conjunction with the 5 or 3-minute indications. It can be pretty powerful.

 

Codes:

 

BC - Buying Climax

ND - No Demand

UT - UpThrust

S/D - Supply dominating Demand

LD - Lack of Demand (like ND, but doesn't quite meet the criteria)

LH/LL - Lower Highs/Lower Lows

SV - Stopping Volume

T - Test

LS - Lack of Supppply (like a T, but doesn't quite meet the criteria)

 

Annotating different time frames and comparing them with one another is a useful way to train yourself in VSA and in developing good tape reading skills.

 

Hope this is helpful

 

Eiger

[winnie 10]

Thank you for sharing with us. Would you show me one trade as an example on how you combine 30 minutes chart and 3 minutes chart to set up an entry and exit ? Where you place your stop ? Very tight stop ?

 

Thanks

[Eiger 10]

... Would you show me one trade as an example on how you combine 30 minutes chart and 3 minutes chart to set up an entry and exit ? Where you place your stop? ...

 

Sure. As i mentioned, I look to the higher time frame for structure and path of least resistance. We'll look at a few good trades using the 30 and 3-minute charts from yesterday.

 

I use a "Top - Down" approach, and start with the higher time frame. So, to start, at the end of the day on 24 July, there was Stopping Volume on the 30-min chart. This put the market up slightly, but only slightly. It went into what Wyckoff called a "resting area," which is a consolidation that is fairly narrow and shows no ability to rally. Coming into yesterday morning (28 Jul), weakness was apparent on the first two 30-min bars. I labeld this area as A. The first (marked "SEL") was an up bar on above average spread close in the middle with high volume. The next bar tried to rally, but closed in the middle as an UT. This showed weakness was present in the market.

 

The 3-minute chart between 9:30 and 110:30 AM also showed lots of weakness, as well. Selling was evident off the open with high volume, narrow range bars ("SEL"), UTs, and declining volume as the market tried to rally above the opening highs, but failed.

 

The first acceptable trade location came at 10:21, marked as 1. This was a No Demnad bar, and was a bit aggressive as it made a higher high. A much better entry was at 2 - No Demand in a clear downtrend. Consutling the higher time frame chart showed that by 11:30 the opposition (support) area along the 1251 line was breached and a down trend in place. The 30-min chart was showing high odds that the market would continue to the downside.

 

At 3, there was another ND, but now we are in a small uptrend, and so this is not a choice entry. Patience is a virtue, even in good trending conditions. Much better to wait for 5 when the market has resumed its selling.

 

Stops can be placed a couple of ticks above the high of the previous one or two bars, or at an absolute number of points away from entry. You need to give the trade some room to work. It is best to paper trade stops and figure out what works best for you.

 

Hope this is helpful

 

Eiger

[Sledge 13]

Whoo!!! The Ice Cream is Melting FAST Today in the Currency Markets. Take any currency pair today that is "going against the larger trend" Think REALLY HARD about jumping in that direction. Don't be part of the Herd!

 

With finally a positive Fundimental print today at 1.8% higher than expected US Consumer Confidence. The herd is snatching dollars like nobody's business. And the smart money is throwing the supply out of the truck as fast as the herd will take it- but the smart money's arms are getting tired and the herd is getting full.

 

Today looks to be a perfect day to get bargains if you have the stones to ride overnight! Happy Trading!

Aaron

Edited July 29, 2008 by Sledge

[Eiger 10]

Since some were interested in how to use the 30-minute in combination with the smaller time frames such as the 5-minute in VSA analysis, here is a fairly detailed analysis of today's ES market action using the 30-Minute and 5-Minute charts. I hope you learn something from this.

 

So, before starting this, a first good question might be: Why the 30-minute chart? Why not the 15 or 60-minute charts? Both of these charts are useful, but I still like the 30-minute best. I'll explain why.

 

I first started out trading with Joe DiNapoli and his advanced Fib method. Joe is a master S&P trader and uses the 30-minute time frame as the "Key of the Day," indicating that meaningfiul changes in the intraday market are first (and best, according to Joe) seen on this time frame. In my experience, this is a pretty useful concept, and I have always found that careful analysis of the 30-minute chart is a very helpful practice for the S&Ps.

 

OK, here is the analysis combining the 30-minute and 5-minute charts. I have used numbers for the 30-minute and letters for the 5-minute. The 30-minute numbers are also indicated on the 5-minute chart to make it a little easier for you read.

