[VSA] Volume Spread Analysis Part II

[Sledge 13]

So why did you exit the trade? What was your plan for the trade?

 

Db-

Trade set-up was this:

Went Short at 1.9837

Looking at Trend-lines I envisioned that after I hit the hay, that it would rise to approx 1.9889 and start its decent.

 

I put no T/P target on the drop to "let the winner ride" and re-assess my position when I woke at 6:30 EST.

 

As I did wake I see that it had gone down as far as 1.9761 and returned back towards the north. looking at the 1 hour bars, it appeared that 1.9761 was the bottom. I took my 20 pips and cut out- which was a blessing since it rose from that 1.9761 and never looked back.

Sledge

[dandxg 10]

Ok VSA pro's I need some educating.

I watched the GBP/USD daily bar all day yesterday and prepped for its close (See the bar marked with the arrow)

In the chart below you see a very high volume day into "higher ground" closing, not only on the low, but BELOW the prior days close. This as I understand is TEXTBOOK reversal bar stuff!

 

I waited for the market to drift a tad higher into 11:30 PM last night- I figure the higher the better right? Monster drop ahead!

 

Now I was able to make pips and profit on the trade- but I'm scratching my head right now as this "monster drop" never came to fruition. At one time I was up 58 pips and when I woke up, found myself taking only a 20 pip profit.

 

I would like the more seasoned VSA traders to fill me in. Forget the large green bar to the marked bars "right side". I didn't have the luxury of seeing that todays volume would be higher than yesterday when I made my trading decision.

 

So what is this- temporary weakness that was overcome?

Is the volume way to low to be a "reversal bar?"

I'm dying to find out the answer to this riddle!

Thanks in advance!

Sledge

 

[ATTACH]5335[/ATTACH]

 

Hi Sledge, I am no VSA expert, but I have been studying it full time for about 5 months so I will chime in. I am a TG customer, but just for book and boot camp. On a TG customer only event last week Sebastian advised strongly not to try and sell at the point that you did. He said it would be extremely aggressive, something only someone like Tom Williams himself would try. He suggested waiting for confirming signs of weakness. At minimum you would want to see a no demand bar after that red bar which is an upthrust, preferably you want to see that ND in the upper 1/3 of the UT. The upper 1/3 is something I learned from another price volume expert. It must have a higher close, volume that is less than the previous 2 bars, and a for me a more narrow range. Some ND's , that work, show up as equal closes with a very narrow range and volume less than previous 2 bars. So at minimum you should have waited for a ND, another UT, or a combo of both after the initial UT on the daily to show up on a smaller time frame. TG recommends using a 240 min, then drilling down to even a 60 min, and a 15 or 5 min for entry. I have heard both Tom Williams, Sebastian, and Todd Krueger say that on your entry chart after the higher time frame confirms you will see it littered with UT's, ND, and sometimes and end of rising market ( which is a narrow range at the high with extreme volume ). The top will also have a mushroom look to it, a sort of rounded top.

 

Furthermore, and an even more safe place to enter would be after the mark down starts, which will be shown after the market has broken through support of the trading range ( which Wyckoff SMI calls ICE ) in the distribution area you wait for a pullback on low volume which will often be ND and sometimes UT followed by ND and sell there, or buy in reverse situation. The point being that this is a much safer entry then trying to sell or buy at the extreme which is essentially what you were doing. I attempted to do the same thing as you about 1 week on euro futures and got whacked promptly for 10 ticks, no big deal, but I would of course rather not lose. So now I just wait for a confirmed reversal at the high or low after signs of weakness or strength and buy or sell on pullback on low volume.

 

If you have ever used fibs before, you will often see the first pb on lower volume after the confirmed reverse will occur at 38%, but that's just a side note.

 

I hope this made sense.

[mister ed 10]

Db-

Trade set-up was this:

Went Short at 1.9837

Looking at Trend-lines I envisioned that after I hit the hay, that it would rise to approx 1.9889 and start its decent.

 

I put no T/P target on the drop to "let the winner ride" and re-assess my position when I woke at 6:30 EST.

 

As I did wake I see that it had gone down as far as 1.9761 and returned back towards the north. looking at the 1 hour bars, it appeared that 1.9761 was the bottom. I took my 20 pips and cut out- which was a blessing since it rose from that 1.9761 and never looked back.

