[VSA] Volume Spread Analysis Part II

[jjthetrader 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

 

HI Winnie, it's hard to say. It would depend where we are in relation to support and resistance as well. Chances are the little guy is taking profit or it's an attempt to scare them out of thier positions. Look what happens on the following bar or a higher timeframe to get a better idea.

When you see a bar like this the market is very thin, at that time, and easily manipulated.

[VolumeJedi 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

 

Winnie, there is a large gap in your question. Remember VSA looks at three (3) things:

 

* Volume

 

* Spread (Range)

 

* Close

 

Your question can not be answered without any mention of where the close is on that type of bar. Also when you say "low volume" are you talking less than the previous two bars low, low based on the average? If volume is less than the previous two bars, then it would be some type of No buying pressure type of bar. But if the close is on the low, than it would be more of an up thrust in the form of no demand.

 

Always remember that VSA is asking "what did the market do on that volume?" And by that VSA means, where did the market close within its range as well as in relation to the previous bar.

[CandleWhisperer 10]

Good answer volumejedi. I should of warned you that even though all of pivot's code is freely available, he owns the patent to the color scheme. LOL. Use it and you must be him. As for me, I am moving my trading in a new direction. Maybe someday you all will see the light and join us in the candle corner.

[VolumeJedi 10]

This is not the same chart as I previously posted but the patterns do seem to repeat.

 

A Tale of two "Tests":

 

In the background we have an up trend. Then we get an up bar on ultra high volume closing off its lows. Supply enters. The volume on this bar far exceeded any volume for many periods. Probably because of the holiday. The next bar is up, but the range narrows and the volume drops off. Some supply must have entered on the prior bar. Two bars later there is a narrow spread up bar with volume less than the prior two bars. No demand. Would anybody want to short here? It is kind of a counter trend trade at this point. Also the market has not yet built a cause for falling prices.

 

Test 1

 

3 bars after the no demand we see the first test. The range is narrow. The close is equal and near the high of the range. But the volume is high. Tom says markets can rise on high volume tests, but the rise should be muted due to the excess supply underneath. That is the case here. We move up and get an up thrust. This is like a trap up move. The herd thinks the prior tend is re-asserting itself and they look to jump in long. The market pushes a bit higher.

 

Test 2

 

Narrow range bar closing near the highs on volume less than the prior two bars. Looks good for a test. Of course the close could be on the high, but no matter. What happens next is what matters more. Neither of the next two bars closes above the close of this test bar. So the test doesn't complete. And on the very next bar, the third one, a wider spread down bar closing lower than the low of the test bar. As it happens to be, this bar is also a dark WRB.

 

We now have our cause: get short if not already.

[winnie 10]

Dear all,

Thanks for all your kind advise. Attached is the daily chart of citigroup which I wants anyone of you can make a conclusion in it. In last three bars,we have :

two bar with narrow spread but high volume,

one bar with wide spread but low volume.

Combine with its background, could we draw a view on it ?

Thanks

Winnie

[VolumeJedi 10]

Dear all,

Thanks for all your kind advise. Attached is the daily chart of citigroup which I wants anyone of you can make a conclusion in it. In last three bars,we have :

two bar with narrow spread but high volume,

one bar with wide spread but low volume.

Combine with its background, could we draw a view on it ?

Thanks

Winnie

 

Overall, I think the picture is still weak.

 

Strength entered the market four bars back on a down close with ultra high volume that closed off its lows with the next bar up. When strength appears, it appears on down bars. This bar was stopping volume/climatic action. The close of this bar is now our trigger number. For more information on that, watch the trade guider videos.

 

The next bar is up but the range is narrow and the volume is lower. Something is keeping the range narrow-overhead supply. The close is also in the middle of the range.

 

The next bar is again an up bar with a narrow range, but this time the volume is even lower. We now have volume less than the prior two bars with a narrow range bar closing up and closing in the middle of its range. This is no demand. This bar happens to also be a NR7 bar so we can conclude that the BBs are not active on this bar. However, the bar does not complete, so we are looking at no buying pressure not no demand.

 

The last bar has an increasing range on volume that is still decreasing. This bar still remains a sign of no buying pressure. This bar has to be taken with a grain of salt as it is a holiday shorted trading day bar.

 

Barring the government's coming in and changing the rules, It looks like this market is poised to fall down and either give a test or push thru the close of the climatic action bar. Most likely, it will begin to build a cause and then test before moving higher.

