Pure VSA

[Eiger 10]

This is a thread just for pure VSA.

 

To start:

 

Today's 3-minute ES:

 

Background - Price rallied after the open, then spent an hour reacting in a slow drift down. Volume was less on the reaction than the volume on the rally off the AM lows. Spreads were also generally narrower on the reaction, and as the reaction progressed, volume receded. A Higher Low (HL) was put in.

 

After an earlier, failed attempt to break above resistance at 1, price held its gains at 2 on light volume (no supply) and also held the Demand Line YY of an uptrend channel. All of this is bullish.

 

Note the emphasis placed on the background. We always start with the background.

 

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A - Price pushes through the resistance area (red line) on high volume.

 

B - Next bar has sustained volume, but the spread is narrowed and the close is in the middle.

 

C - This bar is up, but the volume has dropped off precipitiously. This tells us in advance that the Supply Line, ZZ, is unlikely to be broken.

 

D - Supply enters where expected. D is a down bar, closing on its lows on heavy volume.

 

E - An up bar, closing on its highs after dipping below D indicates another rally will be attempted. However, the narrow spread and low volume indicate that professional money has withdrawn, so the rally is unlikely to go very far.

 

F - Volume increases and the spread widens a bit (increased activity), but the result is a close on the lows. This Hidden UpThrust indicates supply.

 

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More Background - Support and resistance are important to VSA. Look at the current chart in relation to the 15-minute chart (attached). We are currently just above yesterday's close and, more importantly, in the 825 area which offered support yesterday moring and early afternoon, but which is now likely to offer resistance. Thus, the background conditions from yesterday are joining with the immediate supply conditions seen on the 3-minute chart for a nice short set-up.

 

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G - the market reacts to the previous low at E and rallies, but does so on a narrow spread and low volume - No Demand.

 

H - A Hidden UpThrust that closes below the close of G on an increase in volume. The market now starts to fall.

 

Good locations to initate shorts were at F, G & H

 

I - As the market falls, volume increases. This bar was a down bar on average spread closing on the lows. The increas in volume and poor close tells in advance that the support levels from the trend line at YY and the horizontal support line (red line) are unlikely to hold.

 

J - Tells basically the same story - supply is in control (down bar, increased volume, above average spread, and close on lows).

 

K - The bar after J is narrow spread, close in the middle and high volume. Next bar is up. Some buying came in here, but K swamped whatever buying existed with a widerer spread down bar, close below the previous two lows on an increase in volume.

 

L - The swelling volume that came in between J and K knocked the market sideways. Note the spreads and the volume. Spreads are narrow, volume is low and receding as the market attempts to rally. The two bars immediately before L are No Demand. L is a Hidden UpThrust on an increase in volume which caught stops and then closed on its lows. Another good location to initiate a short. The last bar on the chart is wide spread down bar with an increase in volume, closing on its lows. Supply is in full control.

 

This is just pure VSA. Not too shabby is it?

 

Always look first to the background, then follow the bars as they tell the story of the unfolding market. Trying to read the market by looking at a bar or two won't work. It will only hurt you. As you can see, adding other things extraneous to VSA is unnecessary and likely to be confusing.

 

Hope this is helpful,

 

Eiger

[Eiger 10]

Now to the upside -- same day ...

 

A - Very heavy volume comes in on a down bar. Note what happens on this volume. The spread narrows and the close is off the lows. Buying came in.

 

B - The market tried to rally, but the rally is lackluster.

 

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Background Check

 

Note that this market is coming back down to the 814 AM support area. We would expect the market to at least pause here, and possibly turn and rally.

 

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C - A break below the low of the high volume bar at A and well into the 814 support area, only to close back above A's low. Volume is still high, but not nearly as high as as the volume seen on A.

 

D - A No Demand bar indicating supply may be drying up. We can tentitively say that buying is overcoming supply.

 

E - This bar dips below C but closes in the middle of the spread - buying. Note that the volume is slightly less than at C. Next bar is up -- all bullish behavior.

 

F - This is an interesting and telling bar. It drives down and is wider spread, but is unable to sustain a low close and more importantly, it is unable to draw out supply. Next bar dips lowrer (to the low of E) and closes on its highs - bullish.

