[VSA] Volume Spread Analysis Part II

[jjthetrader 10]

Eiger, that was a nice looking setup. It's a shame to get stopped out of an otherwise good trade. Did you re-enter? I took a short on a no demand shortly after that hidden upthrust at 1:27 EST off the 3 min chart.

Today was a beautiful day for VSA signals. It's my best trading day in a week.

[Eiger 10]

It was a good day here, too. Small losses like that don't bother me. They happen all the time and are just a cost of doing business. I was able to get short again a little lower, after price broke through the trend channel (another SOW). I followed price down below the AM lows, so I more than made up for the small loss.

 

Eiger

[Eiger 10]

Eiger,

 

 

"I've got lots of ticks"

 

 

I have those, too, Tawe

[Eiger 10]

There sure is a lot of fear out there, and it is growing. No one seems to have a sense of what will happen next. Gallows humor is renaming everyone's 401K funds to "101Ks." The VIX nearly hit 90, hedge funds are pulling out of the market in billions, and Citigroup closed at $4.70 today. The world must be coming to an end.

 

The S&P Cash Index (see chart) closed below the July 2002 lows and are actually into 1997 levels. In about 14 months we have wiped out many years' worth of gains. The chart posted is a weekly chart of the S&Ps (SPX) with NYSE Total Volume underneath. Volume was high today, but not massive, not yet climactic.

 

At some point, and I don't know when that will be (no one does), the downside will end. Given the extent of the reaction thus far, the air thick with fear, and the steepening angle of decent, I am thinking that this will likely end in a Selling Climax.

 

Thus, I thought it would be good to review the elements of the Selling Climax according to Wyckoff, who first described it. I've attached a page out of my redactive study of Wyckoff's Case Analysis of the 1930-31 market where he described the SC. These are, of course, mostly Wyckoff's words. You can also review the Wyckoff Course for the actual text. In the attached rendition, the late 1930 market is shown up to the SC.

 

Wyckoff viewed the SC as a prime buying opportunity, followed by the secondary test. If observing a SC during the day, we would expect to see strong selling in the AM, and very strong buying throughout the afternoon.

 

So, whoever is first to ID the SC gets a prize

 

Hope you find this helpful,

 

Eiger

[TPTrader 10]

That trend line did break.

 

 

H - A nice Top Reversal/2-Bar UT. Compare with the earlier one. The increased volume said this would take out the Demand Line, and it did.

 

 

Eiger

 

 

 

Eiger,

 

Thanks a lot for the postings.

 

Just want to ask you which bar(s) are you comparing H with exactly? The bar just before F?

 

Thank you,

 

TPT

[tawe trader 10]

FTSE 100 Future (Friday 21st Nov) - multiple timeframe trading

 

 

Chart #1 is a 30 min chart and there is some potential strength in the background from yesterday afternoon.

 

BUT after an early morning FTSE rally, at 10am there was a high volume upbar nearly into overhead resistance with the close down in the lower portion of the bar. Was supply coming in, giving us possible weakness ?

 

If we drop down a lower timeframe, maybe we can look for a lower risk entry for a short trade.

 

Chart #2 - 7 min

 

At 10.27am we have a no demand (white arrow). Also the next bar is another no demand (green arrow), a narrow spread upbar on tiny volume. It is followed by an upthrust, maybe to bring in some new longs and the top of this bar gives a point from which to draw a new supply line. The 7 min trend is now down.

 

The break of a no demand low (green line) to the downside could be used for a place to go short.

 

Tawe

[Eiger 10]

Eiger,

 

...

Just want to ask you which bar(s) are you comparing H with exactly? The bar just before F? ...

 

 

Compare H and the bar prior to H with B and C. Both are two-bar set ups. H is a stronger set up because of the way it went above the high of the prior bar, higher price was rejected, and then closed lower than that low of the prior bar, wiping out all the prior bar's gains - weakness. C went above B and higher price was rejected, but didn't close below the low of B - weakness, but not as strong a signal as H.

 

Hope this is helpful,

 

Eiger

Edited November 21, 2008 by Eiger

[Eiger 10]

FTSE 100 Future (Friday 21st Nov) - multiple timeframe trading

 

 

Chart #1 is a 30 min chart and there is some potential strength in the background from yesterday afternoon.

 

BUT after an early morning FTSE rally, at 10am there was a high volume upbar nearly into overhead resistance with the close down in the lower portion of the bar. Was supply coming in, giving us possible weakness ?

 

If we drop down a lower timeframe, maybe we can look for a lower risk entry for a short trade.