Sledge

 

Hi Sledge,

 

Well I look at your chart and I can't see anything I disagree with in your analysis up to that bar you have marked with an arrow (the next bar hadn't formed yet as you say).

 

That red bar is, to me, a pretty clear reversal, at previous resistance levels. The volume is not huge but its not bad. My only suggestion is to ask what does it look like if you drop down a time-frame, say to hourly? (I could get the price chart from the net but don't have the volumes on it). I know this analysis works on all timeframes etc. and maybe its just me but I always like to see intra-day bars if available. The dynamics of supply and demand do change and of course will show up more quickly on an intra-day. Having said that, its tough when ya gotta sleep...

 

Just on the basis on the daily chart you have posted here I wouldn't fault your analysis ... maybe someone can see something I don't though (wouldn't be the first time!).

 

So why didn't it fall as expected? From a Wyckoff perspective I would say the position of the market was not right to drive it lower (I might see this better on an intra-day as I say).

 

Hope this helps ... or at least doesn't hinder. Looking forward to any other analysis.

[Sledge 13]

Ed-

Ok, here is the same day, on a 4 hr chart- I see coming into the upthrust:

1. A Wide Spread Bar up on extremely high volume

2. Some ok follow-through on the next bar but with significantly lower volume

3. A down bar with even less volume

4. An up bar still on very low volume

5. The upthrust

 

Maybe this chart will shed some more light possibly?

Sledge

 

[mister ed 10]

So why did you exit the trade? What was your plan for the trade?

 

Sledge - this question from Db, as I understand it, is a mighty good one. I wont try to read Db's mind in what he meant by this question (although that is just what I am about to attempt...LOL).

 

A trade taken off an analysis of a daily chart, I would say, is looking for a move on the daily chart. On the chart you have of GBP/USD here, if going to get short on the basis of that last red bar in the context of recent resistance, then the initial stop has got to be above the high of that red bar. Of course you may or may not move the stop on the basis of subsequent developments, or you may exit the trade early if its not working out like you wanted, but have you allowed the daily chart to play out the move yet?

Edited February 29, 2008 by mister ed

[Sledge 13]

So at minimum you should have waited for a ND, another UT, or a combo of both after the initial UT on the daily to show up on a smaller time frame. TG recommends using a 240 min, then drilling down to even a 60 min, and a 15 or 5 min for entry. I have heard both Tom Williams, Sebastian, and Todd Krueger say that on your entry chart after the higher time frame confirms you will see it littered with UT's, ND, and sometimes and end of rising market ( which is a narrow range at the high with extreme volume )

 

dandxg-

I'd say with 5 months under your belt- you are analyzing quite nicely. I thank you for this post. As I am not a TG customer and working to learn chart reading from scratch- this nugget of information is invaluable. A wonderful piece of information to place into my VSA arsenal. Luckily for me- this is a current chart, so I still have a nice shot to look for those "littered bars" on lower timeframes and plan a strategy to short.

 

Kudos on your analysis! It is appreciated!

Sledge

[mister ed 10]

Ed-

Ok, here is the same day, on a 4 hr chart- I see coming into the upthrust:

1. A Wide Spread Bar up on extremely high volume

2. Some ok follow-through on the next bar but with significantly lower volume

3. A down bar with even less volume

4. An up bar still on very low volume

5. The upthrust

 

Maybe this chart will shed some more light possibly?

Sledge

 

 

I have attached a chart with some of my comments on it (includes bonus typos).

The volume variations in FX charts are made more complex by the time zone changes ... the low volume bars I marked are of course the Asian timezone so I wonder how much weight they carry in the analysis. Agree with you on dandxg comments, really valuable.

[DbPhoenix 42]

Sledge - this question from Db, as I understand it, is a mighty good one. I wont try to read Db's mind in what he meant by this question (although that is just what I am about to attempt...LOL).

 

A trade taken off an analysis of a daily chart, I would say, is looking for a move on the daily chart. On the chart you have of GBP/USD here, if going to get short on the basis of that last red bar in the context of recent resistance, then the initial stop has got to be above the high of that red bar. Of course you may or may not move the stop on the basis of subsequent developments, or you may exit the trade early if its not working out like you wanted.

 

Yes, that's what I meant. I'm more concerned with why Sledge did what he did than with what I would have done, at least partly because I don't follow forex.

