[VSA] Volume Spread Analysis Part II

[giraia_br 10]

No, you can get tick volume in Tradestation as well. For example, I just created a chart of EURUSD, 5 minutes. In "Format Symbol" look for "For volume,use:" and then click the down arrow and select "Tick Count". Presto.

I've checked the volume bars created this way against those posted on PP's charts, and they're the same (he doesn't use TS), so I believe that the tick volume on Tradestation is correct.

 

 

Can't speak for other charting programs.

 

many thanks for reply Tasuki.

 

did you compare many charts?

 

Tradestation data feed is from Gain, right?

 

best regards.

[Tasuki 10]

many thanks for reply Tasuki.

 

did you compare many charts?

 

Tradestation data feed is from Gain, right?

 

best regards.

 

gir,

Yes, I did compare quite a few charts, and they were spot on.

 

Not sure what "Gain" is. As far as I know, Tradestation's datafeed is from Tradestation.

 

Folks, I'm a little uncomfortable discussing data feed issues, particularly specific companies and their services, on the VSA forum. I understand that volume data is an issue with Forex, and that this is important for VSA (understatement), but I don't want the thread to get diverted from its proper purpose. Is there a thread somewhere on Traders Lab for datafeed issues?

[BlowFish 10]

I'd have to agree with Blowfish that you just get a feel for it.

 

Ultra High is just so obvious of a spike on the volume histogram.

 

I usually use volume less than the previous 2 bars and less than the average for low volume bars. It's all relative to the last few bars. You can't compare lunch volume to opening volume, it's not relevant.

 

As for the spread of a bar I take into account the last 5 bars or so. Look at your current bar in relation to the previous 5 and you'll know if it's narrow, average or wide.

 

Another though. Much as we would like it to the volume doesn't always occur on one bar. You will often get a 'hump' in the volume histogram. Actually I like to see this as it shows that buyers are supporting price over time.

[kuky969 10]

I think nice trade

We have down trend and it is 3rd bounce from resistence level 8490

 

1,2 bars for me in downtrend are possible weakness

3 bar , narrow spread and higher volume ---supply enter

4, --no demand

5 -- supply enter

 

there was TICK divergence too

 

timing of entry I make in 50V TF where I must see nice increase of bid volume and sharp move of price down - increase of momentum.

BUT I MISS IT , I WAS NOT CONCENTRATE ON IT

 

http://www.sierrachart.com/userimages/upload_2/1231817082_32_UploadImage.png

 

http://www.sierrachart.com/userimages/upload_2/1231817859_13_UploadImage.png

Edited January 13, 2009 by kuky969

[Eiger 10]

1,2 bars for me in downtrend are possible weakness

3 bar , narrow spread and higher volume ---supply enter

4, --no demand

5 -- supply enter

 

there was TICK divergence too

 

 

Very nice. When volume expands into resistance and then dies like it does here (bars 2 & 3), it is a very reliable "tell" of lower prices. Bar 3 was a nice UpThrust of the resistance area, pushing above resistance slightly, then closing well below it. None of the subsequent bars (4 & 5) could muster a close above the resistance. Nice use of Ticks to confirm that in all that volume there was net selling rather than buying.

 

I am curious about your description about your entry rules. In the future, could you post an example?

 

Eiger

[kuky969 10]

Very nice. When volume expands into resistance and then dies like it does here (bars 2 & 3), it is a very reliable "tell" of lower prices. Bar 3 was a nice UpThrust of the resistance area, pushing above resistance slightly, then closing well below it. None of the subsequent bars (4 & 5) could muster a close above the resistance. Nice use of Ticks to confirm that in all that volume there was net selling rather than buying.

 

I am curious about your description about your entry rules. In the future, could you post an example?

 

Eiger

 

Eiger

thank you very much for your post .

What relate about my timing and entry rules. Every day I observe very small TF 500V chart in ES . I try take trade only resis./supp. levels . When I see process of distribution and we are moving to ressistence (5 or 3 min TF chart) I like see some kind of base (cause) and looking for no demand .If I see this bar , in this moment are important my 500V chart. If I see relatively big increase of bid volume , sharp move of price down, and break of low no demand bar I trigger trade. Simply I dont wait for close price and finish of next bar after no demand to confirm it. Is very funny and some time I take very nice coming momentum of price to down.

But ofcourse this is very subjectively .

I will post some examples from next days in future.

[Eiger 10]

Thanks. I was curious about this as I am playing around with a few early entry ideas, but haven't found anything reliably worthwhile yet. FWIW, I typically take the entry on the close of the No Demand or Test. I don't wait for price to break the low or high for confirmation. If there is clear SOW or SOS in the background, I view the No Demand or Test as sufficient to confirm the lack of buying or selling--whichever the case may be.

