Question About This Rally

[Omrudra 10]

Hi all,

 

I have been reading the posts in the forum for quite some time and have learned quite a bit. I am attempting to incorporate VSA into my trading. I still have tons to learn. I am attaching this mornings bund futures chart . I am confused by the rally at 9.40 ( around 80 ticks). I could not see any sign of strength in the back ground. Could some one point out some things I should have been watching for?

 

I realise this must be a noobish question and that I still have to develop my fundamentals regarding VSA . But all answers are welcome.

 

To moderators: I am not sure if I should be starting a new thread on this , please move delete if required.

 

Thanks in advance.

 

Omrudra

[CandleWhisperer 10]

Nice to have you with us, keep the charts, analysis and questions coming.

 

I have attached your chart with a few observations.

 

Overall the chart shows much strength. Let's start at the first double arrow.

 

1) Up bar on very high volume that closes on its high with the next bar up. Markets do not like up bar on high volume, because they can contain hidden selling (supply). There is supply in that bar, but we go up further. Moreover, we ultimately move sideways and not down. In other words, the supply can't move us down because there is demand (strength) supporting the market.

 

2) Double arrow two. Down bar that closes in the middle of its range with volume less than the previous two bars. This is No Supply.

 

3) Double arrow three. Another down bar, but this time the close is closer to the high of the range and the volume is up. If this bar was selling, why would the close be near the highs rather than the lows? There most be demand in that bar.

 

4) Double arrow four. An up bar with a narrow range, closing near its low and with volume less than the previous two bars. This is No Demand. A sign of weakness. However the market is not weak, just not yet ready to move up.

 

5) Double arrow five. We see a narrow range up bar that closes in the middle of its range on volume greater than the previous bar. This is a Squat. Selling enters on this bar. However........

 

6) Double arrow six. Two bars later we see a Test. The market is testing for supply. The volume is less than the previous two bars and the range is narrow with the close near the high. The supply from the squat bar was actually absorbed by the market, otherwise this test would have move volume and be a failed test. Yet again we have strength in this market.

 

The next arrow points to a No Supply bar after the appearance of a squat and the two large wide spread up bars on ultra high volume. The first wide spread up bar is Pushing thru supply and thus a sign of strength. The last arrow is a Test right after the No supply bar. Volume is equal to the previous bar ,but still low.

[Omrudra 10]

Hi CandleWhisperer,

 

Thanks a lot for the great analysis , it was very informative and did answer my questions.

 

If your reply is any indication of the quality of people in this forum, I am extremely happy to be a part of it.

 

I will definitely try to upload more charts with questions and my attempts at analysis.

 

Good trading

 

Omrudra

[Eiger 10]

In addition to CW's good bar analysis, it is very useful to keep the overall structure of the market (i.e., the bigger picture/background) in mind:

 

Starting from the left:

 

Narrow spreads accompanied by low volume as this market drifts lower indicates a lack of conviction to the downside. Compare this reaction (spreads, volume, distrance traveled, and duration) with the up moves on this chart. There was no conviction to the downside.

 

When the market did move down on wider spread, the volume wasn't there. It also turned around rapidly. This was a Shake Out. (Note the bar following the Shake Out - one bar takes out the price decline of 7-8 bars. This confirms the Shake Out, lack of downside conviction, and indicates strength).

 

Next note that the gains are being held at a higher price level. When price does dip back into the area of the "strength bar," volume is less indicating demand remains in control.

 

At the end of the trading range, price comes to dead center, or Apex. Given the strength in the background, this was a choice location to try a long trade.

 

Price pushes hard up past the trading range. What is farther to the left of this chart? I would imagine it was some sort of congestion area, which would explain the drive up (pushing up through potential supply).

 

Gains are again being held (market is repeating itself). Note how little the market has given up in terms of price here. As CW noted, volume is shrinking on down bars and has generally receeded as the market rests. All of this indicates a further advance for this market.

 

Try to keep the big picture in mind while using VSA.

 

Hope this is helpful.

 

Eiger

[Omrudra 10]

Hi,

 

I have attempted to use VSA for the below chart. Any advice and corrections are most welcome ,in fact look forward to it.

 

Point A: I took this bar as a sign of weakness, high vol, closing in the middle with next bar down.

 

B:Test of supply? Negated by the next bar , point C- No demand? But the next bar( the one in yellow ellipse) has higher vol, narrow spread and close lower than C and low higher than the low of C.How do Interpret this?

 

D: Sign of weakness.

