[VSA] Volume Spread Analysis Part II

[jjthetrader 10]

Great advice JJ ... although I think many will have missed this piece of wisdom.

 

Based on your experiences to date ...

Which setup would you recommend starting with?

... and in order, if possible the others you'd recommend?

 

Was thinking of starting with Upthrusts but would also welcome others opinions.

 

sleepy

 

Hey Sleepy, my number one is no demand just like CandleWisperer pointed out. There's a few reasons for this.

1. You can flip the whole setup upside down for long positions. Now you're playing both sides of the market with one setup.

 

2. The narrow spread affords you a tighter stop on the other side of that no demand.

 

3. They're alway showing up after a couple signs of weakness so they're easier to confirm.

 

Upthrusts are cool but I'll be trading the no demand that follows them. I'm not saying what I do is right, I'm just saying it's what I do.

[tawe trader 10]

Here's todays chart of the UK's FTSE100 Future contract.

 

Chart #1 - 60 min

 

To give some idea of the mkt background have a ook at the rally the FTSE has put in over the last 4 days. A rise of approx 700 pts, well over the equivalent 1400 Dow pts.

 

Chart #2 - 7 min

 

On the 12.26pm bar there is US news and the FTSE prints a very wide spread bar on very high volume. Even though it's not a candlestick chart, I mark the bar's high and low similar to how CW marks up his candlestick WRB's. I then watch what the mkt does inside the bar's high & low (yellow) lines.

 

We have a failed break to the downside but then the mkt prints a no demand followed by an upthrust. We have another failed breakout to the downside prior to the US mkts opening at 1.30pm UK time.

 

When the US mkt opens the FTSE rises slightly but never breaks the high of the 12.26pm wide spread bar. The big players can't be interest in higher prices for now.

 

Chart #3 - 7 min

 

As you can see the mkt eventually falls thro' the lower yellow line and declines quite a few points in the afternoon session. There were other opportunities to go short (or add to shorts) on the way down.

 

Tawe

[CandleWhisperer 10]

There's so much in this chart, I just had to post it.

 

We see a few Patterns here. In my opinion, where one enters is an individual thing involving personality and risk tolerance.

 

The first pattern on the chart is a Two bar bottom reversal. This happens to occur at the Pivot Range Low. The nice thing about PLs (pivot lines) is that they focus our attention. That is to say, as price nears a PL, we start to look closer at the chart (and stop surfing the web ). Anyway, this two bar pattern is better when both the bars are Wide Spread bars as is the case here. I have often missed this pattern to be honest. What I like to see, when I do see it, is a Test or No Supply sometime after. In this case we do get that Test.

 

This Test is very interesting however. Just prior to the Test we get another Possible Two bar reversal pattern in the opposite direction. The thing to note here is that the volume on this pattern is higher than on the first pattern. This higher volume is immediately tested. Hence, we have a test that both confirms the first pattern and negates the second. Also of note is that the second pattern happens @ the pivot and the test is @ M2.

 

The next pattern(s) to focus on are inside the black boxes. This pattern happens all the time. The basic pattern here is:

 

1. No Demand or No Buying Pressure

2. No Supply or No Selling Pressure

3. Test

 

There are of course slight deviations. In the first box we see No Demand followed by No Supply and then the Test. In the second box we see No Buying Pressure then No Selling Pressure followed by a Test. We could see No Demand followed by No Selling Pressure and then a Test.

 

The first one is a nice entry @ the Pivot. But notice that in each case the Test candle is actually a 'Test in a Rising Market' type of Test. And we know from MTMs a 'Test in a Rising Market' is a powerful type of Test.

 

Stepping back a bit and shifting gears, take a look at all the Tests candles on the chart. Note that the second test (From left) is a failed test. Take a look at the high volume on that Test. If we look at the first test, we do see high volume but in this case is less than the previous two. By the time we see the Test in the first black box, the volume has dropped off considerably.

 

There is indeed a lot here. I hope it helps some. Please if you see something you look at that I have missed, let me know. I am learning just like the rest of you.

[Eiger 10]

Nice to see everyone posting on the thread.