 

P.S. I don't use moving averages, but the price is still below the one on the chart. A no demand that trades up to that average would be pretty powerful as well.

[kuky969 10]

VolumeJedi

Thank you for your nice posts . I would like ask - what is diffrent between no demand and no buing pressure bars , and what is NR7 bar ???

Thank you

[VolumeJedi 10]

VolumeJedi

Thank you for your nice posts . I would like ask - what is diffrent between no demand and no buing pressure bars , and what is NR7 bar ???

Thank you

 

NR7: Narrow Range 7 bar. It is a bar with the narrowest range of the last 7 bars (last six bars plus the most recent bar). There is also a NR4 bar, which would be the smallest range of the last 4 bars.

 

These are another way to measure volatility in the market. Markets tend to revert to higher periods of volatility after periods of lower volatility. These type of bars show little professional activity especially when the volume is low. There is a book on short term trading that popularized the concepts.

 

So while NR7 or NR4 aren't VSA concepts per se, a narrow range bar on volume less than the previous two bars would be either a no demand or no supply. The smaller the range, the less professional activity we would assign to the bar. Hence NR7 and NR4 dove-tail nicely with no demand and no supply signs.

 

No buying pressure is defined in MTM, as a wide range bar closing up and on the high with volume less than the previous two bars. Whereas no demand would be a narrow range bar closing up and in the middle or low with volume less than the previous two bars.

 

A more broad definition of no buying pressure would be any up bar that has volume less than the previous two bars. If the next bar is down and the range is narrow, then you have no demand. Therefore, all no demands are no buying pressure, but not all no buying pressure bars are no demand.

[disperados-x 10]

Overall, I think the picture is still weak.

 

Strength entered the market four bars back on a down close with ultra high volume that closed off its lows with the next bar up. When strength appears, it appears on down bars. This bar was stopping volume/climatic action. The close of this bar is now our trigger number. For more information on that, watch the trade guider videos.

 

The next bar is up but the range is narrow and the volume is lower. Something is keeping the range narrow-overhead supply. The close is also in the middle of the range.

 

The next bar is again an up bar with a narrow range, but this time the volume is even lower. We now have volume less than the prior two bars with a narrow range bar closing up and closing in the middle of its range. This is no demand. This bar happens to also be a NR7 bar so we can conclude that the BBs are not active on this bar. However, the bar does not complete, so we are looking at no buying pressure not no demand.

 

The last bar has an increasing range on volume that is still decreasing. This bar still remains a sign of no buying pressure. This bar has to be taken with a grain of salt as it is a holiday shorted trading day bar.

 

Barring the government's coming in and changing the rules, It looks like this market is poised to fall down and either give a test or push thru the close of the climatic action bar. Most likely, it will begin to build a cause and then test before moving higher.

 

P.S. I don't use moving averages, but the price is still below the one on the chart. A no demand that trades up to that average would be pretty powerful as well.

 

On the grounds of what you judge about entering the demand in bar of the stopping volume? Realy increased volume, under else more extended spread is a base to speak of that that enters the demand? Buying with minimum spread stopping volume quite little. Demand entering into hammer, and not fact that this temporary demand. With such probability, increased volume can give the push to continuation of the reduction. But judge the situations only only after happened bar, easy.

 

Than more tenders vsa that more are dysappointed in Wycoff, since he nothing not better Larry, moving average, Livermore, Gann, WRB, Elliot.... , such subjectivity, but more pleasing for perception so is founded on real not grabled to statistics so and tenders to her. On different graph all maded examples will look on miscellaneous

Edited December 1, 2008 by disperados-x

[VolumeJedi 10]

On the grounds of what you judge about entering the demand in bar of the stopping volume? Realy increased volume, under else more extended spread is a base to speak of that that enters the demand? Buying with minimum spread stopping volume quite little. Demand entering into hammer, and not fact that this temporary demand. With such probability, increased volume can give the push to continuation of the reduction. But judge the situations only only after happened bar, easy.

 

Than more tenders vsa that more are dysappointed in Wycoff, since he nothing not better Larry, moving average, Livermore, Gann, WRB, Elliot.... , such subjectivity, but more pleasing for perception so is founded on real not grabled to statistics so and tenders to her. On different graph all maded examples will look on miscellaneous

 

There seems to be a language problem. I have no idea what you are asking or saying. Either that, or you might have to dumb it down for me

 

...But judge the situations only only after happened bar, easy...