E: Sign of strength. But Im confused by the next bar ( in yellow ellipse). Is this no demand ? Is it to be ignored with strength in the back ground?

F: No demand

G: No demand

H: What do I make of this?

 

Chart 2, is a continuation, with some more analysis . In put on it appreciated.

I do apologise if the charts are untidy, will strive to polish the latter charts.

 

I feel I am going fundamentally wrong some where in my approach.

 

All advice is appreciated.

 

Good Trading!

Edited October 6, 2008 by Omrudra

[Eiger 10]

...

I feel I am going fundamentally wrong some where in my approach...

 

 

You are ignoring the background and what this market had been doing for the previous several days/weeks. It is the same fundemental error I see many traders commit while attempting to apply VSA. Jumping into the middle of a market and looking for weak and strong bars will lead you astray because VSA indications arrive in varying intensities. What looks like a strong or weak bar on the immediate chart may or may not be, depending on the background. Unless you understand the background, bar-by-bar analysis like this will only be confusing.

[Eiger 10]

Here is an example from this AM (Oct 6th) in the S&P e-minis (ES):

 

Background:

 

Coming into this morning, the market has been in a downtrend since mid-August. There have been no signs of strength on the higher time frames (daily/weekly).

 

On Friday (i.e., in the immediate background), this market broke through the 1113.50 support level (Sept 19), made a new low at 1102.50, and closed near its low (see 60-min chart).

 

Overnight in the Globex session, this market made yet another new low (1072.00). After making this low, a rally ensued, but it was lackluster and unable to reach Friday's low. A small range had formed between the Globex low and the late Globex session rally high (see 15-min chart). Just before the day session open, the market was heading back toward the Globex low.

 

Set-up & High Odds Trade

 

After the open, the market fell below the overnight range and Globex low. Volume increased to the downside and was high volume right from the open, indicating larger traders in the market. NYSE Ticks were trading to the downside and unable to show a rally, indicating that traders were hitting bids on the way down, quite eager to sell. Conditions for a potential trending morning, if not a trend day, were in place.

 

I watch both the 5-min and the 3-min charts for VSA indications. These are my trading time frames. At 10:36 AM, the 3-min chart gave its first VSA indication: a No Demand bar in a falling market. Given the larger background and the immediate downtrend in the AM, this was a very high probability trade (see red arrow on 3-min chart).

 

------

To trade effectively, you must frame out your trades. This means looking at the background and assessing strength and weakness, knowing where support and resistance lie, understanding what moves a market and how this shows up on the charts, being able to identify this with reasonable accuracy real-time, and then (and only then) looking for VSA indications to trade.

 

Hope this is helpful,

 

Eiger

[HAKUNA 10]

Eiger,

Good analysis, see that you use setups shown by Sebastian at the London Symposium.

What are those blue bars at the top on the 3min chart.

[Eiger 10]

...

What are those blue bars at the top on the 3min chart.

 

The blue bars are the 3-min NYSE Tick. The Tick shows the number of stocks on the New York Stock Exchange currently trading on the up tick (above the price of their last trade) verses on the down tick (below the price of their last trade). For example, if there are 1000 stocks trading on the uptick and 750 trading on the downtick, it would give a Tick reading of +250. It is a very useful short-term indicator for trading the indicies like ES. It shows trends, change in trends, extremes, and divergences quite well. There are many different ways to use Tick. Soultrader did a very nice tutorial on the Tick a while back. i am sure if you do a search, you will find it.

[CandleWhisperer 10]

I don't look at the background as much as I should. But there are two things to remember:

 

*These are not buy/sell signals, they are indications of strength or weakness.

 

* These indications of strength or weakness, come in various degrees of intensity.

 

Don't forget about confirmation. While the definition of No demand is a narrow range up bar on volume less than the previous two bars, it is confirmed only if the next bar is down. In TG, in fact, a sign will not fire off unless the next bar is down or if the next bar is equal and the bar after that is down. Admittedly, Tom does not wait for confirmation but he is the father of VSA. In fact, Tom does not need to look at more than 10 bars at any one time.

 

With that in mind, the first yellow area would not be No Demand but the second one would be.

[CandleWhisperer 10]

If you wanted to get technical, No Demand is a narrow range up bar on volume less than the previous two bars. Which is confirmed with the next bar down, or the next bar equal and the bar after that down. No Buying pressure/No Demand up-bar is a narrow range up bar on volume less than the previous two bars where the next bar is not down (up). It still shows weakness as the market is rising on low volume. Remember:

 

* bearish volume is either increasing volume on down bars or decreasing volume on up bars.