 

G - No Demand again. Volume has dried up to the downside. This bar closes in the same area as C & E. Compare the volume between G and C & E. This is why we can say volume to the downside has dried up.

 

H - After dipping back to the lows of E & F, H takes off and pushes up through the congestion on a healthy increase in volume.

 

Enough cause had been built from A through H to rally back to the noon-hour high.

 

Please note the process: Background is always looked at first. Volume plays the key role in identifying weakness or strength and in analyzing the buying and selling as the market unfolds. Price bars tell us what happened on the volume. This is the method of VSA.

 

Hope this is helpful

 

Eiger

[Shamal 11]

Eiger,

presume you meant "No Supply" on D & G bar rather than "No Demand"

[Eiger 10]

Eiger,

presume you meant "No Supply" on D & G bar rather than "No Demand"

 

You are right - those should both be No Supply bars. D is also a Test.

 

Thanks for catching that

 

Eiger

[Eiger 10]

Question from Sanook that is best answered on this thread. Here is the questions:

 

On your first 3-minute ES chart from the recent Pure VSA thread, you say, 'Good locations to initiate shorts were at F, G & H.

 

Could you explain why C, the no demand bar, is also not a good location to short. If I could finally get my head around this problem of seeing no demand bars and instantly thinking short, I'll be making progress.

 

With regards to F, would I be correct in thinking that you'd enter a tick below and place the stop a tick above.

 

With regards to G and H, I'll assume again entry is a tick below, but is the stop placed above G and H, or is it left above F. I personally would leave it above F, but if that is seen as being unnecessary then I'll reconsider.

 

Why is C not a good location to short ... there are several reasons:

 

First, the background. The Supply Line, ZZ has not been touched yet by C. The Supply Line also represents the area that is Oversold. Taking a trade that is near, but not quite at O/S levels will likely get you stopped out as the market continues to move up into O/S territory, as it did here.

 

Second, although C is indicating a withdrawal of demand by professional traders, it is still making a higher high and closing with a higher close. The market is still in an uptrend. It hasn't shown definate signs of weakness or distribution at this point (that does not come until F). An uptrend is higher lows, higher highs, and higher closes. We don't like to take shorts in an uptrend because of the high risk.

 

Third, the spread is still average. We want to see a narrowing of spread. The narrow spread indicates a lack of activity. Activity on this bar was no different than the previous two bars, even though the volume was less. When activity remains high, the odds for continuation of the present move remain high, as was the case here.

 

Compare G and the two bars preceeding L with C. The best No Demands on this chart were the two bars before L. These up bars had narrow spreads, low, low volume, and closed in the middle or off the high. Also note the context at C. It was still in an uptrend and no real sign of weakness had yet shown itself. Look to the background first for the context to make a trade. At C, the context was still up. By G, we had run into higher time frame supply (referr to the 15-min chart), the Supply Line, ZZ, had been hit, indicating O/S, and the volume and bar characteristics at D and F indicated weakness. You had none of this at C.

 

Entry At F:

 

You can enter a tick below F and place a stop above its high. That works well. You can also sell on the close of F with a stop above the high.

 

Entries at G & H:

 

You can enter on a tick below or on the close - either is fine. I would personally place a stop above F on these entries and would look to move to break even as soon as the support line (along the lows of E & G) was broken.

 

Great questions!

 

Hope this is helpful

 

Eiger

[Sanook 10]

Thanks again Eiger, that has certainly cleared up bar C.

 

With regards to bar D, would we not short here as it is a down bar, and we only short up bars, or is there another reason?

 

And with regards to bar E, even though it appears to technically be no demand, the volume is certainly not as low as the volume is on the bars around 2. Is this why bar E is not the greatest choice either?

 

Bars D and F are something I've seen many times trading price action without volume. Enter on the break of the hammer at D with a stop above, only to be taken out by another hammer at F that eventually goes in your direction. It's this area around D,E and F that I hope VSA can help with.

 

Thanks.

[BrunoHammerstorm 10]

great analysis eiger....

 

we'll be seeing you in live chat to explain during real time live trading.