 

There are some things we know about the stopping volume/climatic action bar the minute it closes.

 

1. We know the close is down and the volume is ultra high.

 

But if all that volume was selling volume, as implied by a down close then why is the close off the lows of the range? Some of that volume must represent buying.

 

2. We know the range of the bar.

 

Again, if all that volume as downside action (supply entering), then the range should be larger than it is. The small range implies that there is buying into the selling which is keeping the spread (range) smaller than if all the volume was selling.

 

We do need to wait for the next bar to be sure, but we do have some idea on the bar itself. That is fine with me. I do not need to pick tops and bottoms; I let them pick themselves.

[disperados-x 10]

Sorry,

I am bad know english

Edited December 1, 2008 by disperados-x

[tawe trader 10]

D-x,

 

Your English is hell of a lot better than my French

 

Regards

Tawe

[taks1990 10]

Sorry to get off topic but I second that - you should be proud of your English, especially because trading uses a lot of non standard English words and phrases.

Mark

[paolfili 10]

Anyone has any news about the announced new Hank Pruden book on amazon?

Thanks

[VolumeJedi 10]

To whom it may concern:

 

Tomorrow (Thursday December 4th 2008 Chicago Time) at 4.00pm CST TradeGuider is hosting a special 90 minute webinar covering all you need to know about trading FOREX using VSA, and we will be looking at several currency pairs that have some longer term set ups that have appeared. This is an event you do not want to miss, and is open to all, but places are limited to 200, so enter 30 minutes befor event starts to guarantee your place.

 

Please keep this email and link safe and use it to enter the room, NO PASSWORD NEEDED, just be there early.

 

http://www.omnovia.com/event/94451228369695

[BlowFish 10]

I rather uncharacteristically sent an email to Gavin because I feel sure he is going to spout nonsense on this. He always has in the past. I wouldn't normally bother but without a doubt it's going to decieve some gullible newbies.

 

There are a couple of guys that post here that work on (or run) professional FX desk's who have written about tick volume as a proxy for volume. Tim Morge (who's credentials are pretty good) mentions it in an article he wrote just this week. Believe GH or believe real professionals the choice is yours. The thing is why trade an instrument where there is no centralised market and no reporting requirement for volume when you could trade one that is regulated and volume is reported? Most of the arguments advanced for 'trading' FX are fairly bogus too but that's a story for another day:D. I know there are a couple of guys here that trade FX quite happily and that's great, respect to you.

[VolumeJedi 10]

This is a Forex trade. VSA works in all markets. If the volume was false, it shouldn't work here. It seems to. You be the judge.

 

A: The market gives us a wide spread up bar on high volume. This bar closes near the middle of its range. This tells us that there must be some selling on this bar. We know markets do not like high volume up bars.

 

B: Up bar on a narrow range that closes in the middle with volume greater than the previous bar. Supply (weakness) enters.

 

1 & 2: at point 2, we have two highs and an intermediate low so we can now draw our trend channel. The trend is down.

 

C: Very nice narrow up bar on low volume that finds resistance at the top of the channel. However, in this case the channel was not drawn until a few bars later. With that said, we see weakness in the background and now have a no demand. This could be a place to get short.

 

D: One of the best places to short a market. We are in the upper portion of the channel and have weakness in the background. Price closes equal to the previous bar but the volume is very low. This is no demand.

 

Notice how the market tumbles down after this bar. If you use profit targets, you would be looking for price to fall to the bottom of the channel as it does. Once we see the high volume and the close in the upper portion of the range of that bar, we know we have a shake out and should be looking to exit our short. The best exit comes as price trades back within the range of the shake out and forms a squat. This is another sign of strength . The market may not move up , but merely sideways at this point but given the time of day, it is time to take the money and run.

[BlowFish 10]

This is a Forex trade. VSA works in all markets. If the volume was false, it shouldn't work here. It seems to. You be the judge.

 

VJ this is a logical fallacy, cum hoc ergo propter hoc it is also non sequitor The volume is false that is the reality of the situation and to claim otherwise is flying in the face of that reality. It really is not debatable. Whether it makes a good proxy for volume is another matter entirely and is open to debate. I know i can get 200,000 volume to show on the tape simply by bidding 100,000 and cancelling it again. i.e. order book changes cause 'volume'. People might be interested in Tim Morge's article at medianline.com he touches on the structure (or lack of it) of the spot FX market. No affiliation just like his writing, particularly on trade management. It's worth a read for that alone.