 

From a trading standpoint, the less you rely on multiple timeframes/ background information, the more you need to wait for confirmation. In Eiger's excellent example, a trader with knowledge of the background could indeed go short on the appearance of the up bar on a narrow spread with volume less than the previous two bars. If a traders was simply looking at the 3 min, it would be better to wait for the next bar to close down.

 

Of course, there are other ways also. For example if you use Pivots and that bar was at a pivot line, you might be inclined to not wait for confirmation.

 

This is a really key point to understand and leads to much of the negative reactions people have to both VSA and TG in particular. Most bars can only be correctly analyzed by looking at what happens on the bar after the one being looked at. And in some cases, the bar after that. Just like many two or three interval candlestick patterns.

[Omrudra 10]

You are ignoring the background and what this market had been doing for the previous several days/weeks. It is the same fundemental error I see many traders commit while attempting to apply VSA. Jumping into the middle of a market and looking for weak and strong bars will lead you astray because VSA indications arrive in varying intensities. What looks like a strong or weak bar on the immediate chart may or may not be, depending on the background. Unless you understand the background, bar-by-bar analysis like this will only be confusing.

 

Hi,

Thank you for your reply and the charts. Even though I concur with your opinion about looking into the back ground,is not days/weeks too large a time frame for a liquid instrument like bund futures where large movements take place hourly if not minutes. Tom William in his book, does mention that VSA can be applied to all time frames. Is it to be understood that, for eg in a 5mt chart we might have to go back further ? Will this not become counter productive ? Where should we begin and stop?

 

I am still taking my 1st steps in trading as well as VSA , and my only intention is to learn and improve.

 

Once again thank you all for your input.

 

Regards,

 

Omrudra

[Omrudra 10]

I don't look at the background as much as I should. But there are two things to remember:

 

*These are not buy/sell signals, they are indications of strength or weakness.

 

* These indications of strength or weakness, come in various degrees of intensity.

 

Don't forget about confirmation. While the definition of No demand is a narrow range up bar on volume less than the previous two bars, it is confirmed only if the next bar is down. In TG, in fact, a sign will not fire off unless the next bar is down or if the next bar is equal and the bar after that is down. Admittedly, Tom does not wait for confirmation but he is the father of VSA. In fact, Tom does not need to look at more than 10 bars at any one time.

 

With that in mind, the first yellow area would not be No Demand but the second one would be.

 

Hi,

 

Thank you for the reply.

 

I have observed in some of the analysis of charts by VSA on this forum, videos and my experience,that there can be more than one no demand or no supply before the market actually moves,especially after a major accumulation or distribution. My question would be, how would one determine which is the indicator that 'triggers' the move? ( of course taking in to consideration SOS and SOW in the back ground). Is not timing ,knowing when as important as knowing how, the market moves.

 

Kind Regards,

 

Omrudra

[Eiger 10]

...This is a really key point to understand and leads to much of the negative reactions people have to both VSA and TG in particular. Most bars can only be correctly analyzed by looking at what happens on the bar after the one being looked at. And in some cases, the bar after that. Just like many two or three interval candlestick patterns.

 

You are right about confirmation on the subsequent bar, CW. My favorite entry locations are off Tests and No Demands. With clear strength or weakness in the background, it is not necessary to wait for a subsequent bar - the Test or No Demand is the confirmation. If the next bar fails to follow through and confirm the Test/No Demand, though, i am looking to exit ASAP.

 

Eiger

[CandleWhisperer 10]

You are right about confirmation on the subsequent bar, CW. My favorite entry locations are off Tests and No Demands. With clear strength or weakness in the background, it is not necessary to wait for a subsequent bar - the Test or No Demand is the confirmation. If the next bar fails to follow through and confirm the Test/No Demand, though, i am looking to exit ASAP.

 

Eiger

 

Thanks Eiger. Take a look at that 3 min bar for a second. What we haven't yet mentioned is the close. with a close near the middle of the range, we do have more reason to assume it is worth going for prior to the next bar.

 

More broadly, you are correct. The fact that the market is moving up on low volume (volume less than the previous two) confirms the previously seen weakness.

[Eiger 10]

Hi,

Thank you for your reply and the charts. Even though I concur with your opinion about looking into the back ground,is not days/weeks too large a time frame for a liquid instrument like bund futures where large movements take place hourly if not minutes. Tom William in his book, does mention that VSA can be applied to all time frames. Is it to be understood that, for eg in a 5mt chart we might have to go back further ? Will this not become counter productive ? Where should we begin and stop? ....

