[VSA] Volume Spread Analysis Part II

[Eiger 10]

Here is a set-up and trade that is essentially a duplicate of yesterday's trade I posted. This is one of the aspects of VSA - the same set-ups occur again and again:

 

A - High volume up bar, next bar is level, then a down bar on low volume. More rally can be expected.

 

B - Increased volume, close in the middle - supply.

 

C - Same as B, but on higher volume.

 

D - Low volume up bar - are professionals withdrawing? Unclear because it closes on its high. But, next bar is down and closes below D - supply.

 

E - No Demand. Next bar is weak, closing near its lows.

 

F - Upthrust and entry for a short trade.

 

Objective was the small support level at 907.75.

 

Also, if you look at the other indicies (Dow, Naz, Rus) you will see strong relative weakness in the S&Ps and Dow.

 

Hope you find this useful,

 

Eiger

[Bearbull 10]

In my mind, BB, Wyckoff is intregal to VSA. I really can't separate them.

 

Well that certainly is encouraging to know. I personally do not have any axe to grind against any methodology. As stated on one of the posts here, VSA was taught properly whilst Todd Kurgger was around as he had a good grasp on the subject and was a realtime trader, however since then it has really degenerated at TG. Anyway you are doing a good job in detailing all the principles in such complimentary ie. Wyckoff/VSA fashion.

[Bearbull 10]

I know it's a pretty basic rule and observation but I've read about it and seen it happening time and time again.

 

When the mkt is in what I call a bullish phase (up-leg), the mkt opens down (to buy).

 

When the mkt is in a bearish phase (down-leg), the mkt opens up (to sell into).

 

Take todays FTSE, it opened down approx. 60pts on fairly low volume and it is currently up 2.4%.

 

Tawe

 

Think if you look into Taylor Trading thread, there is an informative post on such scenarios, terminology used there is powerbuy and powersell.

So if you had a couple of range up days,(called buydays) then a sellday is expected, however if the market gaps down, this sets up first a buy(powerbuy) and then a short later in the day, and vice versa, ofcourse not everytime;)

Taylors work is most certainly not an easy read. but does have some good concepts as some of it is based on MP, auction theory.

[jjthetrader 10]

Here's an update. The trade is obviously cancelled. The bar I pointed out earlier ended up closing down which made it a no supply or test on the top of the channel.

[Eiger 10]

Well that certainly is encouraging to know. I personally do not have any axe to grind against any methodology. As stated on one of the posts here, VSA was taught properly whilst Todd Kurgger was around as he had a good grasp on the subject and was a realtime trader, however since then it has really degenerated at TG. Anyway you are doing a good job in detailing all the principles in such complimentary ie. Wyckoff/VSA fashion.

 

Thanks for the compliment; I appreciate it. I am very much a Wyckoff kind of guy. I was trained in Wyckoff and spent many years studying, failing, relearning, etc - all Wyckoff. I knew when I first read the Course that this was the truth. I dedicated myself to learn it and to be able to apply it, which, of course, took a fair amount of time. After I understood the basics of Wyckoff, I was very fortunate to have been mentored by a recognized Wyckoff expert (an individual you might know, or certainly know of) who taught me the nuances of Wyckoff and how to properly trade it. I wouldn't be at all interested in VSA were it not fully based in the Wyckoff method.

 

As for TG, I view it as a business separate from VSA. Like any business, it has its pluses and its minuses. In general, I think TG has more pluses than minuses, but that's just my opinion. Although I did a presentation for them in SFO and will probably do more of the same in the future, I am not really privy to all the inside stuff that goes on, the personalities involved or not involved, etc. Frankly, I'm not really interested in that stuff. I truely love Wyckoff and VSA, and I truely love working with other traders. TG provides a vehicle for that, which for me is quite cool.

 

When I post here, I never mention TG or the software; I'm niether TG's employee nor its representative. I am, however, a big advocate of both VSA and Wyckoff, and talk about both all the time (probably too much ) FWIW I basically view VSA and TG as separate entities, and I prefer to keep my focus on VSA.