 

AM Session:

 

In the overnight session (not shown), the market dipped below yesterday's low and rallies nicely. The US open shows a gap up and then an inability to fall lower. Note the closes around A1 on the 5-min chart. A1 is a Test. The market rallies.

 

The ralliy shows demand overcoming supply and a clear push into and above the 1244.75 area that represented the first resistance from yesterday's selling. Usually, the market will die out at yesterday afternoon's high after a trend day down (as was the case yesterday). But today, the 30-minute chart showed it would be otherwise. Wide spread up, closing on the high with strong volume on the first 30-minute bar indicated higher prices. You can see the higher prices and good volume at the bars marked A on the 5-minute chart. The market pushes above the 1245 area and above the 30-min Supply Line (red line), indicating that demand was clearly in control and dominating supply.

 

At 1 on the 30-min, the market closes off the high. Some selling comes in. But, think carefully about the background: we've just rallied well, up and through old resistance at 1245 and through the 30-min Supply Line on expanding volume. Although a spike reversal is rather unusal, we have to listen to the chart and the chart is saying: absolutely bullish.

 

5-min chart: the high voilume at A is tested immediately at B, indicating a lack of supply. At C (or 1 on the 30-min), we get a nice Test and the market rallies, though it doesn't go very far. At D and the bar preceeding D (5-min), the volume comes in, there are closes off the high and the market reacts.

 

Note the reaction. Not very much -- it is in what Wyckoff called a resting area. At E (5-min), there is a Hidden Test. Now, look at the 30-minute chart. At 2, the 30-min shows a Test. Hmmm. A 30-min Test after a good run up ... Now, back to the 5-minute. At F we have a No Demand after:

 

• a SOS on the 30-min chart
  
• a resting period on the 5-min chart
  
• a Hidden Test
  
• A No Demand on the 30-min
  
• a No Demand on the 5-min
  

 

So, what else would you like to take that trade?

 

Market rallies to G on the 5-min and shows volume coming in at G on a narrow spread, close in the middle. This is our cue to exit or take off some of the position (if trading the daily swing). After all, it's noontime.

 

Noontime Break :

 

Here is a bit of a digression: There tends to be three "inflection points" during the trading day in the S&Ps. The first comes around 10:00 AM. We often (not always) see a reverse at this time point. There are various theories about why this is so: news events cluster at this time, bigger traders come into the market now, those who are hung over from last night finally make it to their trading desks, etc -- regardless of the theory, the market does tend to turn around 10:00 AM.

 

The second inflection point is around 12:00 noon. I guess everyone goes to lunch (except the professional traders/CM), and the market tends to rest or turn at this time point.

 

The third inflection point is 3:00 PM. This is when the bonds close. S&P trades see what the bonds did during the day and act accordingly. This time period often (not always) produces a change in the direction of the S&Ps.

 

 

OK, so here we see the market approaches noontime about G (5-min) or 3 (30-min), and the market stops going up. We normally expect a reaction. But on this day, the market holds its gains quite nicely (a very, very good indication of a continuation of a trend day - i.e., higher prices in the afternoon session). It reacts no more than 3.25 pts. The bar at H on the 5-min indicated in advance that the odds were low that the market would tank at this level.

 

On the 30-minute chart at 4 there was buying. The market dipped below the previous bar and rallied to close above it. Bullish. On the 5-min chart at I, we have a low volume down bar close off the lows. While not quite a No Demand, this bar signaled a lack of supply at this level. The market rallies.

 

PM Session:

 

At 5 on the 30-min, there is a lack of demand. The market rallies and makes higher prices, but volume clearly is lacking, probably because the traders that matter are having a long lunch . At K on the 5-minute chart, we have a No Demand. Any longs taken around I would be closed out by now, if not sooner. The market reacts.

 

Back to the 30-min chart: the market reacts and on the 30-min chart gives a Shake Out. We know this is a Shake Out for seveal reasons:

 

• the market is in a clear up trend
  
• there has been no buying climax
  
• the shake out is on average volume
  
• lower prices were rejected and the market closes mid-range
  

 

The Shake-Out reaches it's low point on the 5-min chart at J. Three bars later, the S/O is tested at L - a perfect VSA long entry. And, the market rallies into the close.

 

This is how I use the combination of the 30-minute and, in this case the 5-minute charts. As I hope you can see it is pretty potent VSA trading.

 

Hope this is helpful

 

Eiger

 

PS - there was selling into the rally into this afternoon's close (look carefully at the 4:00 and 4:05 bars on the 5-min). If you have been following Sebastian's recent posts you will know what this means for the first hour or so tomorrow morning.