 

Winnie asked about identifying the trend. As a VSA trader, it is really helpful to have a mental map of the market. By mental map, I mean a cenceptual sense about how a market moves. We know many things about the market and how it moves. For example:

 

• Higher high and higher lows help define an uptrend
  
• A move above the last rally high after a downtrend that occurs with good ease of movement, typically indicates at least another swing up
  
• Impulse waves up on good spread and volume, followed by narrower spreads and receding volume indicates higher prices
  
• What had been resisitance on an earlier swing often becomes support on the current reaction.
  
• Momentum typically preceeds price
  
• A period of low volitility preceeds a trend
  
• The larger & longer the sideways line, the bigger the move out of the congestion area (often the start of a new trend)
  
• Markets move from congestion to trending and back again repeatedly
  
• Trends often last longer than we think they will
  
• VSA indications are excellent in identifying turning points and the start and continuations of trends
  
• and much more ...
  

 

Add your own observations to this list. Create you own list. Hand draw a line chart of your mental model of a trend and annotate it with the things that occur over and over. Think also in terms of trends on higher time frames and how the lower time frame trends interact with the higher time frame. Think about and identify where you expect to find trades and highlight these areas on your drawing.

 

Do the same thing for trading ranges.

 

Now you have a vivid, personal model of the market that identifies key market actions, where to look for trades and what VSA indications you want to see in making and managing a trade. I think you will find this quite useful.

 

I am off to San Franscico in the AM to the Best of Wyckoff and then to the VSA Summit. I am really looking forward to these. Gavin Holmes put both together and has done an excellent job attracting great talent to both. I'm quite excited to be meeting Sebastian and, of course, Tom for the first time, as well as Hank Pruden -- I can't wait. It will be fun.

 

See everyone when i get back.

 

Eiger

[TPTrader 10]

Hi All,

 

I'm new here and new in VSA. First of all, thanks very much to everyone for sharing your knowledge here.

 

I have a question for CW's post.

 

There are of course slight deviations. In the first box we see No Demand followed by No Supply and then the Test. In the second box we see No Buying Pressure then No Selling Pressure followed by a Test. We could see No Demand followed by No Selling Pressure and then a Test.

 

Why do you call the "test" in the second box a test instead of a no demand bar which would have an opposite mean? I am confused here. How do you tell them apart?

 

Thanks.

 

TPT

[tawe trader 10]

I am off to San Franscico in the AM to the Best of Wyckoff and then to the VSA Summit. I am really looking forward to these. Gavin Holmes put both together and has done an excellent job attracting great talent to both. I'm quite excited to be meeting Sebastian and, of course, Tom for the first time, as well as Hank Pruden -- I can't wait. It will be fun.

 

TG have made a fine move bringing you onto their seminar team. I'm sure the audience will really appreciate your Wyckoff / VSA technical skills and chart reading, just as we do.

 

Enjoy yourself but don't forget about returning to your old mates on this VSA thread, once in a while

 

All the best

Tawe

[tawe trader 10]

The 12.26pm bar that I marked yesterday as a high volume wide spread bar could also be called an 'END OF A RISING MKT' which was formed during an economic news announcement in the US. Crafty ol' buggers these pro's !!!!

 

Why an 'end of a rising mkt' bar ?

 

1. It came in after a good sized rally.

2. It was a very high volume upbar.

3. The mkt closes off it's highs, which indicates supply was present.

 

Also, if volume is ultra high, there is additional weakness in the mkt.

 

Once we have seen weakness in the background, which in this case was signalled by an 'end of a rising mkt' bar, it pays to look for a no demand or upthrust as an entry point for a short trade.

 

As I write this the FTSE hasn't been above that bar, so maybe we have seen a short-term mkt top.

 

If anyone has seen anything I've missed or overlooked, please let me know.

 

Tawe

[CandleWhisperer 10]

The 12.26pm bar that I marked yesterday as a high volume wide spread bar could also be called an 'END OF A RISING MKT' which was formed during an economic news announcement in the US. Crafty ol' buggers these pro's !!!!