 

I don't mean to derail things here or be too contentious (hence numerous ) but I think it's pretty damn important to build your trading on the truth.The question remains why take the chance when there are instruments (like the currency futures) that are traded centrally with volume recorded?

 

Anyway I'll put a sock in it now:) just hope people do there own due diligence rather than rely on GH who obviously has an agenda (selling copies of tradeguider into the retail FX market).

 

btw VJ you where one of the people that the respect statement was directed at. Keep posting charts, I guess we just have to agree to to differ on this one .

[VolumeJedi 10]

VSA works in any market on any timeframe with volume information.

Tick volume is a proxy for actual volume.

The Forex market uses tick volume.

-----------------

Therefore, VSA works in Forex on any timeframe.

QED

 

I understand it is "false" volume in that it is not volume but tick volume. Tick volume represents activity. VSA is not concerned with actual amounts but with relative comparisons. Hence we look at one bar with respect to the bar prior or the one prior to that.

 

There is a fact sheet on volume that can be read on the TG site. It is also available from the Esignal site as well.

 

I submit that you are simply wrong here BlowFish. Now if you want to talk about reasons not to trade spot forex, then we can talk about bucket shops and brokers taking the other sides of trades. But the no volume myth has been debunked.

Edited December 5, 2008 by VolumeJedi

[BlowFish 10]

Yes tick volume represents activity but where the guys at TG are definitely confused (as I used to be)is thinking it is like futures tick volume. It is not What is reported as 'activity' are bid and ask changes. Heres an experiment for you (assuming you have some sort of DMA platform). Try entering a best bid/ask order for 100,000 on your platform and then cancelling it. What happens? Thats right you get activity despite no transaction having taken place. Similarly a guy on spot FX can phone a guy on another desk and buy or sell 10 yards of currency (thats 10 billion) and it won't show at all. There is no way of knowing if a tick represents an actual transaction or a re-quote!! If it does represent a transaction that could be 100 thousand or 100 billion. (Yes large desks do trade in billions or 'yards'). Moreover re-quotes on multiple networks will cause multiple ticks!! Do you see what I am getting at?

 

 

If you really think that simply stating 'VSA works on any market' is any sort of proof (QED) there is no real discussion to be had. All you can really conclude is that VSA works in markets where order book changes are reported. It is certainly not proof that there is volume in forex. Does VSA work in markets where no volume and no tick volume are reported? Or where there is no open auction. Not sure if any of those markets still exist but they sure used too.

 

Actually what I think is probably the case is the price patterns (the spreads and closes) are far more robust than given credit for. I know people that trade quite successfully using the price patterns alone. For example wide spread bar that closes high followed by narrow bars followed by a test (irrespective of volume).

 

Lets take 'VSA works' as a given, an absolute truth, a constant if you will. All we can conclude then is that order book changes and re-quotes are a suitable proxy for volume when used by VSA. Nothing more nothing less.

 

You know what? I think 9/10 times FX tick volume is a good proxy for real volume or maybe it is a good proxy when it matters (at key points) but why would you risk diminishing your edge if there is a possibility it is not? I know you have found your niche VJ but for anyone else why compromise?

[Bearbull 10]

GH who obviously has an agenda (selling copies of tradeguider into the retail FX market).

 

Well you obviously know your friend the professional trader and expert well,

We just received email of archived forex seminar, if anybody has any doubts about the agenda watch it.

Drum beating and trumpetting of how the VSA signals in the software are the best in the world, but this are not buy and sell signals.

Then the ideal signal is pointed out, however where it does not "work" , then "it is a computer, the human brain is better than that", ie. sometimes it works and other times the signals are meaningless as the context is missing.

 

As regards anything "working", same can be said for any RSI, CCI divergence on any market. As for VSA working on all markets, some of it obviously does as it is based on the Law of Supply and Demand as explained in the Wyckoff course, the original source in which all this jargon is absent.

 

However you have to give credit to your friend as he certainly has managed to pull in worldwide audience all starry eyed, salivating at getting hands on this super duper software, well they will soon find out the reality when they put it to test in the real market.

For those who have made it "work", well Good Luck.