 

Chart #2 - 7 min

 

At 10.27am we have a no demand (white arrow). Also the next bar is another no demand (green arrow), a narrow spread upbar on tiny volume. It is followed by an upthrust, maybe to bring in some new longs and the top of this bar gives a point from which to draw a new supply line. The 7 min trend is now down.

 

The break of a no demand low (green line) to the downside could be used for a place to go short.

 

Tawe

 

 

Nice use of multiple time frames!

 

I am off to China this AM for holiday, so this will be my last post for a few weeks. See you then.

 

Eiger

[HAKUNA 10]

FTSE 100 Future (Friday 21st Nov) - multiple timeframe trading

 

Chart #2 - 7 min

 

The break of a no demand low (green line) to the downside could be used for a place to go short.

 

Tawe

 

How many points is your risk on these 7min charts.

[tawe trader 10]

Hakuna,

 

Considering current mkt conditions I think a fairly wide stop is required and everyone has their own risk tolerances. In this case:-

 

Short entry (green line) at 3930 - that is 1pt below ND low of 3931.

Stop at 3949 - that is 10pts above ND high of 3939

 

Risk 19 pts.

 

The upthrust bar after the ND had a high of 3943.

 

Tawe

[jjthetrader 10]

Hakuna,

 

Considering current mkt conditions I think a fairly wide stop is required and everyone has their own risk tolerances. In this case:-

 

Short entry (green line) at 3930 - that is 1pt below ND low of 3931.

Stop at 3949 - that is 10pts above ND high of 3939

 

Risk 19 pts.

 

The upthrust bar after the ND had a high of 3943.

 

Tawe

 

Thanks Tawe, and what's one point worth on the FTSE if you were to trade direct access. Would it equate to one YM point?

[tawe trader 10]

JJ,

 

I'm not quite sure what you mean, but seeing as the FTSE is at about 1/2 the value of the Dow, then 1 FTSE pt would be about 2 Dow or 2 YM pts.

 

Also, a direct access FTSE full contract of 1 pt, costs £10, so a 19 pt risk would result in £190 risk.

 

Tawe

[HAKUNA 10]

Hakuna,

 

Considering current mkt conditions I think a fairly wide stop is required and everyone has their own risk tolerances. In this case:-

 

Short entry (green line) at 3930 - that is 1pt below ND low of 3931.

Stop at 3949 - that is 10pts above ND high of 3939

 

Risk 19 pts.

 

The upthrust bar after the ND had a high of 3943.

 

Tawe

 

Yes Ftse has been pretty volatile lately, notice that your charts reflect activity upto 5p.m U.K time, however the market trades upto 9p.m, infact the price went down a few hundred points in the evening. Do you ignore this price action in determining the following day's support/resistance, pivots etc

[tawe trader 10]

Yes they extended the Futures mkt up to 9pm since June.

 

Volume drops off dramatically once the cash mkt closes around 4.30pm, so I base my S&R and pivots on prices from the 8am opening to 4.35pm due to the fact this is time that the UK's shares are traded.

 

Post 4.35pm the FTSE future really does mirror the US mkts but it's worth taking note of.

[JeremyGoh 10]

S/R and trend lines are best learned from studying the Wyckoff course materials. Tom Williams also discusses how to construct trend lines in his Undeclared Secrets book as well as what to look for as price approaches trend lines and S/R.

 

As for stops and exits, both of mine are much wider than yours. What I do really isn't relevant to what you do in this area. Stops are a function of your account size, risk parameters, and the individual trade set up. You need to first understand risk, how to calculate it, and how that relates to your account size. Then you can translate that into a plan and test it out thoroughly with a fair amount of practice. You will not get all you need to know just from the sources you mentioned. You must go outside these threads and study other sources. For risk and money management, start with Van Tharp.

 

Hope this is useful,

 

Eiger

 

Hi Eiger,

 

Is the Wyckoff course materials from http://wyckoffstockmarketinstitute.com/course.htm?

 

Jeremy

[VolumeJedi 10]

FTSE 100 Future (Friday 21st Nov) - multiple timeframe trading

 

 

Chart #2 - 7 min

 

At 10.27am we have a no demand (white arrow). Also the next bar is another no demand (green arrow), a narrow spread upbar on tiny volume. It is followed by an upthrust, maybe to bring in some new longs and the top of this bar gives a point from which to draw a new supply line. The 7 min trend is now down.

 

The break of a no demand low (green line) to the downside could be used for a place to go short.

 

Tawe

 

If you missed it, the market gave you another chance a few bars later. We see another up bar on volume less than the previous two bars on a narrow spread. In fact, it is a NR4 bar.