 

Why an 'end of a rising mkt' bar ?

 

1. It came in after a good sized rally.

2. It was a very high volume upbar.

3. The mkt closes off it's highs, which indicates supply was present....Tawe

 

Tawe Trader;

 

That bar is definitely a TRANSFER OF OWNERSHIP type of bar as the volume is ultra high, the close is up and close is in the middle of the range. Not surprisingly, it comes on a news release. As you say, crafty ol buggers .

 

But it is not an "end of a rising market" bar. An "end of a rising market" bar will always be a narrow range bar on ultra high volume into new high ground.

 

"Likely End of a rising market is hallmarked by a narrow spread, on an up-day (or bar), accompanied by very high volume. Ideally, the market should close on the high-this 'capping' action adds extra significance to the weakness and the price should fall immediately in this situation. If prices are into new ground, this will usually mark a top." Tom Williams, Master the Markets, p.149.

 

"End of a rising market" bars are rare. Ultra high volume bars that stop an up move are much more common.

[CandleWhisperer 10]

JJ (and anyone else who wishes to chime in);

 

Please tell me where/when and why you would have entered (short) on the chart below.

 

I will make a few observation that are very interesting indeed.

 

The first candle in the black box is a wide spread candle (dark WRB) on high volume that closes down. The next candle is up, confirming that some demand showed up on the previous candle. This next candle has even HIGHER volume. This candle closes well off its highs and has a narrower range than the previous candle. Weakness (supply) entered.

 

Now things get interesting. In short, we see successive up candles with successive narrower ranges on decreasing volume (volume less than the previous two) and closing up.

[jjthetrader 10]

JJ (and anyone else who wishes to chime in);

 

Please tell me where/when and why you would have entered (short) on the chart below.

 

I will make a few observation that are very interesting indeed.

 

The first candle in the black box is a wide spread candle (dark WRB) on high volume that closes down. The next candle is up, confirming that some demand showed up on the previous candle. This next candle has even HIGHER volume. This candle closes well off its highs and has a narrower range than the previous candle. Weakness (supply) entered.

 

Now things get interesting. In short, we see successive up candles with successive narrower ranges on decreasing volume (volume less than the previous two) and closing up.

 

Well Candle, that which catchs my eye first is the no demand you have marked within the box. I'd take it's break low and be prepared to get out, at what you have labeled Y1, if necessary.

Forex is a much different beast than futures. Knowing how your market reacts when you get the signals you like to see is very important. So for this I think your opinion would carry more wight than mine.

Having no centralized exchange to report data makes me a bit nervous being a volume trader. Having strong price action skills if a must in FX and my guess is you have them.

[sw9 10]

Yes Steve, it is something you need to look out for and be aware of.

 

Whilst low volumes are essential for test bars in the underlying cash index (showing a lack of supply), futures markets can create similar test bars on higher volume (because traders pile into the future on sight of the cash index test bar), so this is not necessarily a negative indicator. - THE WELSH WIZARD (Aug 2007).

 

 

Tawe

 

 

 

 

So you really never know in the moment if it is a failed test or not, your basically buying a pullback and taking your chances?

 

 

Thanks, Steve

Edited November 1, 2008 by sw9

[jjthetrader 10]

So you really never know in the moment if it is a failed test or not, your basically buying a pullback and taking your chances.

 

Thanks, Steve

 

If you're a gambler that's one way to trade. This is why VSA always wants to see a confirmation bar. That test only fails if you break it's low.

Instead of the confirmation bar you could just as easily take the break high of the test bar. If a test bars low is going to be broken then chances are good that it's high won't and thus trigger you into a position.

 

Tom Williams and the lot teach to enter on the close of a bar. If you actually trade then you know this is foolish. Trading strategies can be adopted around the methodology.

[sleepy v2 10]

This is why VSA always wants to see a confirmation bar.

 

Hi jjthetrader,

 

When you say to a 'confirmation bar' are you referring to any VSA signal that occurs over the one bar only (be it a 5min or 1 Week timeframe).

 

For example, if you see weakness in the background and then get an Upthrust or No Demand they can be regarded as confirmation .... as opposed to say Top Reversal which occurs over two bars.

