[VSA] Volume Spread Analysis Part II

VolumeJedi · December 7, 2008

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.

Sounds like you were a member for awhile. I really don't like the cost. I think everything can be learned for free on a site like this. Its just that Seb Man is now longer able to post here. Apparently he traded the GBP live for the club members on Friday.

Plus, the great ones here: JJthetrader, Eiger, Tawe Trader, don't post everyday. This is understandable as they are traders first and posters second.

....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....

Yes if not for TG, many would not even know of the third way to trade the markets. Much of the renewed interest in Wyckoff is due to them, despite the Wyckoffians putting VSA and all its "jargon" down.

Eiger · December 8, 2008

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 ...

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.

I am just returning from three weeks in China. A wonderful country - my third visit. I also got a chance to go to Hong Kong for the first time on this trip. What a great city!

Ahh, the high church ... If you look even casually you quickly notice so much is not even Wyckoff. Look closer, and you soon realize there is so much omission. One rule of thumb I've learned over the years is to be suspicious of zelots and their dogmata. But hey, it's all jargon anyway, right? I still submit that the clearest material on Wyckoff are: the vast library of SMI materials; David Weis's two chapters on trading bonds in Charting the Market: The Wyckoff Method (the rest of the book is a pretty good overview, too); Studies in Tape Reading; the Motorway posts on the Aussie Stock Forums; and Tom Williams's Undeclared Secrets of the Stock Market.

I haven't posted as much not because of any gagging (no one is supressing or trying to supress my posts). Mainly, I have either been trading, traveling, or doing research on various aspects of trading. I've also been working on a website. With all that going on, I just haven't had much time.

I also feel that there is an awful lot of negativism that crops up on this thread. That is tiresome and quite off-putting. A special, separate thread was started for those who wanted to debate and criticize VSA, but that hasn't been good enough, I guess, since they don't post there. When I see the negativity, I tend to withdraw from TL and put my energies into other, more productive activities.

It's one thing to have a community of traders interested in exploring the practice of VSA. But that's not what we have here, and it's too bad. Instead, we see the same nattering nabobs of negativism taking the same backhanded swipes and acrimonious pot shots supposedly to illuminate the truth, but in reality, are simply advocating other agendas. Unfortunately, the VSA forum and TL are both diminished by these people, in my opinion. Other traders who want to discuss VSA see a forum with great potential get turned into something substantially less because those with an axe to grind insist that they be heard. Until this changes, I feel less drawn to the forum. As I wrote above, I feel my energy is better spent in other, more productive activities.

Eiger

TPTrader · December 8, 2008

I also feel that there is an awful lot of negativism that crops up on this thread. That is tiresome and quite off-putting. A special, separate thread was started for those who wanted to debate and criticize VSA, but that hasn't been good enough, I guess, since they don't post there. When I see the negativity, I tend to withdraw from TL and put my energies into other, more productive activities.

It's one thing to have a community of traders interested in exploring the practice of VSA. But that's not what we have here, and it's too bad. Instead, we see the same nattering nabobs of negativism taking the same backhanded swipes and acrimonious pot shots supposedly to illuminate the truth, but in reality, are simply advocating other agendas. Unfortunately, the VSA forum and TL are both diminished by these people, in my opinion. Other traders who want to discuss VSA see a forum with great potential get turned into something substantially less because those with an axe to grind insist that they be heard. Until this changes, I feel less drawn to the forum. As I wrote above, I feel my energy is better spent in other, more productive activities.

Eiger

Dear Eiger,

I am a beginner in VSA and I am saddened that you feel that way but I can understand that. For what it is worth, I very much appreciate your efforts in these postings. I have found your postings very helpful for me. In fact, I found your postings amongst some of the bests not only in this forum but amongst all trading related forums that I have run across.

To put in such time and efforts to do all these postings for free, I can only dare to come up with these conclusions: 1. You are genuinely devoted to VSA/Wyckoff. 2. You have an honest intention that may be some other traders (beginners or not) can learn from what you already know and hopefully improve their understanding of the market and then go on to make some success in this illusive game of trading. You've been there and you'd like to help if you can. 3. You have an open mind that you believe you can get some feedbacks and questions on your ideas that can in turn help you sharpen your own skills and improve your trading. (Students are teachers' best teachers so to speak)

Unfortunately, the nature of discussions for forums especially on subject of trading are prone to negativity and criticisms for obvious and not so obvious reasons. Sadly that is all part of life in these forums. Personally I only hope that you can keep up the trading attitude here, you accept the winning trades and losing trades as part of the business. Some will benefit from your postings and some might not, or even give rise to negativism in one form or another. But ultimately the winning trades more than make up for the losing trades and at the end of the day, you are a happy camper.