 

Assuming that there was good reason to short, and I'm not saying that there was or wasn't (as I said, I don't follow forex), and assuming that the short had something to do with hitting what appears to be -- though may not be -- resistance, and assuming that the "target" was support (which is the whole point of trading S/R), then there would be no reason to exit unless (a) support was reached or (b) the trade was invalidated by a breakout through R.

 

However, Sledge may also have imposed a contingency which he didn't mention, i.e., that if price did not move immediately in the expected direction with no retracement of any kind, then he'd exit the trade. If this contingency were not determined in advance, then more likely he just freaked and got spooked out of the trade.

 

All of which is a lot of assumptions and I don't mean to talk about Sledge as if he weren't here. But even now, I see no reason to exit this trade, though I wouldn't necessarily have taken it in the first place. I hesitate even to bring up S/R since the behavioral dynamic driving price here may not even lend itself to trading ranges, or at least not the pretty kind one finds in futures.

[CandleWhisperer 10]

I have attached a chart with some of my comments on it (includes bonus typos).

The volume variations in FX charts are made more complex by the time zone changes ... the low volume bars I marked are of course the Asian timezone so I wonder how much weight they carry in the analysis. Agree with you on dandxg comments, really valuable.

 

My $0.02 :

 

The third blue line labeled as bearish is in fact not. It is a down bar closing in the middle on volume less than the previous two bars: this is strength.

 

The next two bars are indeed weakness. The second one is no demand.

 

The bar after that is a failed test. The volume is high with a close near the high. There are sellers underneath so any move up should be muted and we can expect lower prices.

 

okay let's put it all together-

 

We see a down bar that closes near its middle on volume less than the previous two bars. This is no supply. The BB's see that there aren't any sellers underneath. But the volume is still relatively high. The next bar is narrow and closes equal on even less volume. The bar after is up an is no demand. The BBs don't quite want to take the market up, but for some reason they are hesitant. Next bar we see a test. They are testing for supply, with the amount of volume on the bar; they found it. Price may go up but it will be muted.

[dandxg 10]

dandxg-

I'd say with 5 months under your belt- you are analyzing quite nicely. I thank you for this post. As I am not a TG customer and working to learn chart reading from scratch- this nugget of information is invaluable. A wonderful piece of information to place into my VSA arsenal. Luckily for me- this is a current chart, so I still have a nice shot to look for those "littered bars" on lower timeframes and plan a strategy to short.

 

Kudos on your analysis! It is appreciated!

Sledge

 

Sure, most welcome. Some nice ppl. have been helping me and I believe in reciprocating. I give big kudos to James aka Soul Trader as I really like his use of combining market profile with VSA/Wyckoff. I know originally PP did an offshoot of it. It works well so far. I am not sure how you would do that with forex, I primarily focus on ER2, ES, and some ags.

 

If someone is interested in trying this in the indices check this link. http://www.mypivots.com/forum/topic.asp?whichpage=3.7&TOPIC_ID=2531⾫ This nice guy posts them before market open for free. Today the market opened below VAL on ER2 and VSA/Wyckoff showed UT's and ND's clearly right at the VAL so short. I am still testing a bit more before I start clicking in with real $$$ the MP and VSA combined.

 

I would also would highly recommend you post the previous day's high and low on your chart. These are key S/R lines. Watch for set ups around these areas. I think DB in another post/forum recommended the previous day's close as well. Maybe he can chime in and confirm/decline? Good trading to all.

[dandxg 10]

Sledge and others, I don't have microsoft paint to mark up chart so I apologize, maybe this will help. If you look at this diagram of a wyckoff trading range with the jump the creek, it's the exact inverse of your short. http://bigpicture.typepad.com/comments/2004/05/wyckoff_spring.html

 

A better diagram of the same thing is on page 4 out of 12 on Wyckoff buy and sell tests.

 

You shorted at #1 or 2 whereas Sebastian, using different VSA terms, would recommend you sell at # 12 or 14. Remember it would be the inverse of this diagram. I hope this makes sense. Maybe nice DB Phoenix can post a chart with a more clearer example of what I am attempting to show you in the inverse? I really need to get paint and figure out how to post charts. It's much safer to buy or sell a pullback once it break out of the trading range on lesser volume. The problem with buying or selling so early in the range is that you don't have any confirmation of the range. Also, and I need to get this myself, Jack Huston Charting the Stock Market the Wyckoff Way shows you how to use Wyckoff point and figure to determine the possible max move and were a stop should be. I also attached some documents that come from well respected Wyckoff experts like Hank Pruden and Jim Forte. I hope it helps.