 

Eiger

[VolumeJedi 10]

It's nice to see JJ posting currency trades. I believe the more he looks into the currency markets, the more he will see how the professionals show themselves so clearly at times.

 

Before we look at the trade, take a look at the right side of the chart. The market gives us a down bar closing in the middle with a narrow range and a lower low than the previous bar on increased volume. This is a squat (E). Three bars later the market gives us a narrow range bar (NR7) on volume less than the previous two bars closing down and in the middle of it range. This is a test (F).

 

With the test at a place we would like to see it, it could be a nice place to add on to the trade. But the real take away here is how clear the bars are. Almost text book.

 

 

As for the trade:

 

A: A good rule of thumb is to start out looking for very high to ultra high volume. Second would be to pay attention to wide to very wide spread bars. When we have both, we definitely want to listen to what the market is telling us.

 

The market gives us a very wide spread bar on ultra high volume that closes off its lows with the next bar up. Support (buying) most have entered on that bar. How do we know?:

 

1. If all that volume was selling, the close should be on the low.

2. The sum total of all that effort (volume) did not close below the developing Value Area Low (VAL).

3. The next bar confirms our suspicions as it closes higher.

 

B: Up bar on volume less than the previous two bars. Sounds like no demand. But let's take a closer look. First and foremost, we have just seen strength in the background. Taking a closer look at the bar itself, what do we see?:

 

1. The range is not narrower than the previous bar. In fact, it is an out side bar-it has a higher high and a lower low.

2. The low of the bar is in the area of expected or likely support.

 

We can dismiss this bar.

 

C: Another up bar on volume less than the previous two bars. This one does have a narrower range and closes near its lows. This bar is an up thrust in the form of no demand. Again, there is a lot of strength behind us, so we can ignore this bar. It does tells us that on this particular bar, the BBs are not yet ready to take prices higher. One would suspect that is because they want to make sure there isn't any supply left in the market. Therefore we should be looking for a test or no supply sign just prior to the market taking off to the upside.

 

D: Down bar on volume less than the previous two bars. Volume less than the previous 4 bars for that matter. Unfortunately, the range is not as narrow as we would like but there are two important clues here:

 

1. The low is HIGHER than the lows of A and B. If we are making higher lows, then we are in an uptrend.

2. The low doesn’t breach the VAL.

 

This is no supply and clears the way for the BBs to take prices higher. Hitch a ride on their coattails.................................

[Bearbull 10]

Thanks for the compliment; I appreciate it. I am very much a Wyckoff kind of guy. I was trained in Wyckoff and spent many years studying, failing, relearning, etc - all Wyckoff. I knew when I first read the Course that this was the truth.

Eiger

 

Wish you had clarified many many posts back:)

Well at last I bump into somebody who can understand where I am coming from. Like you have a Wyckoff background and hence able to understand VSA without any problems whatsoever as VSA is derived from the original Wyckoff course anyway.

However those who have not been through this route immediately go on the defensive as soon as Wyckoff was mentioned on this thread before.

 

Glad the air is cleared now, your posts are indeed informative and I am sure many would benefit if they also took some trouble to learn from the original source as the knowledge gained therein would not only reinforce their understanding of VSA but also enhance their confidence in application of the principles.

[Bearbull 10]

As for the trade:

Up bar on volume less than the previous two bars. Sounds like no demand. But let's take a closer look. First and foremost, we have just seen strength in the background. Taking a closer look at the bar itself, what do we see?:

 

1. The range is not narrower than the previous bar. In fact, it is an out side bar-it has a higher high and a lower low.e background. Taking a closer look at the bar itself, what do we see?:

 

We can dismiss this bar.

 

 

.