 

best

[Sledge 13]

Thank you sir, once again you are pushing the envelope of education on VSA and showing the world, how really very simple VSA can be. Wonderfully written and illustrated. Keep em coming!

Aaron

[Eiger 10]

....

With regards to bar D, would we not short here as it is a down bar, and we only short up bars, or is there another reason?

 

And with regards to bar E, even though it appears to technically be no demand, the volume is certainly not as low as the volume is on the bars around 2. Is this why bar E is not the greatest choice either?

 

Bars D and F are something I've seen many times trading price action without volume. Enter on the break of the hammer at D with a stop above, only to be taken out by another hammer at F that eventually goes in your direction. It's this area around D,E and F that I hope VSA can help with.

 

Thanks.

 

Bar D is a bit early in the process. This is just one bar that closed on it's lows. As they say, one swan does not a Capistrano make. In other words, there is not enough evidence that weakness has come into the market at D.

 

E shows a lack of professional interest, but not a great bar to short. Again, it's early. We need to let the market unfold a bit to be as clear as we can be that weakness has come in. Also, E dips below D and closed just off its highs. Lower prices were rejected here, and thus, this bar's action is saying that the odds for at least a little more rally are high. It is only after F that we are pretty certain that weakness is now dominating. G & H give the confirmation. F is an aggressive entry, G & H are solid entries.

 

Keep in mind that you really want to protect capital first and foremost. You absolutely cannot take every signal that comes up in VSA. If you do, you will be hurt. There is a definate art or craft to this business. The art is to see the bars unfold against a background condition that gives substantial weight to a change in trend. Only then do we take a trade. Pay attention to the background first and foremost. Let the bars unfold. Watch the volume as the key indicator. It must start out with a spike or a swelling in volume. When several price bars and their associated volumes add up to a change in trend, then look for a trigger, not before.

 

Hope this is helpful,

 

Eiger

[Eiger 10]

5-Minute ES for Feb 3, 2009 -- AM

 

A - UpThrust. Market opens at the high of yesterday afternoon (must know your background) on very high volume and closes down, well under yesterday afternoon highs - bearish. Next bar is down and market begins to fall. An aggressive trade is to short on the UT.

 

B - Market falls, but volume recedes. On B and the bar before B, closes are in the middle indicating buying coming in. Note the lack of progress on the lows from the bar before B and B. Next bar is up.

 

C - Market rallies and volume comes in on C, indicating buying.

 

D - As price comes back to the low at B, a lack of supply emerges.

 

E - Bottom Reversal, and bullish.

 

Note a higher low (from the yesterday afternoon low) is put in.

 

F - Market rallies to F where volume suddenly increases at the supply area from yesterday afternoon and today's open.

 

G - As the market reacts from the supply, it does so on receding volume. G is a Hidden Test and a location for a long.

 

H - Volume increases at the Globex high, close is in the middle, indicating likely supply.

 

I - No Demand.

 

J - Volume increases on this down bar after potential supply into a resistance area. This indicates supply coming into the market.

 

K - No Demand. Good location for a short. Next bar is down.

 

L - No Demand. The market is clearly struggling to stay above support (blue line). Another good location for a short. Next bar is down.

 

M - Another No Demand as the market attempts to rally (lackluster)

 

N - Volume swells and progress to the downside shortens.

 

 

Eiger

[Eiger 10]

Feb 3 - Afternoon

 

1 - Price dips down below the support at N, then closes back above the low of N. Most important is the volume. Note how volume has substantially receeded. This is Testing for supply below N and finding none. Good location for an agressive short.

 

2 - A small Bottom Reversal sends the market up. Note that a higher low has been put in.

 

3 - A higher high, but volume falls off here, so we can expect a reaction. Next bar is down.

 

4 - No Supply. Note the higher lows (green line).

 

5 - This and the bar that follows is pushing through the supply formed between N and the Globex high - very bullish.

 

6 - Note the high volume on this bar and the next bar closing in the middle. Had this been butting up against resistance (like it did earlier this AM at H), it would indicate siupply entering the market. Althought there is supply in this volume (there has to be), the market has just pushed up above last night's highs. We now have a Sign of Strength, not a Sign of Weakness.