Wyckoff Article on buy and sell tests.pdf

Wyckoff Money Management.pdf

MTWyckoffSchematics.pdf

[mister ed 10]

dandxg - instead of Paint (which comes with Windows, you sure you don't have it?) you can try Snagit ... I will hunt down a free download link and post it ... it is like Paint but has more funtionality, still very easy to use though.

 

 

OK, Snagit is available from here

 

It is version 7, which is not the up-to-date version but is still outstandingly good.

 

The registration key code is:

YW6RC-4YMK6-SZBBD-C2MCW-Q9D96

[DbPhoenix 42]

Sledge and others, I don't have microsoft paint to mark up chart so I apologize, maybe this will help. If you look at this diagram of a wyckoff trading range with the jump the creek, it's the exact inverse of your short. http://bigpicture.typepad.com/comments/2004/05/wyckoff_spring.html

 

A better diagram of the same thing is on page 4 out of 12 on Wyckoff buy and sell tests.

 

You shorted at #1 or 2 whereas Sebastian, using different VSA terms, would recommend you sell at # 12 or 14. Remember it would be the inverse of this diagram. I hope this makes sense. Maybe nice DB Phoenix can post a chart with a more clearer example of what I am attempting to show you in the inverse? I really need to get paint and figure out how to post charts. It's much safer to buy or sell a pullback once it break out of the trading range on lesser volume. The problem with buying or selling so early in the range is that you don't have any confirmation of the range. Also, and I need to get this myself, Jack Huston Charting the Stock Market the Wyckoff Way shows you how to use Wyckoff point and figure to determine the possible max move and were a stop should be. I also attached some documents that come from well respected Wyckoff experts like Hank Pruden and Jim Forte. I hope it helps.

 

I'm not ignoring you. I have a very difficult time dealing with all the layers and layers of overcomplication and nonsense jargon that have been laid over what are essentially basic and really very simple concepts. Wyckoff founded the SMI in Phoenix? Wyckoff died in 1934.

 

But to refute all of the inaccuracies would take dozens of posts, if not hundreds, and would accomplish nothing in the end. I prefer to stick to the basics because that's the quickest route to understanding price action (does it really help to call support "ice"?). And the basics are, to me, Wyckoff's work, not what's said about it.

 

So, put in the simplest way I know how, you are at what is for the moment the end of a nearly three-month downtrend, ending at where price was more or less a year ago. This is not a stock. This is not a commodity. Is it more probable that price will rise from this consolidation or that it will suddenly plunge to a new 52-week low? Given the repeated tests of 1.94 and the sharp rally off that level on the 21st, I'd be more likely to go long at a break through resistance. If I were to short this instead, I'd be prepared to SAR at the first sign of such a break.

 

But I don't trade this, and what I would or wouldn't do is not particularly relevant. But I do urge those who want to internalize all of this stuff to get past the bars and past all the jargon and past all the diagrams. It's all about imbalances between buying pressure and selling pressure. Understand that and you'll have it.

 

[dandxg 10]

Thanks Mister Ed, I totally forgot I had Snag It, as I have never used it or posted a chart. Hope this comes out ok.

 

Sell this No Demand. It a nice pullback on lower volume after it breaks the trading range area of distribution. The only downside is that it is a level close not higher, but the volume decrease is major over the previous 2 bars and it's a narrow range so I would sell at close with a stop 2 ticks above the high. It also makes a higher high but close way off the high, bonus sign of weakness.

[dandxg 10]

Here is a better example. You can't see, this is more of a pure VSA approach, but the volume is slightly less than the previous 2, makes a higher close, and the range if pretty narrow. This is a better example as it shows a double top, both of which at upthrusts. It would sell this no demand bar.

[dandxg 10]

I'm not ignoring you. I have a very difficult time dealing with all the layers and layers of overcomplication and nonsense jargon that have been laid over what are essentially basic and really very simple concepts. Wyckoff founded the SMI in Phoenix? Wyckoff died in 1934.