 

How about if we read the price action this way,

 

1. Large amount of supply has been removed via demand coming in at A.

2. The next bar is down on similar volume but the prices hold as the close is above the previous suggesting demand is absorbing the supply

3. Now the prices can rise on low volume due to paucity of supply, ie. buying pressure is overcoming selling pressure at B

4. However before the prices can be marked up this supply has to be tested

5. We go down again but on lower volume, slackening of supply at D

6. This is immediately confirmed by the next bar where buyers have little difficulty in pushing prices up (low volume once again as at B

7. Those who were long and trapped at higher prices are now itching to get out , hence the next bar has volume coming in absorbing that selling and prices move higher.

 

Just another alternative way of reading with the same principles

[VolumeJedi 10]

If you're not paying attention, you might think this is a repost of Eiger's chart.........

 

Beautiful chart here.

 

A: Ultra high volume on a very wide spread bar that is pushing thru supply. Markets do not like high volume on up bars. This would be one of the exceptions. If it is indeed bullish, we would expect to see an immediate test.

 

B: Note the bar just prior to B. It has volume less than the previous two bars and closes up. But look at the range. It is not narrower than the prior bar. Thus it is not no demand but rather no buying pressure. If there is no buying pressure and an ultra high volume bar in the background, the BBs would want to check for supply. They do. B is a test. there is some room for upside movement here.

 

C: Narrow range up bar on volume greater than the prior bar. This is a Squat. Some supply (weakness) enters here.

 

D: Up bar closing in the middle of its range, more supply enters the market here.

 

E: This is it. An up bar closing near its lows on increasing volume. This is an up thrust (or trap up move). We have seen supply enter the market so there is weakness in the background.

 

F: Narrow range up bar closing in the lower portion of its range on volume less than the previous two bars. This is no demand. Note how price bumps up against yesterday's high, but as it was not respected on the upside it is not going to be respected now.

 

Also note where the no demand is. It is within the range of our ultra high volume bar. This is our low volume sign with in the range of a high volume bar.

 

The similarity of this chart to Eiger's is more than coincident. VSA patterns can be seen in all markets on all timeframes. If you are like me, and don't really care for Wyckoff per se, you can still use VSA and trade in harmony with the BBs.

[Eiger 10]

Market Structure

 

I find it useful to frame out the market phases or structure on a 60-minute chart. I find using a 60-minute structure to be very helpful real time. The trade I posted earlier today occured at the 918 level -- a resistance level known in advance from this chart where you would expect some sort of a reaction.

 

The attached is the Day Session only data, but the overnight is useful, too. It gives additional areas of S/R that can be -- and often are -- important.

 

A few things about this chart:

 

First the down trend was broken by the swift rally off the bottom in late November. Note how the volume swelled on the lows, indicating the end of the trend. The market then came back down to test the 816 area twice.

 

The 816 level was important as this was where substantial buying first came in during the down trend. Wyckoff/SMI calls this Preliminary Support. This support area is often a loction where the market will hold on subsequent tests, as it did here.

 

The market then built a cause between the 918 and 816 levels. To me, this looks like accumulation.

 

Today the market rallied to the 918 level, where supply had occured earlier, and where we could expect a reaction, which occured.

 

Note the character of the market action over the last two days. I think this is important. We have had two relatively narrow range days. Buying came in on the lows (marked by the green arrows). More importantly, however, is the holding of the gains made thus far by the market. Note how we haven't reacted much over the last two days. In my view, the market is resting here and absorbing whatever overhanging supply remains (areas highlighted by the ovals).

 

Assuming we don't fail here and react lower (always a possibility), but instead rally out of this congestion, higher prices seem likely. There has been enough cause built to test the 1006.75 level and, if successul, to go beyond that area.

 

Up this this point, we appear to be testing the lows of the last two days via a Sping. To me, this looks bullish.

 

This will be a good area to watch the major indicies to look for relative strength or weakness/confirmation. This is one of the potential turning points where observing these indicies can be helpful.

 

Hope this is useful,

 

Eiger

 

Eiger

[jjthetrader 10]

Great posts everybody!