Hope to continue to see your postings.

TPT

BlowFish · December 8, 2008

I am just returning from three weeks in China. A wonderful country - my third visit. I also got a chance to go to Hong Kong for the first time on this trip. What a great city!.......

Hi Eiger, glad you enjoyed your trip. Sounds like you have been pretty busy. I guess we'll hear more about the web site in due course.

I think most of the comments are on the whole are 'good natured quips' rather than any real negativism. Certainly not my intention to cause offence (or to the Wyckoffians by referring to them as a church )

These VSA threads are pretty massive so there is bound to be a bit of noise amongst the signal, still a great resource for those wishing to learn more about VSA.

HAKUNA · December 8, 2008

Agreed Blowfish, there is really no need to be at loggerheads with other groups. :fight:

I find benefit in most.

Eiger and others who trade with VSA, hope yu guys keep posting, good learning for all of us. I benefit from posts on wyckoff forum too, and find all this complementary.

Initially use to focus too much on vol spikes etc and engage in reversal trades, then had a long chat with Todd Krugger who went to explain more in the Bootcamp CD, great shame he has departed , very different to what Gavin does. Infact in the symposium DVD you find Sebastian in disagreement publicly with GH who only goal appears to be promotion of software(although he keeps saying it is not, great marketing ploy though), seminars etc. :eek:

tawe trader · December 8, 2008

Does recent P+V action on the ES give us some clues for a possible pre-xmas rally ?

Chart #1 - Daily

The Daily ES has a down day (down close) on Thursday (green arrow) on less volume than the previous two days. After the mkt closed, it could be looked at as less selling pressure.

Last Friday, after some dreadful jobs news and going lower, the mkt reversed and closed up. This can be seen to confirm Thursday as a no supply day.

Chart #2 - 60 min

What if we drop down a timeframe and look at the intra-day action of last Friday. We can see that after the initial lower opening, during the next hour, the mkt found some support from Tuesday's low and selling pressure seemed to subside. The 60 min bar closed down and the volume was less than the previous two bars.

The next bar closed up, which confirmed the low bar as a no supply.

On this timescale, a high risk long entry could be on the break of high of the low bar, around the 830 level. A more conservative entry would be to wait for the next bar to close up (confirming the NS) before going long.

Also, the overhead supply line was broken late Friday on both the daily and 60 min charts.

Tawe

jjthetrader · December 8, 2008

This is an excellent example of why to wait for the completion of a pattern.

Right on this trendline formed what 'appeared' to be a no demand. But if you had shorted it you'd be hurtin' a bit. The bar after that was an upbar with increasing volume, not a downbar that we'd need to short, and then we get our real effort to break the old top. Large volume comes in, it looks excessive, but with the following bar forming a test on ultra-low volume, you know it was absorption and price would likely move higher. A buy-stop could have been placed above the effort bar.

This is a 15min cable futures chart from December 4. I picked it only because the VSA club was looking at it live and expecting it to test the lows. This is why we must be able to turn on a dime.

HAKUNA · December 8, 2008

JJ,

Good post,

see yu not too impressed with VSA club, was thinking of joining, but have gone through bootcampCD and symposium DVD

Do yu trade currency futures, if so what do yu think of liquidity and order fills, which trading platform yu use .

jjthetrader · December 8, 2008

JJ,
Good post,

see yu not too impressed with VSA club, was thinking of joining, but have gone through bootcampCD and symposium DVD

Do yu trade currency futures, if so what do yu think of liquidity and order fills, which trading platform yu use .

Hey, I actually place my trades on the spot and just use the futures data to read the activity. I have traded the actual futures but prefer being able to adjust my sizes a little better on spot. Fills were always good though on infinity.

It's not that the VSA club is useless, it's just over priced. It's trading well above the trend channel

If it was 24.95 per month then I'd be more inclined but for the number of events per month 99.95USD isn't worth it to me, especially with the dollar against the loonie.