 

Or am I getting that wrong?

 

sleepy

[sw9 10]

That test only fails if you break it's low.

 

 

 

 

Thanks, My mistake.... what I meant to say was, "you really never know in the moment if it is a VALID test or not, your basically buying a pullback and taking your chances".

[CandleWhisperer 10]

Well Candle, that which catchs my eye first is the no demand you have marked within the box. I'd take it's break low and be prepared to get out, at what you have labeled Y1, if necessary.

Forex is a much different beast than futures. Knowing how your market reacts when you get the signals you like to see is very important. So for this I think your opinion would carry more wight than mine.

Having no centralized exchange to report data makes me a bit nervous being a volume trader. Having strong price action skills if a must in FX and my guess is you have them.

 

 

JJ, thanks for the replay. I have attached the same chart with what I see as three (3) options for trade entries.

 

There are a couple of things I was hoping you would have addressed in your reply.

 

1. No Demand is defined as an up bar on a narrow range with volume less than the previous two bars. By that definition, EVERY up close with an arrow would be No Demand. But if one waits for confirmation, then the only No Demand in the black box is the last one. Which is labeled.

 

I guess that you consider confirmation a break of the low of the Possible No Demand bar, correct?

 

If one uses TG, a No Demand bar is confirmed (indicator generated) AFTER the close of the next bar if it is a down close. This is where I am struggling a bit. I would be inclined to wait for the close of the next bar to confirm that the prior bar was indeed No Demand rather than simply no buying pressure.

 

What are you thoughts on this?

 

2. First that is not Y1, but YL which stands for Yesterday's Low. Now the problem I have is if there was no M2 on my chart, then option 1 makes the most since. However, with the confirming candle closing off its lows and bouncing off M2, I am hesitant to go short on that side of a Pivot Line.

 

Therefore, I like the price action at option 2. Here we see M2 act as resistance which creates another No Demand candle. And that No Demand is confirmed by an Upthrust like candle. Of course, there is now the problem of distance to YL. How close to a possible PL are you willing to take a trade into it?

 

Option 3 is the next place to enter. Again we still have issues regarding the pivot line, but now we see a dark WRB closing lower than a failed test. There is little doubt that the market is weak.

 

Your last post had PLs, how do you deal with the above issues? BTW the prior post where I said (short maybe) deals with the same issue. Clearly there was weakness, but the question was, "is the window big enough to warrant a trade"?

[CandleWhisperer 10]

A Test fails in one of two ways:

 

1. It occurs on high volume.

 

2. It does not produce a preceding higher close within the next 1 to 2 bars.

 

There is actually another way to tell if a test has failed: A Dark WRB closing lower than the low of the test bar. My previous post (1715) shows a failed test that does not have an close higher than the test bar and a dark WRB. By the time you see the dark WRB, there is no doubt the test failed.

 

Not to complicate matters, but there is a difference between a failed test and no results from a test.

[jjthetrader 10]

Thanks, My mistake.... what I meant to say was, "you really never know in the moment if it is a VALID test or not, your basically buying a pullback and taking your chances".

 

No not really. You've got to have strength in the background before you'd consider taking a test. The test is your entry into the strength.

 

On a trading note, you never know what a trade is going to do. You take the high probability ones and even the perfect looking setup can fail. Buying a pullback in a rally with strength in the background is high probability.

You've got to find an entry and a test is your best bet.

 

Candle, I agree with your options. I like Option2. Not just because you had your resistance there but because you couldn't even get as high as the last no demand and that bar you pointed out goes up and comes back down to close on it's low. With no demand/weakness in the background this is an awesome entry.

[jjthetrader 10]

Hi jjthetrader,

 

When you say to a 'confirmation bar' are you referring to any VSA signal that occurs over the one bar only (be it a 5min or 1 Week timeframe).

 

For example, if you see weakness in the background and then get an Upthrust or No Demand they can be regarded as confirmation .... as opposed to say Top Reversal which occurs over two bars.

 

Or am I getting that wrong?