 

Eiger, I gotta see a screenshot of your multi-monitor setup. You're looking at so much, how do you keep things organized. Do you also have market profile up?

 

One last update to my cable setup. On the last update we were breaking up through the supply line. But check out the volume it tried to do this on! Two bars later we get effort to fall and cut back into the channel.

With this low volume attempt at a breakout and an effor to fall I'd be willing to short on a bit of a retrace of the effort bar.

[Eiger 10]

...Eiger, I gotta see a screenshot of your multi-monitor setup. You're looking at so much, how do you keep things organized. Do you also have market profile up? ...

 

 

I don't actually have that many charts. My main charts are the 3 and 5-minute ES, both with Ticks. I also have a 5-minute Wave Chart of the ES. I keep the four indicies up in small charts. A 60-min ES chart shows support & resistance. I then have one last ES chart I keep under the small indicies charts that I use to toggle through different time frames, e.g., 30 to 15 or 10-minute or constant volume - whatever I think would be helpful at the moment. I don't have a market profile chart up. I am just now studying MP, and don't really have the skill set yet to use it.

 

Eiger

[tawe trader 10]

Think if you look into Taylor Trading thread, there is an informative post on such scenarios ..........................

 

Thanks BearBull,

 

I picked up my info from reading material by Linda B. Raschke (who is a big Wyckoff fan) and George Angell. Both of them, based it on the Taylor Trading Techique. I have quickly slimmed thro' Taylors book, but not studied it in depth.

 

Cheers

Tawe

[Eiger 10]

Think if you look into Taylor Trading thread, there is an informative post on such scenarios, terminology used there is powerbuy and powersell.

So if you had a couple of range up days,(called buydays) then a sellday is expected, however if the market gaps down, this sets up first a buy(powerbuy) and then a short later in the day, and vice versa, ofcourse not everytime;)

Taylors work is most certainly not an easy read. but does have some good concepts as some of it is based on MP, auction theory.

 

Thanks BearBull,

 

I picked up my info from reading material by Linda B. Raschke (who is a big Wyckoff fan) and George Angell. Both of them, based it on the Taylor Trading Techique. I have quickly slimmed thro' Taylors book, but not studied it in depth.

 

Cheers

Tawe

 

I've worked with the Taylor Trading Technique as well. I found Taylor's book very difficult to comprehend, and I am not sure his 'Book' is worth doing, but I could easily be wrong on that. Linda Raschke uses Taylor extensively as well as Wyckoff. If you look at her work, pretty much everything she does is based on these. She once told me that if you knew Wyckoff, you would know about 90% of technical trading; the other 10% is Taylor. (Her comment was what originally got me motivated to study Wyckoff). Her book Street Smarts has good material on Taylor.

 

As i understand it, Taylor viewed the market as generally having a 3-day rythym of a Buy Day, Sell Day, and Sell Short Day. (This is the basic Taylor Technique - it has more complexity)

 

Starting with the Buy Day, a trader would look to buy into the market early in the day, hold over night if the market traded bullishly that day, and then looked to close out the long position the following day (the Sell Day).

 

After two up days, the market would typically react, and this was Taylor's Sell Short Day, where he looked to short the market early in the day if conditions were right, but close out his poition at the end of the day or early the following day, as the next day would typically set up a Buy Day opportunity and repeat the cycle all over again.

 

This is the basic rythym, but there are other rules for when the market does not correspond to the 3-day cycle. A big clue to Taylor -- as I understand it -- is watching how the market acts around the prior day's highs and lows.

 

For fun, I looked at the Buy Day (B), Sell Day (S), and Sell Short Days (SS) over the last two weeks in the S&P cash, starting with the obvious Buy Day on Nov 21. Not too shabby

 

If you two (and others) are interested, we could look to incorporate Taylor here and see how it plays out in the S&Ps and the currencies you trade, using Wyckoff and VSA to enter and exit. I, for one, though, would have to do some serious brushing up on Taylor, as i haven't used it in quite some time.

