[VSA] Volume Spread Analysis Part II

[zdo 20]

New thread would be appropriate - especially after all the fighting in the past to keep the VSA threads pure ...

[VolumeJedi 10]

I don't know much about the Taylor Method, but it would be interesting to see where this goes.

 

Without any real understanding of the Taylor Method and in all admitted hindsight, here are a few things I see in the chart.

 

Once you understand the method, the real issue is of course how does one implement it. As this is a VSA thread, certainly any implementation would also have a basis in VSA.

 

Take a look at the first double arrow. This is a wide spread down bar on ultra high volume that closes off its low. The close of the low on ultra high volume alerts us to the possibility of buying in this bar. Now if we knew this was a Short Sell (SS) day, then we would expect the next day to be a Buy (B) day. Looking at the chart we do see strength entering on this bar. But before the day starts, we would be predisposed to only take long signals (Tests, no supply bars) and ignore no demands and up thrusts.

 

Skip ahead to the very narrow range bar closing up on volume less than the previous two bars. In fact, the volume (first red double arrow) is less than any volume bar that can be seen. Plus, this narrow bar is in fact a NR7 bar. Simply, the BBs are not interested in higher prices on this bar-it is no demand. So, we have no demand on a day that was a sell day (S) day, making the next day a SS day. Perfect. VSA alone would have us looking to enter if the low of the no demand bar was taken out. Intra day, we would simply start the day predisposed to only take short signals on our preferred timeframe.

 

On the next double arrow, we have a down bar on a narrow spread with volume less than the previous two bars. This is no supply. There is strength in the background , and we the day was a SS day. Since we have a no supply indication on a SS day with strength in the background, we can look to only take longs the next day which should be a Buy day.

 

The last double arrow points to a narrow range bar closing up with volume greater than the previous bar. Supply enters on this bar. This bar is a squat. While there is strength in the background, we can still look to sell the next day as the cycle fits the VSA sign. Thus we would only be looking for ways to get short on the next bar. Which according to the Taylor method will be a SS day.

 

This is by no means the way to combine the two methods or the only way to combine them. It's just a quick look at some interesting intersections by someone that doesn't really know much about either . There may be something here, and I look forward to the more knowledgeable Taylor/VSA traders chiming in.

[Bearbull 10]

VolumeJedi,

That looks pretty much on the track, it gets tricky when the market gets out of sync with the 3 day(TT) or 5day cycle (Linda.R method),

Unfortunately on the Taylor thread, nobody seems to be interested in engaging in commenting on possible scenarios for the next day based on what has transpired today and in previous couple of days. Happy to look at some past chart, o.k for a while to learn the basics but then one has to move on to the practical level to observe how it plays out in realtime. LIke you I am no expert so a separate thread and joint effort with Eiger, WHY? perhaps, we could move forwards.

[tawe trader 10]

I'm no expert also, but what I have noticed is that when we have 'normal' mkts the Taylor method is worth following or keeping an eye on and VJ I do like the sound of your ideas above.

 

But the method tends to fail in a runaway bear or bull mkt (or strong mkt phase), ie 5, 6, 7 down closes etc.

[kuky969 10]

VolumeJedi

please I would like ask how do you use NR7 bar practically ?? Do you expect after it break of volatility always ????.. and why seven why not eight ??

Thank you

[Shamal 11]

Am also interested in Taylor Trading, look forward to input from more experienced folks in here.

[gvoss 10]

Hi All, I am having a problem with my VSA7 program and was just wondering whether anyone else has had the fault and has worked a way around it.

VSA has been working with no faults for sometime now but this morning the program wouldn't open properly. When I double click the VSA icon I get a small box stateing "Chart per table missing data provider or data packet" if I then click the OK I go into VSA but am unable to open any chart and instead get a box stateing " Access violation at address 00617403 in module VSA7.EXE. Read of address FFFFFFF"

VSA 7 is a good few years old now but has always served me well. It would mean a great deal to me if someone has any advise into sorting this out.

Thanks you

[zdo 20]

See above

"Volume Spread Analysis Dedicated forum for VSA traders."