 

But to refute all of the inaccuracies would take dozens of posts, if not hundreds, and would accomplish nothing in the end. I prefer to stick to the basics because that's the quickest route to understanding price action (does it really help to call support "ice"?). And the basics are, to me, Wyckoff's work, not what's said about it.

 

So, put in the simplest way I know how, you are at what is for the moment the end of a nearly three-month downtrend, ending at where price was more or less a year ago. This is not a stock. This is not a commodity. Is it more probable that price will rise from this consolidation or that it will suddenly plunge to a new 52-week low? Given the repeated tests of 1.94 and the sharp rally off that level on the 21st, I'd be more likely to go long at a break through resistance. If I were to short this instead, I'd be prepared to SAR at the first sign of such a break.

 

But I don't trade this, and what I would or wouldn't do is not particularly relevant. But I do urge those who want to internalize all of this stuff to get past the bars and past all the jargon and past all the diagrams. It's all about imbalances between buying pressure and selling pressure. Understand that and you'll have it.

 

 

Sure you are correct. We both know you know more than I. Heck I learned from you. It was the best diagram I could find at the moment. I think it was Robert Evans that founded SMI, not that it matters. I agree it's nothing more than support ( ice ) and the resistance ( creek ).

[DbPhoenix 42]

Sure you are correct. We both know you know more than I. Heck I learned from you. It was the best diagram I could find at the moment. I think it was Robert Evans that founded SMI, not that it matters. I agree it's nothing more than support ( ice ) and the resistance ( creek ).

 

Don't misunderstand me. It's not a matter of knowing more but of being sensitive to bull****, and I've always been unusually sensitive in that respect. And though VSA does tend to lay on the jargon a bit heavy, it's simplicity itself compared to what SMI has done.

 

Price, volume, support, resistance, demand (or buying pressure), supply (or selling pressure), trend. Simple. Basic.

[Tasuki 10]

I've been thinking about two of the major threads on Traders Lab---VSA and MP, and it occurs to me that they rely on contradictory principles. If you believe VSA, the market is manipulated by the "professionals", "specialists", the "big money." Several contributors to the VSA thread have even opined that, if you get right down to it, this manipulation means that the markets are not a true auction, because it s rigged. Some voices, such as Richard Ney, Joel Pozen and others, are more strident in their opinions than others, but the fundamental philosophy of VSA is that the big players drag the price up and down to suit their needs.

 

This philosophy is diametrically opposed to the philosophy of Market Profile, whose principles rely on the notion of a fair, two-sided auctioning process. If that process is not fair, if the auction is rigged, then Market Profile strategies would not work. The whole notion of "value" would be a sham if it were rigged by professionals who would be manipulating value to suit their interests.

 

Let's take a single example to illustrate the two differeing approaches to the market. In a recent video with Joel Pozen, he showed a downtrend with a slight retracement in the middle. In other words,the market went down, then rallied slightly, then went down again. Joel insisted that the slight uptrend was created, manufactured, by the specialists in order to fool the masses into going long, so that the specialists could take out even more people's stops and create another, deeper downtrend. Frankly, I found this conspiracy theory too damn far-fetched for my liking. so I was delighted when I read Dalton's explanation of the same phenomenon (Markets in Profile, p. 155). He simply said that the slight uptrend was caused by "weak sellers" who covered their positions after they had realized a small profit from the initial downtrend. Personally, I find this explanation far more satisfying, not to mention plausible.

 

In short, the more I study Market Profile, and the mechanisms of the auction process, the less need I feel to explain market moves with conspiracy theories involving super-rich, super-intelligent professionals or specialists. Tom Willaims and Richard Ney and Joel Pozen notwithstanding, I doubt that the folks who manage millions or billions are any smarter than we are. True, there certainly are very rich market players, but Willams and company lump these folks all into one camp and call them "professionals". The fact of the matter is, they do NOT act as one block. The truth is, these guys hate each others guts and are just as much interested in cutting each others throats as they are in screwing the public. This notion that the professionals are taking the market up or down or sideways supposes that these folks all work together. Sure, within one brokerage or hedge fund, I'm sure their traders all work together, but the idea that Goldman and Merrill and Blackstone and whomever else are all working together to move the market is a fantasy conjured up by paranoid conspiracy theorists. The fact is, the auction process has far more logical explanations for the market's moves.