 

Eiger

[jjthetrader 10]

Thanks. I was curious about this as I am playing around with a few early entry ideas, but haven't found anything reliably worthwhile yet. FWIW, I typically take the entry on the close of the No Demand or Test. I don't wait for price to break the low or high for confirmation. If there is clear SOW or SOS in the background, I view the No Demand or Test as sufficient to confirm the lack of buying or selling--whichever the case may be.

 

Eiger

 

Eiger, that is the prefered technique at getting a better price but an ability to clearly see the background is needed. For those that are new this is the hardest part. Plus I've seen a 'no demand' bar followed by a 'no demand' bar followed yet again by a 'no demand' bar. One of the guys who taught me price and volume always used to say "the market can go up all day on low volume".

 

TradeGuider is very misleading in this as well. They say always wait for confirmation (the down bar) but to never take a short on a downbar.

 

For those new I would suggest taking the short on the downbar. At least this way you get a bit of mementum on your side to possibly get your first contract off the table. I've been much more successful this way than on the close of the potential no demand.

[Eiger 10]

Eiger, that is the prefered technique at getting a better price but an ability to clearly see the background is needed. For those that are new this is the hardest part ...

 

Yes, getting the background down is difficult for beginners, I understand. There is a reason for that, I think. It’s because people naturally center their attention on the current price bar. They see a No Demand bar, for example, on the right edge of the chart, get (naturally) enthusiastic (after all, it is a No Demand and these are our friends) and jump right in with a short position. This is understandable, but not a good idea.

 

Here is a check list new and not-so-new folks might find helpful. This comes from Tom Williams's excellent book, The Undeclared Secrets that Drive the Stock Market along with my personal notes and observations. Note the order. The order is important.

 

1. What phase is the market in? Markets move in phases. The basic phasing of the market is accumulation, mark-up, distribution, and mark-down. A basic way to think about this is that the market moves from consolidation phases with low volatility to trending phases with high volatility. This simpler way of thinking is often useful because accumulation and distribution can be hard to identify.
    
   Use a 60-minute or 180-minute chart to determine phases. Do this the night before so you are prepared for the next day. Is it trending or consolidating, or has it just broken out of a consolidation? Note trend lines and trend channels, as well as important points of S/R and overbought/oversold areas. These are places trades often set up. Knowing the phase and the market structure (S/R, trend lines, etc.) is a part of knowing the background.
    
    
   
2. What is the background on the current chart? Look for spikes in volume, wide spread bars with closes in the middle. This is the ideal key to current background conditions and what we look for in finding reliable VSA setups. You may not see this on the current chart, however, so you look for other background conditions. Is the market making higher highs and higher lows? Was there an impulse move to the downside and the current rally is on receding volume? Is the current chart range-bound? Phase and Background are always the first considerations when reading a chart. Now we can get to the current bars.
    
    
   
3. What is the relative volume on this and the last several bars? Note that we first focus on volume, not the price bar. Compare the volume to the prior bars. Is it higher, lower or about the same? You are looking at activity here. Is it significant or not? Is it picking up, sustained, or dying off? Once the relative volume has been determined, you now consider how the market responds to the volume.
    
    
   
4. Look at spread. What is the relative spread on this volume? Again, compare the current spread with prior bars. Is the relative spread on this bar wide, about the same, or narrow? From this, we now have a sense of how the market responded to the volume. For example, did we get a wide spread on increasing volume - the market is moving price. Was the spread fairly wide, but the volume dying off - possible change in trend, or maybe a false picture. Or, did we get a narrow spread on high volume - lots of activity, but it didn't move price, an indication of capping the market.
    
    
   
5. Look at the close. This gives you the direction of the spread and volume. Remember, spread is also an indication of activity in its own right—the wider the spread the greater the activity. So, by the close we know whether the direction of the activity contained in the spread and the volume was up (on or near the high of the spread), down (on or near the low of the spread), or flat (in the middle).
    
    
   
6. What is the movement of price relative to the preceding close? The close tells us how price has moved relative to the last close. Has it closed up from the last close, down, or level.

 

You now take your observations about the close and add your other observations about background (always, always the first consideration), relative volume, relative spread, and price direction. You can now make an informed judgment about whether or not a VSA indication has set up and whether or not this is a trade to take.

 

 

This process is a little counter inuitive; our eyes naturally go to the current price bars. But, this process is a better way to orient both your reading and your interpretation of the chart via VSA.

 

Hope this is useful,

 

Eiger

Edited January 14, 2009 by Eiger

[Shamal 11]

Eiger,

have you considered using tick divergence as advocated by Dbphoenix go gain entry and also for exit purposes.

 

as regards your take on market accumulation, markup, etc, I found the posts on Taylor thread quite informative in this repect, however I posed this question in the chat room today, not a single positive response to this method, infact Db is skeptical if there is a cycle at all.