 

Please combine elsewhere... thx

[HAKUNA 10]

Hi All, I am having a problem with my VSA7 program and was just wondering whether anyone else has had the fault and has worked a way around it.

VSA has been working with no faults for sometime now but this morning the program wouldn't open properly. When I double click the VSA icon I get a small box stateing "Chart per table missing data provider or data packet" if I then click the OK I go into VSA but am unable to open any chart and instead get a box stateing " Access violation at address 00617403 in module VSA7.EXE. Read of address FFFFFFF"

VSA 7 is a good few years old now but has always served me well. It would mean a great deal to me if someone has any advise into sorting this out.

Thanks you

 

Contact TG support: darrenh@tradeguider.com , tel: 877 392 3895,

I had it for trial, gave problems then, glitches, they have been promising to fix them for past 5years, believe an upgrade is due in Jan 09, you should get it without charge, again check with them.

[VolumeJedi 10]

VolumeJedi

please I would like ask how do you use NR7 bar practically ?? Do you expect after it break of volatility always ????.. and why seven why not eight ??

Thank you

 

I would say that personally I like the idea of eight (8) as it is a fib/music math number, but the concept of NR bars was presented to me as NR4 and NR7.

 

My use of these bars is pretty minimal in truth. Basically, I just like to see no demand bars/no supply bars that are also NR4 or NR7 bars. It amplifies the fact that the Smart Money is not involved on the bar in question.

 

Traditional interpretation does say that after such a bar, there should be an increase in volatility. This is your basic "reversion to the mean" idea. That is, the NR7 bar is a reduction in volatility and such reductions tend to be followed by an increase in the opposite direction.

 

Again, I haven't studied the concept of NR bars all that much, but I know that the spread or range of a bar tells us important things from a VSA perspective. This is especially true when the narrow range has either volume less than the previous two or volume greater than the previous bar. In the latter , the greater the volume the more important it is as it will be a squat of some kind. The former is some kind of no demand/ no supply bar/test. The low volume signs we look for.

[VolumeJedi 10]

......But the method tends to fail in a runaway bear or bull mkt (or strong mkt phase), ie 5, 6, 7 down closes etc.

 

Therein lies the problem with cyclic type analysis. The other would be the "inversion phenomenon". I don't think this method has inversions though.

 

What I was trying to convey in the post is the idea that one would not necessarily want to trade everyday of the cycle, but rather only those days that line up with key VSA type days/bars. In other words, you don't have to be a buyer every (B) day of the cycle. Only on the days that follow wide spread down bars on very high volume that close off the lows. Or narrow range down bars that close in the middle or high on volume less than the previous two bars.

 

For those that want to use the playing field idea, they could add in the buy (B) days that are in the correct place in the channel. Of course, any other type of support/resistance areas would also apply (pivots, value areas, fib retracements, et all).

 

I suspect that most here on TL would not like this approach as it does have you sitting out of the market on many days. One way around that would be to trade more markets. This would increase the probability that on any given day the trader has a market where both the cycle and VSA are in alignment.

[tawe trader 10]

Yes VJ,

 

I and I guess, many others got the message that you were trying to convey, thanks. To be on the lookout for VSA buy / long setups when the Taylor method is calling it a buy day and vice versa for shorts.

 

The other would be the "inversion phenomenon"

 

Let's not go down this route. I have also tried to combine VSA with Wells Wilders Delta Phenomenon mkt turns and cycles.

 

Tawe

[VolumeJedi 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. For all the contributors, well done and congratulations on making this an amazing thread.

 

 

 

Soultrader; just a suggestion, when the number of pages gets to 200 maybe you should think about starting part III.

 

P.S. It has been awhile since you posted your unique take on VSA and MP. What's up with that?

[tawe trader 10]

FTSE Future - short trade _ 7 min chart

 

Not surprisingly, the mkt gapped down this morning, following the US sell-off yesterday and a weak overnight Asia session.

 

There was a very high volume opening bar, followed by a rally. I was a bit worried about the opening bar volume and if it contained any buying. I didn't want to go long but I was looking for a place to go short and waited for a confirmed no demand (ND).

 

There was a ND on the 8.21am but it's low was never broken.