It kinda makes me mad to that they alienated their customers by ceasing to do customer only events which I thought was included in the price of tradeguider when I first bought it. "We don't sell software, we sell education" they used to say. There are no such events anymore. You have to pay and what you pay for isn't worth it. No offence to Seb and Tom, their portions are worth something but not $100 per event (they only do 1-2 events per month).

Eiger · December 8, 2008

Live trade

A nice rally on Friday and again today. But weakness came in as we approached 3:00 EST (often an inflection point in the ES):

A - An up bar, wide spread close in the middle on ultra high volume. Selling was evident in this bar.

B - More high volume, close inthe middle and an average spread. With all the volume, the spread should have been wider and the bar should have closed on its highs. More weakness. Next bar is down - selling.

C - No Demand. An up bar with volume is less than the previous two bars. I took a short on the close of this bar, but it turned out to be premature. I was stopped out for a small (i.e., a very good) loss.

D - The first down bar in the rally with an increase in volume - supply is hitting the market - more weakness.

E - An Up Thrust. I went short again on the close of this bar. There is clear weakness in the background here at A, B, C, and D. The UT after this kind of weakness shows the market is unlikely to rally higher. Note also that the Demand line had been broken at D and both B and E failed to meet the Supply Line - more weakness. Also, Ticks showed a divergence - the rally was clearly dying.

This is putting a VSA or Wyckoff Story together in order to make a trade. I find this a useful thing to do.

My objective on this trade is 904.00, a tick above the last support at 903.75. This is not a strong support, but it is rather late in the day and it woul represent over 12 points if reached, which is a pretty good trade.

Eiger

tawe trader · December 8, 2008

But weakness came in as we approached 3:00 EST (often an inflection point in the ES):

Hello Eiger,

Is this something to do with the bond mkt closing ?

I was stopped out for a small (i.e., a very good) loss.

I like it, I guess the first loss is the best loss.

Nice to have you back from your hols. It sounds like you had a great trip.

Regards

Tawe

jjthetrader · December 8, 2008

Eiger, nice work man! Since you wrote your trade did hit that level. Great work.

What's always interested me is where selling actually comes in and where the top is. You rarely see them in the same place. Look how momentum carries us so much higher. This is why you have to be patient like eiger and wait for the signs of the top and even then you could get stopped out.

One of my trades today was on the YM. The ES wasn't setting up as well as the dow so I took it there. The ES actually showed me that the YM wouldn't be going up much further. I shorted a no demand after weakness came in at the top of the trend channel. I came so close to getting stopped by a thrust.

Second chart I've posted is going with our theme of FX. The way that it trends combined with it's ease of reading professional activity makes these instruments great. I've attached a 10min cable futures chart from today. The story is short and swet. We get tons of volume coming in on a bottom reversal. When we come down into this area to test it check out the volume, ultra-low! Out of the 160pips thats visable you'd very likely have been able to catch 100 even if you were late to the party.

Eiger · December 8, 2008

Here's the outcome.

Note how the volume swelled on the exit bar at F along with the wide spread, close near the highs. Buying came back in, which is not a surprise as we are still in a bullish phase of the intraday market.

I generally like to target areas of support and resistance for trade objectives, but had I been trading this with a trailing stop, this kind of action would have encouraged me to immediately take my profits and run.

Also, because the premature short taken at C was only a small loss, it was easily made up on this move. I don't think much about losses because I strive to keep them small via tight stops. If I get stopped out (which happens often enough), i don't really care because I know on the next trade or two I will more than make up for the loss.

Of course, these are losses that relate to well-defined trades in accordance with my trading plan. A No Demand after clear SOW is a high odds trade most of the time and is a part of my trading plan. If you are trading low probability trades and/or random set-ups, losses will definately mount up and hurt your both your account and your psychology. This will definately affect your ability to perform. When you have a sound trading plan based on VSA and have proven it, small losses are not a bother.

BTW, this was the 3-minute ES.

Hope this was helpful,

Eiger

Bump:

...
Is this something to do with the bond mkt closing ?

I like it, I guess the first loss is the best loss.

Nice to have you back from your hols. It sounds like you had a great trip.