 

sleepy

 

You're right in your theory there. That's not what I was refering to but that is part of VSA. What I meant was that in VSA when you get a test looking bar it's not actually considered a test until the following bar closes up. That's the confirmation bar.

 

For a no demand the confirmation bar would be the next one as well. If it closes down then you've confirmed your no demand. I don't like to wait that long which is why I put my orders where I do.

 

But what you're speaking of is a great point. These multiple signs of weakness all confirm the supply in the market.

[jjthetrader 10]

JJ, thanks for the replay. I have attached the same chart with what I see as three (3) options for trade entries.

 

There are a couple of things I was hoping you would have addressed in your reply.

 

1. No Demand is defined as an up bar on a narrow range with volume less than the previous two bars. By that definition, EVERY up close with an arrow would be No Demand. But if one waits for confirmation, then the only No Demand in the black box is the last one. Which is labeled.

 

I guess that you consider confirmation a break of the low of the Possible No Demand bar, correct?

 

If one uses TG, a No Demand bar is confirmed (indicator generated) AFTER the close of the next bar if it is a down close. This is where I am struggling a bit. I would be inclined to wait for the close of the next bar to confirm that the prior bar was indeed No Demand rather than simply no buying pressure.

 

What are you thoughts on this?

 

Therefore, I like the price action at option 2. Here we see M2 act as resistance which creates another No Demand candle. And that No Demand is confirmed by an Upthrust like candle. Of course, there is now the problem of distance to YL. How close to a possible PL are you willing to take a trade into it?

 

Option 3 is the next place to enter. Again we still have issues regarding the pivot line, but now we see a dark WRB closing lower than a failed test. There is little doubt that the market is weak.

 

Your last post had PLs, how do you deal with the above issues? BTW the prior post where I said (short maybe) deals with the same issue. Clearly there was weakness, but the question was, "is the window big enough to warrant a trade"?

 

Candle, waiting for the next bar down still gives you a giid entry. If the no demand looking bar is just lack of buying for the moment then the professionals will still support it's low. So if the lows are broken then probability is on your side that it will continue, especially with weakness in the background.

 

Regarding pivots, one of my favorite place to take shorts, no demands, are after an automatic bounce off of a pivots. Of course temp support will come in there, you'll get profit taking, and then a no demand will show up. You look to see how much support came in at that pivot. Was it enough for a bottom to be put in? At the very least you'll get a retest of the pivot. SO if your R:R is at least 1:1 to that point I would take it. If you were unsure then you could always short the retrace to it after it broke.

[CandleWhisperer 10]

......... For a no demand the confirmation bar would be the next one as well. If it closes down then you've confirmed your no demand. I don't like to wait that long which is why I put my orders where I do..

 

In truth this is an inconsistency with VSA. To have a No Demand bar we need to see the next bar close down. This is the confirmation bar. Gavin, however, says one should not go short on a down bar. This is echoed by Tom in the book.

 

But if you don't go short on a down bar, then you will be shorting prior to any confirmation of No Demand.

 

It should be noted that the book does not make any mention of confirmation and Tom himself does not wait for any. The software program he designed, however, does not place No Demand indications without confirmation.

[sw9 10]

You've got to find an entry and a test is your best bet.

 

 

 

 

In a futures market [ES] where higher volume tests are permited, does there appear to be any advantage taking low volume tests over higher volume tests?

 

Or visa versa?

 

Thanks, Steve

Edited November 1, 2008 by sw9

[jjthetrader 10]

In truth this is an inconsistency with VSA. To have a No Demand bar we need to see the next bar close down. This is the confirmation bar. Gavin, however, says one should not go short on a down bar. This is echoed by Tom in the book.

 

But if you don't go short on a down bar, then you will be shorting prior to any confirmation of No Demand.

 

It should be noted that the book does not make any mention of confirmation and Tom himself does not wait for any. The software program he designed, however, does not place No Demand indications without confirmation.

 

Agreed. My trading finally started picking up when I started shorting on downbars. In this was you get the momentum to move you into profit faster.

 

If you enter short on an upbar who is to say the next bar won't be up?