 

There was another confirmed ND at 8.42am and I placed a order to go short at 1 pt below the ND low. The ND was followed by an upthrust into Fib 38% retracement level before the mkt turned down and eventually my trade was activated.

 

The mkt went sideways for a while before eventually rolling over and declining. I picked up 35pts on this trade, not as much as I could have. :crap:

 

Tawe

[kuky969 10]

I would like ask more experienced traders what do you think about my analysis, entry and exit trade. I think it was a little risky trade because there was not clear trend in market . It was after a few days profitable trade. well at last:)

[HAKUNA 10]

tawe,

pretty cool, 35 pts sound pretty good to me, where was your stop, how many points.

 

you had then fib level plus the daily S1pivot to work from.

 

Say which datafeed yu using, on my 7min charts , mine looks somewhat different via esignal feed.

[VolumeJedi 10]

This chart would have been posted hours ago, but I was having some software issues. . No matter, I think there are still things to learn and take away from the chart.

 

 

A: We know that the market does not like wide spread up bars on ultra high volume. But that does not mean one should get short as soon as such a bar appears. This bar is indeed wide spread and the volume is ultra high. Supply (weakness) enters as the next bar is down. However, the market does manage to move up from this point.

 

B: At point B the market gives us another wide spread bar on very high volume. Could this bar be some sort of push thru supply move? Not sure, but if it is, it will be tested almost immediately. 3 bars later we start to get a clue. This bar is narrow closing up on volume less than the previous two bars: it is no demand.

 

C: Now things are really coming into focus. The market gives us an up bar on higher volume closing near its lows. This is an up thrust. Note that the high of this bar is equal to the high of the bar at B forming a double top.

 

Let's take the pulse by looking at the background:

 

1. We have seen a bounce off of yesterday's high.

2. We have seen a wide spread bar on ultra high volume closing off its highs with the next bar down.

3. We have seen a wide spread bar on very high volume closing off its highs with the next bar down.

4. We have seen an up thrust. The high of which is a double top with the high of the second wide spread bar. Also of note, these highs are lower than the high that bounced off of yesterday's high.

 

Shorting on the up thrust is valid, but may be a bit aggressive for some.

 

D: Price moves down from the weakness. At D we see an equal range bar closing up with volume less than the previous two bars. Another possible entry point, but we have just moved beyond the VAH from the previous day and there is something else we will get to next.

 

E: This is the place to get short. We have a NR7 bar closing in the middle of its range with volume less than the previous two bars. It is no demand. Note that it closes at the VAH (resistance). Also note that this bar does not trade higher or even equal to the close of the original wide spread bar at point A. That close is our "trigger number" and we like seeing signs of strength or weakness in this area. If you enter on the close you are in. If you wait for the low to be broken, you have to wait two bars.

 

F: Bar F is very interesting. It closes higher than the previous no demand bar and does not make a lower low. Thus it does not bring you into the market if you were shorting on the break of the low of the no demand bar. This bar makes a higher high. What is telling, besides the low volume, is the close of this bar is on the trigger line and in the middle of the spread. With a wider spread than the previous bar, it might not be correct to consider it no demand, but it is clearly at least no buying pressure. One can now look to short at the break of the low of this bar.

[tawe trader 10]

where was your stop, how many points.

 

Say which datafeed yu using, on my 7min charts , mine looks somewhat different via esignal feed.

 

Hakuna,

 

My 'mental' stop was above the upthrust by 5pts. I like to give the FTSE some room, especially considering current mkt volatility.

 

I use DTN IQfeed as my data supplier for my Sierracharts.

 

An entry below the break of the upthrust low (in hindsight) may have been a better risk v's reward trade.

 

Regards

Tawe

Edited December 13, 2008 by tawe trader
.

[elovemer 10]

5min es

5min es

5min es

[HAKUNA 10]

elovemer,

like Eiger I am also interested in taylor method, have tried to get that thread going by requesting those who know the method to start some form of analysis of probable price action for the next day based on what has gone before in the past few days. This has unfortunately not happened although this is a systematic way to go. To make any sense of the method, it has to be done that way,

I am not sure what the chart on your post means. perhaps you can attach some comments .