 

Eiger

[tawe trader 10]

Not too shabby, at all !!!!

 

I'll have to do some swotting up as well, but it looks like it could tie-in nicely with VSA.

 

Best regards

Tawe

[Soultrader 12]

Please dont mind this post but this is by far the most popular thread on TL.

 

Just a reminder that today marks the 100,000 view count of VSA Part II. For all the contributors, well done and congratulations on making this an amazing thread.

 

[Eiger 10]

Please dont mind this post but this is by far the most popular thread on TL.

 

Just a reminder that today marks the 100,000 view count of VSA Part II. ..

 

Pretty cool! Thanks, James.

[HAKUNA 10]

The Naz certainly used to be a good leader in the 1998-2001 markets.

It is still very useful as an indication of relative strength/relative weakness when compared with the other three indicies as I noted above. .

 

Basically, when using the Naz index for relative stregth/weakness comparisons, you are looking to see weakness or strength show its hand at the turning points. This happens all the time and is a useful thing to look for.

 

Hope this is helpful,

Eiger

 

Very interesting indeed, have been watching ES and NZ today,

 

Naz was leading first around 10a.m EST, then the role reversed between 10.15-10.45

[Eiger 10]

AM Trade

 

Taken long on the 3-min chart from the Test bar (green arrow). There was no acceleration to the downside on the retest of the AM lows. Objective for the trade is yesterday's high at 905.

 

Note the three bars prior to the Test bar:

 

• Volume increases on these bars (in Studies in Tape Reading, Wyckoff talks a lot about volume "swelling" at the end of a move, as it did here.
  
• The first bar (of the three) is an average spread down bar, closing on its lows on an increase in volume.
  
• Next bar dips under the prior bar's low and closes on it's high - bullish.
• The following bar also closes near its highs on good volume, but the clue here is the higher low this bar puts in -bullish.
  
• Test bar on volume less than the previous two bars and making a higher low - bullish and entry
  

 

Tom Williams talks about how VSA indications come in different intensities. This is a good example. Volume did not spike, as we usually like to see, but all the signs were there nonetheless.

 

With indications of less intensity, i find it can be of help to have other decision support. Certainly, the background is important. This AM opened higher, made a higher low and a higher high, We have an uptrend in the background.

 

In the larger background is the structure of the market I posted yesterday - a generally bullish picture.

 

Ticks help, showing no downside pressure and a divergence at the AM lows.

 

The four indicies we been talking about also help, as there were clear indications of relative strength on the Russ & Naz at the entry area.

 

FWIW: This is how i try to build a VSA/Wyckoff Story in making high odds trades.

 

Hope this is helpful,

 

Eiger

[Eiger 10]

Very interesting indeed, have been watching ES and NZ today,

 

Naz was leading first around 10a.m EST, then the role reversed between 10.15-10.45

 

Here's how i read it:

 

S&Ps open (O) gap up at the yesterday afternoon high. Naz was weaker on the open, under the highs of yesterday afternoon.

 

Both make a higher low, then both make a higher high, with the S&Ps somewhat stronger.

 

Both make a higher low, but here is where the difference came - the Naz showed relative strength by hoolding a higher low compared to the S&Ps.

 

The S&Ps had been slightly stronger (better open, better initial higher high), but the (2nd) higher low held by the Naz was markedly strong. This was the significant clue because we had established an uptrend (background, always keep the background in the forefront of your mind )

 

Hope this is helpful,

 

Eiger

[Bearbull 10]

Excellent explanation of the setup with the blend of Wyckoff/VSA and also use of other indices Naz, Russ, Naz was leading there as was Dax which is great to trade, infact prices were positively on the march in Dax, the European traders tend to anticipate the moves in the US markets (most of the time they are spot on, but now and then goof up),

 

You went long on that test bar, so presume the stop would be a couple of ticks 2 bars back, around 892.75, do you than wait for the target to be hit or manage via trendlines as per wyckoff on that same timeframe or switch to 5min, 15min.