[Soultrader 12]

Tasuki,

 

I think whether mp or vsa they are showing the same thing. Footprints of the smart money. You can identify the maneuver by the smart money on mp through range extension, profile patterns, POC movement, etc... VSA shows this through strength/weakness in the background, stopping volume, divergence in price & volume, etc...

 

You mentioned "but the fundamental philosophy of VSA is that the big players drag the price up and down to suit their needs." But this in my opinion applies to MP as well. If there is a conflict in opinion by the smart money, you can see this through profile shapes like neutral days. If the smart money is trapping longs you can see this for example through "P" shaped profiles followed by lower value placement the following day.

 

So in conclusion they are showing the same information in just a different format. The smart money is not one single entity and I agree they do not work together. But these guys have access to institutional holdings information, understand the psychology of hedge funds, and have a better sense of market direction than most traders. Hence, they will follow the money. As a retail trader, I am in no position to trade based on what I think the markets should do. I will leave this to the big traders who have the capital to move the markets. MP, VSA, and other methods simply allow me to follow in their footsteps. My 2cents.

[DbPhoenix 42]

You make good points, Tasuki, though whether or not one finds the two approaches to be incompatible depends on how much attention he pays to signal and how much to noise. Both VSA and MP have their roots in the same place, but the farther out one goes on the individual branches, the more differences one finds in jargon and schematics. But do any of those differences matter to one's trading? Is it even necessary to pay any attention to them? If one works his way back to the roots, he can employ both with no trouble at all.

 

As far as the "smart money" business goes, I prefer to think of it as "big", since it rarely behaves in any fashion that I'd call "smart". And while price can make substantial moves with little or no professional involvement whatsoever, it just doesn't pay to stand in front of the stampede when that money does enter the market.

 

Personally, I couldn't care less who's buying or selling. I'm only interested in what's going on with price. Makes life and the decision-making process much easier.

[CandleWhisperer 10]

Actually VSA states that the Big Boys (BBs) are not all working in concert. VSA also states that not all "smart money players" are in the know. Tom would say that some of those Mutual fund managers with their MACDs and moving average crosses are no better than the herd; a term which is usually associated with small retail traders.

 

As far as the auction process goes, there may be some truth in what you say. While Todd Krueger uses market profile along with VSA, it does seem that there is a dichotomy between market manipulation and fair auction market theory. Yet the propensity of value area lines to act as support or resistance is evidence of sameness or at least a symbiotic relationship.

 

Regardless, the truth lies in price action. Price does not lie.

[Tasuki 10]

Soultrader, I guess what I'm objecting to with VSA is the tendency to attribute every little move to the "smart money". Number One, I don't think they're so smart---ever seen the balance sheets of mutual fund companies? The majority of them suck, and they manage multi-billions of dollars every year. Secondly, I don't think they're manipulating every move. For example, Todd Krueger was asked about the No Demand bar on the SPX the day before Christmas. He said categorically that the "smart money" is always active in the markets. Well, folks, I beg to differ. My Dad's office was on Rector Street, one block from Wall Street, and when I was growing up I got a good look at what the rich folks of Wall Street were doing the day before Christmas---getting smashed, that's what. In a recent Pozen video, he said that the specialists were manipulating the overnight markets. No, folks, wrong again. The specialists at the NYSE are sound asleep in Long Island during the overnight markets. So, I question this obsession with "smart money". The simple fact is, they are NOT responsible for every market move. Given the fact that the rich players are trading against each other more than they are trading against retail traders, I doubt they are actually responsible for any of the signals that VSA ascribes to them. With their efforts to outflank each other to get an edge in this market or that, the notion that they act as a single force to move the markets is preposterous, when you sit down and really think it through. And make no mistake, with the biggest, most liquid markets, the ONLY way they could sway the entire market is if they acted as one block to move the market up or down. Individually, Goldman Sachs, Merrill Lynch or even Blackstone could not move the entire S&P. OK, so it did happen once (Long Term Capital Management), and what a scandal that turned out to be. And yes, in ages gone by, the likes of JP Morgan could indeed sway the whole NYSE, but those days are LONG gone. No one player has enough money to manipulate an entire exchange like the NYSE. So, this whole notion of the "smart money" banding together to screw the retail traders is utter nonsense.