[VolumeJedi 10]

Trade for expectancy not accuracy.

 

This looked so good when it was setting up:

 

A: Slightly lower close on increasing volume that has a lower than the bar 3 bars earlier. Both trade below the green line but fail to close below it. We are seeing some support in an area where we would like to see it.

 

B: Wide spread up bar on ultra high volume. After seeing some support we get this bar. The markets don't like ultra high volume up bars. There could be some selling in this bar. If this is bullish we should see an immediate test. If we do not see a test right away, there is an ideal place to see one.......

 

(The very next bar is an up bar on a narrow spread closing near the middle of its range on volume less than the previous two bars. No demand.)

 

C: Up thrust. The volume is low but the market is marked up than taken back down to close near the low. This is a sign of weakness but an ideal up thrust would close up and on the low , not down.

 

D: High volume down bar closing off its low. There is some demand (strength) on this bar. High volume down bars usually mean supply (weakness), but if the volume is excessive, then there must be buying hidden within that bar. That looks to be the case here.

 

E: This is the one the got me. :crap: We see a down bar on volume less than the previous two bars closing in the middle with a narrow range. The range makes this bar a NR7. This is a test. Note that this test is within the range of our Ultra high volume candle. Plus the test is on the blue angled line.

 

At this point the wide spread up bar looked to me to be pushing thru supply and therefore bullish. It has been tested in the ideal place. Looks like the BBs are poised to take the market higher. Time to get long.

 

F: After a small move to the up side the market rolls over and we see an interesting bar at F. It has volume less than the previous two bars, closes on its high and closes up from the previous bar. It could be no demand or it could be a test. The fact that the bar makes a lower low and not a higher high than the previous bar leads me to think it is a test. And the low is not lower than the previous test bar. Also note that the next bar is up not down. This confirms that it was not no demand.

 

G: Wide spread down bar closing lower than the test bar. I don't look at the open, but that was probably a wrb. At any rate, the close lower than the test bar shows "no result from a test" a sign of weakness. This bar takes us out of the market.

 

Feed back encouraged.

Edited December 16, 2008 by VolumeJedi

[delta 10]

Volumejedi,

will you please explain what is squat bar? thanks.

[kuky969 10]

VolumeJedi

 

I understand your analysis why F is test.

Hard to say now after trade but I consider F as no demand . 2 bars before it was increasing supply, close of second bar is under low first bar , second top after upthrust was on a little volume and I like see test just after VERY CLEAR entry of demand . Maybe higher TF say more as background. I think 3 min chart give more not clear signal and therefore I prefer 5 min.

Thank

[VolumeJedi 10]

Volumejedi,

will you please explain what is squat bar? thanks.

 

Bill Williams coined the term. It refers to a bar that has volume greater than the previous bar and a decreasing MFI (Market Facilitation Index). The less technical definition is simply a bar with a narrower range than the previous bar on volume greater than the previous bar.

 

Bill Williams states that a squat is a battle ground between the bulls and the bears......

 

From a VSA perspective, the bar is similarly significant. As the range narrows and the volume increases, we have to ask "why?". If the Market Makers were bullish (assume an up bar) then the range would be wider. They would want to let the herd in at increasing prices. But if the spread is narrow, it must be that they are bearish. Since they can see both sides of the market, the would be bearish if they see large sell orders above the market. Hence the keep the spread (range) narrow. The herd thinks they are getting a good price but they're wrong.

 

One of the most powerful VSA signs is "end of a raising market". This is an up bar on very high to ultra high volume, closing on middle or high on a narrow spread into new high ground. This is a squat.

 

"So by simple observation of the spread of the bar, we can read the sentiment of the market-makers; the opinion of those who can see both sides of the market." Tom Williams, MTM, p.28.

 

We have to ask ourselves, "What did the market do on that volume?". If the volume is high and the range is narrow, then something was keeping the range narrow. In the case of an up bar, that would be over-head supply (weakness).

 

Of course, we can have squats on both up and down bars.

[VolumeJedi 10]

Right edge trade.

 

Here's the pic, explanation to follow.