 

Another fundemental error i see is traders don't do the work neccessary like reading and studying the basic VSA text (emphasis added):

 

"Position traders (trading a longer time frame than an inter-day trader would feel comfortable with) may only keep daily and weekly charts, regarding hourly charts of little help in their trading. Conversely, inter-day traders mostly stick to hourly or shorter time frames, rarely looking at the larger picture. Both attitudes are counterproductive. Inter-day charts are useful to position traders as they often highlight indications of strength or weakness marking the day as a bullish or bearish day, which then gives a very strong indication on which way the market is likely to go. In turn,

inter-day traders can benefit significantly from the wider picture offered by daily or weekly charts. They are often too close to the market.

Once you have a working knowledge of the underlying principle of volume spread analysis, it is surprisingly easy to see them at work in any time frame. You should never try to read the market looking at one day's action in isolation.

Always read the market phase-by-phase and then read the latest day's action into the phase.

" (T. Williams,

The Undeclared Secrets that Drive the Stock Market

, pg 52)

 

This is a tough and unforgiving business. The path has been laid out for anyone to follow, but you must follow it. Otherwise, the odds of succeeding are appallingly thin.

 

Eiger

[Omrudra 10]

Another fundemental error i see is traders don't do the work neccessary like reading and studying the basic VSA text (emphasis added):

 

"Position traders (trading a longer time frame than an inter-day trader would feel comfortable with) may only keep daily and weekly charts, regarding hourly charts of little help in their trading. Conversely, inter-day traders mostly stick to hourly or shorter time frames, rarely looking at the larger picture. Both attitudes are counterproductive. Inter-day charts are useful to position traders as they often highlight indications of strength or weakness marking the day as a bullish or bearish day, which then gives a very strong indication on which way the market is likely to go. In turn,

inter-day traders can benefit significantly from the wider picture offered by daily or weekly charts. They are often too close to the market.

Once you have a working knowledge of the underlying principle of volume spread analysis, it is surprisingly easy to see them at work in any time frame. You should never try to read the market looking at one day's action in isolation.

Always read the market phase-by-phase and then read the latest day's action into the phase.

" (T. Williams,

The Undeclared Secrets that Drive the Stock Market

, pg 52)

 

This is a tough and unforgiving business. The path has been laid out for anyone to follow, but you must follow it. Otherwise, the odds of succeeding are appallingly thin.

 

Eiger

 

Hi,

 

I might have been guilty of that exactly. Point noted. Rereading all the basics as I write.

 

Thanks

 

Omrudra

[Eiger 10]

We all have been guilty of it. I re-read Tom Williams's book all the time, along with the other materials from TG and Wyckoff I have noted earlier. I constantly refer back to these resources. It's just part of the process. Each time I do, it serves as a refresher. Often, I see something in a different way or with a different insight as it relates to current markets. This is so helpful, I can't even begin to tell you. The fundementals are as crucial as they are vital. I think we are fortunate to have the resources we do. It is just up to us to understand them, apply them, and make them a seamless part of our trading. And that takes enourmous effort, which few are really willing to commit to.

 

Eiger

Edited October 7, 2008 by Eiger

[CandleWhisperer 10]

Funny how things work sometime.

 

Take a look at the chart on the left. It is a 30 min chart. Note it was taken yesterday (Sunday night/Monday). What we have is a large WRB that appeared as trading began on Sunday. This created a nice Volatility breakout pattern and a WRB Supply/Demand Resistance Zone. Which I now term Supply/Demand Delta Zone. Anyway, Price moves down from that point.

 

Skip forward to today (Tuesday). Price made a large move down on Monday and then began to move back up. At this point we do expect price to move up and back into the Delta Zone. Moreover, we would like to see signs of strength or weakness within this zone to initiate positions.

 

While the zone is created in one timeframe, it has an effect on smaller timeframes as well. Now, look at the chart on the right. Price moves up towards the bottom of the Delta Zone. Price enters and then we see a Test before it moves back into the Zone and higher. Note that the Test is not within the zone so we would not be going long on anticipation of a move to the upper end of the zone. We then see volume drop off and we get an up narrow up bar on volume less than the previous two bars: No Demand. This No Demand bar is also a churn bar. That is, the range, while narrower than the previous bar, is high for the actual amount of volume on that range. This is like a squat and further evidence of weakness (selling) on this candle.

 

Just another way to see the influence of higher timeframes on your trading frame.