[Flojomojo 10]

Gosh...although I trade demo I regret to have stood on the sidelines today. Attached is a 15 and 5 min EUR/USD chart.

 

I was a bit scared to enter during the morning drive up seen to the left. (oh these damn emotions!) I then made a meager 5 pip trade in the sideway movement...and honestly...got bored...thats when I missed the US GDP news release and the critical downthrust bar just before the release! There would have been a 100-200 pip trade in the move and its reversal.

 

In hindsight the chart screams to me what it wanted to tell me at the time.

I'm absorbing VSA knowledge only since a week, so, are my chart comments correct? Anything else there that should have cought my attention? How do you people deal with the information overflow while analyzing bars in real time?...I tend to search a meaning in every bar...I guess I need to be a bit more laid back and be on the hunt rather than running around like a chicken... :crap:

 

Good trading,

Flojomojo

[speres 10]

Gosh...although I trade demo I regret to have stood on the sidelines today. Attached is a 15 and 5 min EUR/USD chart.

 

I was a bit scared to enter during the morning drive up seen to the left. (oh these damn emotions!) I then made a meager 5 pip trade in the sideway movement...and honestly...got bored...thats when I missed the US GDP news release and the critical downthrust bar just before the release! There would have been a 100-200 pip trade in the move and its reversal.

 

In hindsight the chart screams to me what it wanted to tell me at the time.

I'm absorbing VSA knowledge only since a week, so, are my chart comments correct? Anything else there that should have cought my attention? How do you people deal with the information overflow while analyzing bars in real time?...I tend to search a meaning in every bar...I guess I need to be a bit more laid back and be on the hunt rather than running around like a chicken... :crap:

 

Good trading,

Flojomojo

 

 

Stay away from those news releases while ur learning bro, you've a long way to go yet.

[Alcoeus 10]

I am pretty tied up with other things today, so can't post much. Sebastian did a brilliant explanation of Tests in this week's TradeGuider Chart Of The Week. It is quite worth careful study and should answer questions. You can view it here:

 

http://www.tradeguider.com/cotw/cotw.wmv

 

Hi All,

 

The COTW video of Sebastian's explanation seems to of been replaced with a newer COTW video. Does anyone have the old video, or know where it is?

 

Thanks!

[BlowFish 10]

I think it was stored here and linked into this thread. From memory the first post mentioning it linked offsite but the one a few posts later had it 'embedded'. Try searching a few pages back in this thread.

[elovemer 10]

...could someone please post the following if they have them....

by Wyckoff...

...studies in tape reading...

...tape reading and active trading 1933...

....stock market science and technique 1932...

by Klein

....chart method and trading system

by Gann

....How to make profits in commodities

....Speculation a profitable profession.

...45 years in Wall Street....

by Pruden

....Buying springs and selling upthrusts

....Jumps and backups

 

.....i have a couple of things by gann and wyckoff if anyone is interested....(also by Gartley)

... this thread is great.... i find that using the 2 hour chart helps with seeing volume at work

Edited August 17, 2008 by elovemer
want to

[Guest forsearch]

...could someone please post the following if they have them....

by Wyckoff...

...studies in tape reading...

...tape reading and active trading 1933...

....stock market science and technique 1932...

by Klein

....chart method and trading system

by Gann

....How to make profits in commodities

....Speculation a profitable profession.

...45 years in Wall Street....

by Pruden

....Buying springs and selling upthrusts

....Jumps and backups

 

No.

 

Do your own search on this site and via Google and you'll find most of them yourself.

 

A little bit of self-help goes a long way.

 

Good luck.

[elovemer 10]

.... a little bit of self-verification goes a long way....

... of course i would not waste space on this board unless i had already gone down those avenues....

... unless you can prove me wrong on those being unavailable...check yourself before you check others

.... don't mean to sound rude... just tired of people who don't really know what they are talking about... i am one also for sure

....also... there is no need to quote my LONG POST... when it only wastes more space

A little bit of self-help goes a long way.

Edited August 18, 2008 by elovemer

[Guest forsearch]

.... a little bit of self-verification goes a long way....

... of course i would not waste space on this board unless i had already gone down those avenues....

... unless you can prove me wrong on those being unavailable...check yourself before you check others

.... don't mean to sound rude... just tired of people who don't really know what they are talking about... i am one also for sure

....also... there is no need to quote my LONG POST... when it only wastes more space

 

You're welcome. :rofl:

[pmxgs0 10]

Hi Sebastian,

 

thanks for your posts.