 

What I'm proposing is that there is alternate explanation for every VSA signal. For example, let's think about the Upthrust. VSA proponents would have you believe that the smart money is intentionally driving up the price to catch stops and "wrongfoot" the public, as Tom Williams would say. If we were talking about an individual stock, controlled by an individual specialist on the NYSE, then yes, this is very likely the case. In fact, those who know specialists (e.g. Robert Tharp) say that this happens every day (Robert's told me as much). However, when you see an upthrust on the $SPX, do you suppose that the specialists for 500 stocks all got together in a massive collusion to make that upthrust? If you've ever seen the floor of the NYSE you'd realize how utterly impossible that would be. No, I'm sorry, but we're going to have to find another explanation for upthrusts on the S&P, the Dow, the Compx, and every other index (or their derivative futures contracts). So, what causes on upthrusts on the indexes or derivative futures markets based on them? Quite simply, it is the psychology of fear and greed. The breakout traders got greedy and thought the price would continue higher, but they ignored the sellers who were afraid that they'd miss their opportunity to sell at an improved price, and obviously (because we got an upthrust) the sellers swamped the breakout buyers. Simple as that. No conspiracy necessary. Simple market psychology. I'm willing to bet dollars to doughnuts that you could find equally simple (and logical) explanations for every VSA signal that we've been taught.

 

So, do I think manipulation doesn't exist? Yes, it certainly does exist in individual markets---in stocks controlled by an individual specialist as I mentioned above, and in commodities such as the grains which can be manipulated by huge buyers like Cargill or General Foods. But for most other markets, the manipulation that we've been taught in VSA is simply not possible without serious collusion by the major trading houses, all of whom are competing with each other.

 

Rather than resorting to concepts like "smart money" to explain Upthrusts, No Demad, etc. etc., the psychology of the auction process is a much more cogent argument.

[Soultrader 12]

I agree to an extent Tasuki. I havent really studied VSA closely as most traders here.... but the psychology/effort/result behind the bars and volume is what makes sense to me. I am not familiar with the VSA jargon as well.

 

I agree the smart money is not always active. This is evident through volume and nontrend days. Even on days when the initial balance is wide and the markets trade within this IB range... it is showing early involvement by the big money but no activity throughout the rest of the day.

 

I did have the opportunity to observe my old boss. As a discretionary fund manager, he was an expert in reading the psych behind other funds. (often based on news, sectors, etc...) Hence, if he suspected that Goldman Sachs was selling inventory today he will simply follow the money and focus on the short side. I am assuming this mentality exists on other top fund managers as well. As a result a few fund managers managing hundreds of millions with the same idea/thinking can be considered "smart money" in my opinion. (no specialists in Japan) They are well aware of the impact on the markets if they liquidate/absorb inventory.

 

Anyways... wanted to post ES chart for Feb. 28, 2008. Please see attached.

[Tasuki 10]

But do any of those differences matter to one's trading?

 

DB, actually, the answer is yes, they matter alot, at least to the style of trading that I'm trying to develop. The idea is to understand, as clearly as possible, the reason for the market's move in a direction. I can only speak for myself, but I was allowing myself to be seduced by the idea of sinister "smart money" that was out to get me (the "retail trader"). Listen to Joel Pozen or Tom Williams or Todd Krueger if you find that idea far-fetched. These guys really believe that the big operators are intentionally moving the markets to outwit the retail trader. If you follow this notion too closely, as I was doing, then you start to ascribe every market move to professionals whose motives you can only guess at.

 

Fortunately, there are much better explanations. At any turning point in the market, you can observe the forces of fear and greed and weigh their relative strength by looking at support and resistance. You can also assess the central notion of "fair value" as described in the philosophy of Market Profile. By carefully weighing in your mind each of these forces, you can get a much clearer picture of where the market is likely headed than if you indulge in the paranoid fantasy of "smart money" that is supposedly manipulating the markets. Frankly, I think this notion is actually detrimental to a trader's mental edge.

[dandxg 10]

Wow so much to ponder! I agree there is too much info put on smart money and market manipulation when it comes to price and volume. And yes DB I find myself using VSA terms when attending LTG's free chat and get reprimanded with SMI terms which is ridiculous IMO, but I do appreciate their free teaching. I believe MP is very complimentary to PV because they are both based on price and volume. Or maybe it's just that I have found methods which are logical and make sense to me? Who knows but they work for me. Good trading to all.