Afterall GH became an expert in Price/Volume reading within a few years whilst marketing all this stuff, amazing achievement;)

[HAKUNA 10]

Don't really need the software to work with VSA anyway, just any charting pack should be o.k as long as you get price and volume histogram as Sebastian always says.

Even mentioned that during the London seminar, am sure did not go down well with GH.

[VolumeJedi 10]

I reject the notion that there is no clarity in these VSA pages. Very simple principles and repeatable patterns litter these threads. Moreover, VSA is itself highly logical, whilst being counter intuitive to the way the masses have been taught to think. That counter intuitiveness doesn't lead to murkiness, it leads profits.

 

The chart below is a 3 min Euro. It could be a 8 min mini Dow. It could be a 5 min Soybean chart. It does not matter. Whilst markets do have individual personalities, they are all still just lines on a chart.

 

A: 90% of the time, markets do not like up bars on high volume. That is why VSA says weakness when it appears will appear on UP bars. This is one of the 10%. The market gives us an up bar that closes near its high on ultra high volume with a wide spread. The bar trades down to make a lower low before closing up and near its high. This is a Shake-out.

 

Note the red dashed line. That is the developing Value Area Low. Therefore professional support is appearing in the area we would expect to see it.

 

B: Wide spread down bar on very high volume. VSA teaches us that when strength appears it appears on DOWN bars. Here we have the wide spread bar on high volume, although less than the prior bar (shake-out) that closes off its lows. But the next bar is up. If all that volume was bearish, then the next bar should not be up.

 

Again, we see support at the Value Area Low being put in.

 

C: The market gives us a narrow range bar on volume less than the previous two bars that closes down and near its high. This is a Test. What makes this Test so powerful is both the fact that the close is lower (strength entering/showing itself on down bars) and that it is within the range of our ultra high volume shake-out bar.

 

Also as noted, we are a few pips from the developing VAL.

 

Signs of strength and weakness in areas where you would like to see them.

 

D &E: Later in the move we have another wide spread down bar on ultra high volume. If the volume is bearish why is the next bar up? Clearly, there must have been some buying in that volume. As we look at E, we note that it falls then comes back up to close near its high. The yellow dashed line is the developing Point Of Control.

 

Hence, we see professional support where would expect to see it. But like VSA patterns in any market, I am repeating myself..........

 

P.S. Is anybody here a member of the VSAclub site? I am thinking of joining. Hate the idea of spending money on something that can be learned for free. At least you don't have to deal with haters.

[BlowFish 10]

I reject the notion that there is no clarity in these VSA pages. Very simple principles and repeatable patterns litter these threads. Moreover, VSA is itself highly logical, whilst being counter intuitive to the way the masses have been taught to think. That counter intuitiveness doesn't lead to murkiness, it leads profits.

 

 

I find it amusing the high church of Wyckoff reject anything that does not follow the great mans canon. The dogmata are upheld with an almost religious zeal. Even people like SMI and Pruden, whilst not considered heretics, are treated with suspicion. Seriously though, I am surprised that at least parts of VSA are not recognised as complimentary.

 

Having said that the fact that Tradeguider are seen as being synonymous with VSA its no wonder it gets a bum rap sometimes. I think I have probably expressed my views on TG before hehe.

 

it's a shame Eiger dosen't seem to post much any more. If you look at his posts he clearly has a strong orthodox Wyckoffian grounding and great clarity in describing his combined approach. I hope that part of his seduction by the dark side wasn't a gagging order.

[jjthetrader 10]

Eiger is travelling and noted he won't be posting for a while.

 

As for the VSA club. I do have experience with it and it's basically a waste of money. There was never anthing 'new'. No new setups etc. As usual Gavin talks a bit much. Sebastian and Tom's parts are good but the percentage of time they actually get is minimal. This thread provides better information.

 

I agree with BlowFish that it's too bad TG and VSA get lumped together. One one had they served a purpose bringing VSA to a larger audience but on the other had they corrupted it a bit.

 

Bump: VolumeJedi, here's the Euro futures contract for the same time as your chart you just posted. It infact tells the same story that your tick volume did. You get the high level of activity which knocks the market sideway. Once we start moving up we get our no supply and test bars. These are excellent places to take a long with strength in the background.

 

Chances are on another timeframe this looked a lot more picture perfect. I don't do the bar by bar thing so this doesn't really matter to me but all this activity together gives you your background.

 

I'm glad you're able to trade FX on tick volume. Any FX position I put on is based on the activity of the futures.