 

Could give your advice about which books do you consider the most important for someone who wants to learn VSA method.

 

thanks in advance,

 

P

[gmack 10]

Hi all

 

I am thinking about purchasing tradeguider. Before shelling out the money, I would like to here from some users. A few questions, can you figure out VSA without purchasing the software? (I have read the full book). How can you try before you buy (no trial versions, a leap of faith in my opinion). After purcahsing the software is it easy to use and is the support any good?

 

Appreciate user comments.

 

Gmack

[delta 10]

my first post but I see activity has subsided hin this thread. why this?

keep this good thread going guys.

[mister ed 10]

. A few questions, can you figure out VSA without purchasing the software? (I have read the full book)

 

Well, you are certainly on the right threads (this one and the other massive VSA thread) to figure out VSA.

[Tasuki 10]

Hi all

 

I am thinking about purchasing tradeguider. Before shelling out the money, I would like to here from some users. A few questions, can you figure out VSA without purchasing the software? (I have read the full book). How can you try before you buy (no trial versions, a leap of faith in my opinion). After purcahsing the software is it easy to use and is the support any good?

 

Appreciate user comments.

 

Gmack

 

My advice can be reduced to one word: Don't.

The coding of their software is antiquated, hogs huge amounts of computer resources. Their signals look really excellent in hindsight, but from the vantagepoint of the hard right edge, they're not very good at all....and they're often late. Finally, you can learn VSA from Traders Lab, then you won't need their overpriced buggy software. You'll be able to see the signals yourself, and that is ALWAYS better than the software. Even their former spokesperson Todd used to admit that fact (maybe that's part of the reason Gavin threw him out).

 

Hope this helps. Taz

[gmack 10]

Thanks Taz

 

I will take your advice. The compoents of VSA are a bit disjointed and from my point of view more intuative rather than hard and fast. I will follow this thread to expand my expreience and hopefully develop some VSA indicators myself (not complicated but guides only).

 

regards

 

gmack

 

[kuky969 10]

Eigar

your post 1395 I quote ::

Note the push up above the supply areas at D & I. Several wide spread up bars, closing on their highs on good, but not excessive volume (compare to volume at D).

Please how I could explain this than there was not excessive volume ??? I think there should be a big volume .

Thank

[Eiger 10]

Excessive volume on up bars indicates demand is present, but so is a significant amount of supply. When volume is excessive on up bars, it usually means supply is swamping demand. In the chart referenced, D had excessive volume. It is the largest volume on the chart and the bar closes near its low after meeting an old top or resistance area to the left. This was a clear indication that supply or selling was swamping demand at that point. The market then reacts.

 

On the push above D & I, volume expands as the the market pushes through the potential overhanging supply at the old tops (D & I). The spreads also expand and closes are on the highs. The professional traders are pushing price up and through the resistance of the old tops at D and I. Volume is strong, but, unlike D, not excessive. In writing that post, I suggested comparing the volumes at D with the later pushing through D & I to distinguish between an excessive and a healthy expansion of volume in combination with the spreads, closes, and overhanging resistance (all must be taken into account). Tops at D & I were broken on the healthy expansion of volume, and price later came back at K and then M to test the heavy supply seen at D.

 

Thinking that "... there should be a big volume" will get you into trouble quickly. Volume should expand on up waves and taper off on reactions in an up trending move as it does in the referenced chart. However, excessive volume on up bars is always suspect. Excessive volume is very often a tell or sign that the professional traders are transfering stocks or contracts to the public, and that, therefore, the market is about to change direction.

 

With a little study, you can determine what is healthy expansion vs. excessive volume in the market you trade. Keep in mid that on a quiet, low volitility day, excessive volume will be of a much lessor intensity than on a high volility day like a trend day or a day following a trend day. In other words, it will take much less volume to turn the market on a quiet day than on a very active day. This is what I think Tom Williams means when he says that VSA indications come in different intensities. Thus, it pays to study volume characterisitics on quiet and active days and to have a way to detewrmine early in the day whether the current day is going to be more quiet or more active. (One simple way to do this is to compare the volume over the fist hour or so of the current trading day with the first hour volumes over the last 2-3 weeks. You can also make similar comparisions in the futures indicies with ticks, trin, breadth, look at intermarket relationships (more complex), etc).

 

You can learn more about volume and spreads in Tom Williams's excellent book, The Undeclared Secrets of the Stock Market and in the material put out by TradeGuider, much of which is free (see their charts of the week).

 

Hope this is helpful.

Edited August 26, 2008 by Eiger