 

So you're right Candle. I think a nice thing about this thread is that we take VSA and actually trade it. In this way we see what's real about it and what's smoke and mirrors to sell software.

[sleepy v2 10]

The software program he designed, however, does not place No Demand indications without confirmation.

 

CandleWhisperer,

Are you implying that the No Demand bar that occurs in TradeGuider will only appear if the following bar closes down ... in other words this indicator will appear in retrospect (ie take 2 bars to form).

 

ON PATIENCE:

What the charts do not convey, is PATIENCE.

 

Many signs of strength or signs of weakness show up as two or three bar patterns. Most fall into the two bar category.

 

No Demand is defined as an up bar with volume less than the previous two bars on a narrow spread. This base definition, however, fails to look at the next bar where we would want to see the close LOWER than the previous bar, confirming a lack of demand.

 

jjthetrader.

Pivotprofiler also argues that confirmation of no demand occurs over two bars (i.e, close LOWER than the previous bar).

 

Just been re-listening to the Boot Camp DVDs and Todd makes the comment that No Demand bars (and Up Thrusts) are confirmation bars when serious weakness is in the background. However, he also mentions he couldn't trade without TradeGuider which (If candlewhispher is correct) does not show No Demand bars unless confirmation has alreadly occurred. A slight but important distinction, nonetheless between those using TradeGuider and those reading VSA directly from the charts.

 

I have also heard of one successful?? trader (using TradeGuider) who when seeing secondary signs of weakness (i.e, No Demand/ Up Thrust bars) waits until AFTER a trend change occurs (i.e, indicated by diamonds) before entering the market (ie., Short) ... which appears similar to your momemtum type play you mentioned in your previous post.

 

sleepy

Edited November 2, 2008 by sleepy v2

[jjthetrader 10]

jjthetrader.

Pivotprofiler also argues that confirmation of no demand occurs over two bars (i.e, close LOWER than the previous bar).

 

Just been re-listening to the Boot Camp DVDs and Todd makes the comment that No Demand bars (and Up Thrusts) are confirmation bars when serious weakness is in the background. However, he also mentions he couldn't trade without TradeGuider which (If candlewhispher is correct) does not show No Demand bars unless confirmation has alreadly occurred. A slight but important distinction, nonetheless between those using TradeGuider and those reading VSA directly from the charts.

 

I have also heard of one successful?? trader (using TradeGuider) who when seeing secondary signs of weakness (i.e, No Demand/ Up Thrust bars) waits until AFTER a trend change occurs (i.e, indicated by diamonds) before entering the market (ie., Short) ... which appears similar to your momemtum type play you mentioned in your previous post.

 

sleepy

 

Yes again we're kind of getting lost in the word confirmation. What you're talking about are secondary signs of strength or weakness entering the market (confirmation). What I'm talking about is the confirmation of the confirming sign ;-) I'm looking at how and where to enter on this confirming sign. A test is a secondary confirmation of strength in the background and this test isn't actually complete until the second bar forms. So we may not want to call the second bar a confirmation bar but a completion bar. Does that make things less confusion?

To complete a no demand signal the next bar must close down. And a test must do the opposite.

 

It's true that TradeGuider takes 2 or 3 bars before it'll signal and it will print it's signals 2-3 bars back. It's a useful tool for beginners to learn all this stuff but as you get on it becomes a hinderance.

 

If you want to trade with that diamond approach it's just a 5 period moving average. It tells you very little.

[CandleWhisperer 10]

Yes again we're kind of getting lost in the word confirmation. What you're talking about are secondary signs of strength or weakness entering the market (confirmation). What I'm talking about is the confirmation of the confirming sign ;-) I'm looking at how and where to enter on this confirming sign. A test is a secondary confirmation of strength in the background and this test isn't actually complete until the second bar forms. So we may not want to call the second bar a confirmation bar but a completion bar. Does that make things less confusion?

To complete a no demand signal the next bar must close down. And a test must do the opposite.....

 

 

COMPLETION BAR -brilliant. How needs to pay thousands of dollars to join the VSAClub when we have the likes of you here?