 

A no demand bar after an upthrust, which hit the supply line, is one of Tom's favorite entry signals.

[taracent 10]

Did you have a profit target to take 1/2 of the trade off, or do you wait for a sell type bar?

[VolumeJedi 10]

Interesting chart here.

 

It all starts with a climatic action bar. We see an up bar on very high volume closing off its highs with the next bar down. Supply entered. Lest we forget, one key principle of VSA states: when weakness appears it appears on up bars. Many traders see this high volume up bar and think price is off to the moon. VSAers, however, know that the market does not like up bars on high volume because there could be hidden selling within the bar.

 

The next bar has even higher volume as the range narrows and the close is both down and in the lower portion of its range. This is an Up Thrust. It is also a squat. The narrow range as volume increases is key. As Tom says in MTM, one can tell the intent of the market makers by looking at the spread (range) of a bar. If all the volume was bullish, then the close would not be down, nor would it be in the lower portion of the bar. The market makers are giving the herd a "good price" as the spread is kept narrow. But that is because they can see all the sell orders which make them bearish.

 

This sets up the background. Next we see a test as price has risen a bit from a No Selling pressure bar. We don't close on the high, but we close near the high. We also close even to the previous bar and not down. Simply, while it is a test, we already know it is not an ideal test. Price does move up and give us our completion bar. However, we soon see a close below the close of the test bar. This low close also happens to be a dark WRB. This signals that the market is still weak. We are getting no results from a test.

 

Two bars later, another up thrust. With all the weakness in the background, we have entry #1.

 

The no demand bar that appears 7 bars later is another entry point. The no supply bar is ignored as we know the market is weak.

 

Last quote on chart is 1.2892.

current quote is 1.2858.

[Tasuki 10]

Interesting chart here.

 

Price does move up and give us our completion bar.

 

.

 

Great analysis. What's a "completion bar"? What is being completed?

Thanks.

[VolumeJedi 10]

Great analysis. What's a "completion bar"? What is being completed?

Thanks.

 

Thank you.

 

A few pages back, JJthetrader came up with the term completion bar.

 

Basically, when you have a test, it is not a test until/unless one of the next two bars closes higher than the close of the test.

 

With a no demand bar, it is not confirmed as no demand unless the next bar is down (In some cases, the next bar can be equal and the next bar down).

 

Rather than thinking in terms of confirmation, one can think in terms of completion. That is, a no demand signal is really a two bar signal. The first up close on a narrow range with volume less than the previous two bars and the next bar closing down.

 

This is how TG does it. It is important to note that one can trade prior to the close of the next bar, as JJ does, or one can wait for the completion bar and then enter. Most of the time the market will not "get away" from you if you wait, but that is really a personal risk tolerance issue and not a VSA issue. Tom does not wait for confirmation/completion but he is the father of VSA. Tom would enter on the close of a no demand. Gavin would enter once price trades below the low of the no demand. The software, however, will only place a sign above the no demand once the next bar completes and is down.

[jjthetrader 10]

Nice post Jedi. Since we're on the topic of completing a reversal pattern I'd like to share this trade I made yesterday.

 

My first area of interest was when we approached R2. It was the reluctance to move up with any conviction that gave me the sense of weakness and falling off so hard from R2 showed me it was easier for the market to go down than up at that point in time. This is good enough for me. I'm not looking for the market to change direction and go that way forever, just get my points.

 

The first no demand was awesome, couldn't close above R2 and closed in the bottom half of it's range. Next bar down was the completion of this pattern. Not only that but it broke the upward trendline. So now I'm looking for my entry within the range of that completion bar. The low of the first no demand is a good spot. This works out perfect as we get a low volume upbar to test that low and the broken trendline. I took the trade right there where marked. I entered before the second no demand completed but having the first completion pattern was enough. A low volume upbar after a pattern like that is a sweet short entry.

[BlowFish 10]

Hi VJ.

 

You aren't a pop star as well as a trader are you? You seem to re-invent yourself as often as Bowie or Madonna Still whatever the nom de plume the contributions are always welcome!

[Tasuki 10]

Hi VJ.

 

You aren't a pop star as well as a trader are you? You seem to re-invent yourself as often as Bowie or Madonna Still whatever the nom de plume the contributions are always welcome!

 

heard that PP alias CW alias VJ is really the artist formerly known as Prints. And ditto the welcome posts. Best stuff on TL.

[winnie 10]

Would anyone tell me what does an up bar which has wide spread but low volume in an downtrend background actually means ? Is it a weak bar ?

 

Thanks

Winnie

[Sincere 10]

I guess it is a shake out to remove the public from participating the down trend. Difficult to trade