Regards

Tawe

The bonds are my guess. The main "inflection points" in the S&Ps are 10:00 AM, 12:00 Noon, and 3:00 PM - all EST. You often see reversals and changes in trend around these time. At 10:00 AM, there tends to be news and reports. It is probably also the time when larger time frame interests like funds begin to enter the market. Over the noon hour we often see a counter trend occur as fewer traders are active over lunch time. At 3:00 PM the bonds close. Many S&P and equity traders pay attention to the bonds as an intermarket indicator. How the bonds close will often cause adjustments to S&P and stock positions.

I have found the adage that 'the first loss is always the best loss' to be quite true. The Behavioral Finance principle of Loss Aversion has a lot to do with this. We tend to have a natural predisposition to hold onto losses far too long. It takes some psychological effort to overcome our natural tendency. I think if you stick with trading long enough, you eventaully realize that small, early losses are best, and further that losses are really no big deal.

China was great. I love that country. This was the first time i have been to Hong Kong, and found that city to be just incredible. I am half toying with the idea of selling my country home in New England and moving back to the city in HK. Wouldn't that be a change!

It's good to be back.

Eiger

Bump:

...
Is this something to do with the bond mkt closing ?

I like it, I guess the first loss is the best loss.

Nice to have you back from your hols. It sounds like you had a great trip.

Regards

Tawe

The bonds are my guess. The main "inflection points" in the S&Ps are 10:00 AM, 12:00 Noon, and 3:00 PM - all EST. You often see reversals and changes in trend around these time. At 10:00 AM, there tends to be news and reports. It is probably also the time when larger time frame interests like funds begin to enter the market. Over the noon hour we often see a counter trend occur as fewer traders are active over lunch time. At 3:00 PM the bonds close. Many S&P and equity traders pay attention to the bonds as an intermarket indicator. How the bonds close will often cause adjustments to S&P and stock positions.

I have found the adage that 'the first loss is always the best loss' to be quite true. The Behavioral Finance principle of Loss Aversion has a lot to do with this. We tend to have a natural predisposition to hold onto losses far too long. It takes some psychological effort to overcome our natural tendency. I think if you stick with trading long enough, you eventaully realize that small, early losses are best, and further that losses are really no big deal.

China was great. I love that country. This was the first time i have been to Hong Kong, and found that city to be just incredible. I am half toying with the idea of selling my country home in New England and moving back to the city in HK. Wouldn't that be a change!

It's good to be back.

Eiger

Bump: ddd

Bump: Here is a little piece from Wyckoff you don't see elsewhere that I find very helpful and was a support for the UT trade taken above:

Wyckoff traded stocks and placed great emphasis on relative strength and weakness. He would look at a stock and measure its waves and price action against the general market. Tom Williams and VSA talks extensively about this. It can be very important as a decision tool in taking and exiting trades. Here is how I often use it:

On my computer screen, I track the major markets on the 5-minute time frame. These are the S&Ps, Dow, Naz 100, and the Russel 2000. I use the ETFs (SPY, DIA, QQQQ), but you can use the futures, too. It doesn't matter.

On the profitable trade I made, I took an UT in the ES. There was plenty of evidence on the ES chart to make this trade, as detailed in the above posts. Part of the VSA/Wyckoff Story though, was the relative weakness unfolding in the markets.

On the attached chart, you see the 5-min S&Ps, Dow, Naz, and Russ. Note how both the S&Ps and Dow actually printed new high prices after 3:00 EST, but both the Naz and the Russ did not. The smaller cap stocks were indicating that the rally was over. They were showing relative weakness and indicating that lower prices were in the offing. The Generals were not being followed by the Troops, so to speak.

If you look very carefully, you will also see that the Naz and the Russ both reached or slightly broke last support before the last up wave (the UT high), but the S&Ps and Dow did not - again, relative weakness.

In case you think this a fluke, look at the second chart. It is the same series again, only this time it shows relative strength at the bottom, just before the rally. Again, a key Wyckoff principle sadly omitted elsewhere.

To be fair, Wyckoff and VSA would say that you short the relative weakness and buy the relative strength. Thus, on today's trade, the better trade would have been to short the Naz futures. I trade only the S&Ps intraday and don't switch between the four major indicies. Nevertheless, as I hope you can see, watching relative strength and weakness unfold is a useful practice.