[Eiger 10]

Eiger,

have you considered using tick divergence as advocated by Dbphoenix go gain entry and also for exit purposes.

 

as regards your take on market accumulation, markup, etc, I found the posts on Taylor thread quite informative in this repect, however I posed this question in the chat room today, not a single positive response to this method, infact Db is skeptical if there is a cycle at all.

 

NYSE Ticks are very helpful in short-term trading. I have been using them for years, having first come across them via Linda Raschke. She and Bret Steenbarger have extensively researched, studied, and traded with ticks for decades. I would look to these individuals as the masters in using Ticks. Also, there is much more to understand about this highly useful indicator than divergence.

 

Taylor was aware of the phase that the market was in and how it influenced market action, but focused more on tradig the 3-day cycle and its variations. I don't recall Taylor talking much about the specifics of accummulation, distribution, mark-up, etc. So I'm not sure that is such a good source for learning about the phases of the market. You can look to the Wyckoff/Stock Market Insitute for information on the Wyckoff method, which details accummulation, distribution, etc.

 

As to db's ideas on cycles, you will have to talk with him about that. He has his own strong opinions on the way to trade which is not really relevant to VSA and this thread.

 

Eiger

[jjthetrader 10]

Eiger, you're so generous with your time and knowledge. I've attached your last post on reading the background in pdf format for those who would like to print that for frequent referral.

Eigers Checklist.pdf

[Eiger 10]

Thanks, JJ. I am working on my website today (despite good trading conditions!), so it was a happy diversion.

 

What do you use to convert text to a pdf file. I have found a place of the web that does it or free, but since I will have a large number of articles on my website, I need something more reliable. Will it do powerpoints and excel files, too?

[jjthetrader 10]

Thanks, JJ. I am working on my website today (despite good trading conditions!), so it was a happy diversion.

 

What do you use to convert text to a pdf file. I have found a place of the web that does it or free, but since I will have a large number of articles on my website, I need something more reliable. Will it do powerpoints and excel files, too?

 

It'll do anything! I'll PM you.

[larsdelgars 10]

yikes... kruegers website traderscode.com.... looks like a tradeguider infomercial... $700 for a support/resistance DVD set??? WTF..... that is crazy.... he looks like a young Karl Rove... and with price's like that he is definitely just as sleazy....

 

 

you can get everything he is offering for $100 dollars a year subscription to ino tv

 

support resistance/wyckoff/candles @ ino tv

 

sorry i will not allow newbies to be ripped off and become disgusted with trading because of it.

[kuky969 10]

Please I would like ask what do you think

what predict yesterday afternoon rally back up in ES and where was test of supply before it ??? ( 5 or 3 min TF)

Thank

[VolumeJedi 10]

We now have two new VSA threads that make no sense to me. This thread (although I think it is time to start a III) has always been about 1. VSA the methodology (classic VSA if you will) and 2. Each individual posters use of VSA. Which would include other modalities. At this point, I don't even know where to post this chart.

 

I will post it here.

 

Before I get to the chart, there is something not seen on the chart that is important. What can not be seen is the VWAP and the PVP from the prior day. The VWAP is below the PVP. This is negative skew and set our bias for a "Position" trade (see market statistics thread).

 

On to what can be seen.

 

A: Like so many good set -ups begin with, this one begins with an Ultra Wide Spread bar on Ultra High Volume. We know the market does not like these types of bars. Why? Because there could be selling within the volume. Note that the next bar is up and not down. However there was still some (actually a lot ) of selling in this bar. While the next bar is not down, note how the volume drops off. Also note that the bar does not make a higher high and the range narrows.

 

B: When we see ultra high volume up bars we can assume they are weakness about 90% of the time. When they are not, we will see a test almost immediately after. B is a test two bars after the Ultra High Volume bar. It is an NR7 narrow range bar on volume less than the previous two bars.

 

C: Once this bar is formed, we know that the test has failed. This bar is a wider spread bar that closes lower than the test bar. For a test to be a good test we want one of the next two bars to be up, and we certainly don't want to see a close lower than the low of the test bar. Our background is weak. We have had an ultra high volume bar and a failed test. For some this bar is an entry as it is the Shapiro Effect on SD3d1 (first standard deviation of a 3 day VWAP).

 

D: This is our first possible entry point. It is an up bar on volume less than the previous two bars. It is no demand. Note that this bar is within the range of the ultra high volume up bar at A. This is important. In an area where there was once high volume there is now very little. Something has changed. Note also that this bar is finding some resistance at the SD3d1 Hold Up Price (HUP). Some may wait for the next bar to trade lower than the low of this bar for entry. Others will simply enter on the close of this No Demand.

 

At this point we have a price target of the VWAP3d. Again, we know the skew is negative from the prior day. We also know that the current PVP is above the current VWAP (both not shown). We simply can expect price to move from the standard deviation back to the "mean" or VWAP.