I know Tom advocates moving stops below each bar that moves in favor of the trade, allowing for one or two downbars. GH on the other hand goes into all sorts of stuff, diamonds, etc:)

[Bearbull 10]

Eiger,

It would great to follow this up in the context of Taylor methodology, shame that the Taylor thread has fizzled out, some knowledge guys in there, Dogpile, Why?, but no much follow up I am afraid. Infact Frank provided an excellent summary in post 205, (I don't want to copy the whole post here) check it out. More detailed than Linda Raschke whose work I am very much familiar with since 2000, also that of George Angell.

 

As for Taylors book, it is practically unreadable, he obviously was a competent trader but certainly not a writer . WHY? seems to have mastered it though:)

 

If I were to read this: 5th Friday was a buy day, the gap up on Monday(sell day) was momentum carryover, selling into that the target would be the high of Friday.

Tuesday (short sale day), opened gap down, so the first trade is the powerbuy I mentioned before followed by a sell at the high of Monday's range.

 

So today in theory would be another buy day, but as it gapped up we have reverse situation of yesterday i.e first trade power sell and then a buy either on violaton of yesterday low or on a higher low which is what you have just explained.

 

Lets see how all this pans out and we will take it from for tomorrow, I am sure it will highly educational for all of us, for it is good enough for L.R, it should be for us:)

 

Blend of Wyckoff/VSA/Taylor, WTG

[Eiger 10]

I usually use a 2.0 to 2.25 point stop on most trades, less if there is a good support or resistance point. If I like a trade and the stop is going to be larger than 2.25 points, I cut size. So, my stop on this trade was exactly where you indicated.

 

I wound up taking the trade off a bit early at the larger blue up arrow. I couldn't tell if the market was making a lower high or just reacting here, so I got out. It is definately harder to read the lower intensity signals, and there was no acceration or much of an impulse move up. I find it a good rule: when i don't have a clue as to what is going on, I exit and certainly don't get into a trade

 

I do use trend lines via Wyckoff and especially horizontal lines. It turned out that the market did move up above the AM high and then had a low volume reaction. Applying both an up tend channel and a support line, you can see that the market came back to the Demand Line and the Horizonatal Support line (more important line). There was a nice confluence of support for a trade there (green arrow), ticks were holding well, and there was good VSA indications on the bars.

 

This trade was taken off at the clear Top Reversal (blue arrow). Note how the ticks showed a significant lack of demand at the highs. It was also noon time, where we often see a counter trend move of some degree occur.

 

Hope this is helpful

 

Eiger

[HAKUNA 10]

Guys Eiger, BB, tawe, this blending is brilliant stuff. No reason in this day and age to get wedded to one way of looking at the market, whatever that blends and provides extra edge IMO is worth pursuing.

BB,

I also tried to get some answers on the Taylor thread, but nobody seems to bother to follow up, apparently some with knowledge of the method come in , make general comments and when requested to follow up taking a day a time, silence. wonder why?, is it that it is easier to read after the event? for although the method anticipates possible scenarios, there is no way of knowing when those turns or high made first or low made first are going to happen. But as Linda Raschke is using it to her advantage, there must be something in it.

[Eiger 10]

...

As for Taylors book, it is practically unreadable, he obviously was a competent trader but certainly not a writer . WHY? seems to have mastered it though:) ...

 

 

I remember Taylor's book being very difficult to read. Talk about jargon! I started reading some of the TTT threads and agree that Why? cerainly has a handle on it. I notice that he has also said a few times that he was looking to apply VSA to Taylor. Perhaps he might like to join us. Maybe we should start a separate thread, as well.

 

I am off to NYC to do psychology for a couple of days. I am bringing Taylor's book with me just to remember how difficult his writing is I do wonder, though, whether or not it will be clearer to me now that I understand the markets a tad better than when I had read his book earlier.

 

Eiger