 

Moving on we have another nice set up for an add on, or entry if we missed the first one.

 

E: As price tries to move up past the 3rd standard deviation of yesterday's VWAP, we see a narrow range down bar on volume less than the previous two bars. This is a test. Unlike the test at B, the next bar is up confirming the validity of the test. But then F happens.

 

F: A wide spread down bar that closes lower than the low of the test bar. This is showing us "No results from a test" a sign of weakness. Note here that the volume is increasing. Increasing volume on a down bar usually does mean selling.

 

G: Our best friend. Narrow range up bar closing in the middle on volume less than the previous two bars-No Demand. We see No Demand as price tries to rise above the HUP. At this point we have weakness in the background and the market is making a lower high. That's the definition of a down trend. This is a good place to get short on the close of the bar.

[monad 10]

What is "Shapiro Effect"

[BlowFish 10]

http://www.traderslaboratory.com/forums/6/trading-with-market-statistics-vi-scaling-2189-10.html#post16541

 

In a nutshell Jerry suggests waiting for a break out of the bar that signals a trade to actually trigger a trade. A fairly common technique.

[OAC 10]

What is wrong with using the volume for the FX Euro futures contract on the CME ?

I don't know if you have ever heard of Tim Morge ? He certainly think it is pretty cool by using volume bar chart derived from CME data.

[VolumeJedi 10]

What is wrong with using the volume for the FX Euro futures contract on the CME ?

I don't know if you have ever heard of Tim Morge ? He certainly think it is pretty cool by using volume bar chart derived from CME data.

 

OAC;

 

You and I will probably never agree on this, but there is volume in forex. It is tick volume not true traded volume. However it still represents activity which is the same thing that true traded volume represents. No it is not 100% prefect or an exact match, but it is what we have. As far as using currency futures volume data, there is nothing wrong with it at all. I suspect you are really asking, "Isn't it necessary to use currency futures volume?". My belief is no.

 

With that said, I would be interested in learning a bit more about this. Any suggested readings?

[OAC 10]

VJ:

I have no problem with the Forex tick data. However I am more concerned with the quality of data. It seems to me that only Esignal has the most reliable tick data on Forex. Whereas CME volume data should be easily accessible and uniform among all data vendors.

Tim Morge had a great article last month on the MedianLine website. Unfortunately, it has been taken down already.

I find it refreshing that you are combing VSA, Allan's Box, Murray Math, and Jperl's stuff. Is this something that you put together recently, or you have been at it for a while ?

[VolumeJedi 10]

VJ:

I have no problem with the Forex tick data. However I am more concerned with the quality of data. It seems to me that only Esignal has the most reliable tick data on Forex. Whereas CME volume data should be easily accessible and uniform among all data vendors...

 

You are correct. Esignal probably does have the most reliable tick data as it is a combination of over 60 banks/brokers I think. It gives you the ability to "ignore" the data from certain sources like brokers known to for price spikes (read bucket shops).

 

....I find it refreshing that you are combing VSA, Allan's Box, Murray Math, and Jperl's stuff. Is this something that you put together recently, or you have been at it for a while ?

 

I messed around with Allan's box for a bit. It is a great way to use Murrey Math in a slightly different way. Instead of using the high and low of 62 days or 32 days or whatever, it takes yesterdays high and low and creates the mm lines from that.

 

But I have found a new home with Jprel's work. It is absolutely amazing stuff. The HUP lines are a great tool.:

 

1. They create exceptional places (areas) to look for VSA set ups.

 

2. They create high probability natural profit targets.

 

3. They create good stop loss areas.

 

To be sure, I don't use them exactly as Jperl presented them, but I think his intention was to provide a jumping off point. Not a rigid system to blindly follow.

[BlowFish 10]

 

But I have found a new home with Jprel's work. It is absolutely amazing stuff.

 

 

I have put forward a couple of views (I believe they are cold hard 'facts') on FX tick volume not so long ago in this thread so re hashing them here would serve little purpose. I would recommend people do some serious due diligence about what is (and what isn't) actually reported. I think most would be surprised.

 

I have agree with you VJ about Jerrys work. Regardless of market interest or approach I found this some of the most interesting trading material that I have come across.

[Tasuki 10]

But I have found a new home with Jprel's work. It is absolutely amazing stuff. The HUP lines are a great tool.:

 

1. They create exceptional places (areas) to look for VSA set ups.

 

2. They create high probability natural profit targets.

 

3. They create good stop loss areas.

 

To be sure, I don't use them exactly as Jperl presented them, but I think his intention was to provide a jumping off point. Not a rigid system to blindly follow.

 

VJ,

Where do we learn more about jprel (or is it jperl?) and this work you regard so highly?

Taz