 

7 - No Demand, but there is no weakness in the background, only strength.

 

8 - A minor Shake Out into support. Note that the volume did not expand substantially.

 

9 - Another new high, though price is closing in the middle. Note the volume. It has not expanded here. Supply is not evident.

 

10 - The bar before 10 is on low, low volume (no supply). Bar 10 is a Hidden test closing on its highs and a location for a long.

 

11 - As we rally higher, bar 11 gives us a large increase in volume with a narrowing spread. More selling is occuring on this bar. Note the close of the following bar - caution.

 

Just pure VSA, nothing else. Nothing else is needed, really . Hope this is helpful,

 

Eiger

[Eiger 10]

Feb 4th

 

Background is always the first thing we look at in VSA. The 60-minute chart is often a good time frame for the market phases and overall background. Coming into today, there was converging resistence from a congestion area (red line) several days ago and the Supply Line (blue line) of the uptrend channel. Both converged in the 850 area.

 

About an hour before the open, it looked like price might not even get to the 850 area as there was a reaction off yesterday's high.

 

A - An upThrust at yesterday's highs, next bar was down and a reaction occurred. Price held it's gains, however, and began to rally 10 minutes after the open.

 

B - Wide spread up bar on strong volume, close on its highs. Price pushed up and through the resistance area of yesterday's highs.

 

C - No Supply back to resistance-now-support. The 3-minute chart had a No Demand in this area.

 

D - very high volume enters as the market nears the 850 resistance area. Spread is wide, and the close is off the highs near the middle - caution.

 

E - More high volume and a close in the middle - supply.

 

F - Again we see an increase in volume, close in the middle. Note the lack of progress made from E to F. Next bar is down - selling.

 

G - No Demand

 

H - No Demand

 

I - No Demand

 

J - No Demand

 

K - Hidden UpThrust

 

M - 2-Bar UpThrust/Top Reversal

 

Plenty of opportunity to get short.

 

N - Selling Climax

 

The supply that came in at resistance had similar principles as occured on Feb 3rd. Careful study of these two charts will serve you well in the future to know what to look for as price approaches resistance, and then what to look for once it starts falling.

 

Hope this is helpful,

 

Eiger

[BlowFish 10]

The 60min chart reminded me of a question. Might I ask do you find VSA that useful on a 60 min chart? For example 9 times out of 10 the last hour of the pit session is the high vol bar of the day usually followed by the 1st (or sometimes 2nd if there is 10.00am news) bar of the day. It just seems like a 1 hour bars volume is very susceptible to time of day.

 

It seems to me that there might be value in comparing the last hours volume not only with the previous hours but the previous couple of days last hour volume? I guess that takes things outside pure VSA howver Just seems one of the least useful bars from a VSA perspective (but great for context).

[Eiger 10]

The 60min chart reminded me of a question. Might I ask do you find VSA that useful on a 60 min chart? For example 9 times out of 10 the last hour of the pit session is the high vol bar of the day usually followed by the 1st (or sometimes 2nd if there is 10.00am news) bar of the day. It just seems like a 1 hour bars volume is very susceptible to time of day.

 

It seems to me that there might be value in comparing the last hours volume not only with the previous hours but the previous couple of days last hour volume? I guess that takes things outside pure VSA howver Just seems one of the least useful bars from a VSA perspective (but great for context).

 

Hi BF,

 

In general, I really only use the 60-min chart for market structure and to id locations for possible trades on the small time frame charts, though it certainly can be of help especially around meaningful market turns.

 

With regard to your question: I don't know about last hour volume comparisons -- I haven't studied that. But, here are some thoughts on volume vis a vis your question:

 

Volume generally is U-shaped during the day - high in the AM and high again in the afternoon. Volume during the middle hours of the day usually falls off, especially during the noon hour. Given this as the typical scenario, look for unusual (above average, high) volume to occur when volume is typically low. This is a great clue on a reversal days where the market sells off in the AM, turns around, and rallies through to the close - you will see above average volume come in usually during the early afternoon. We can see the VSA 'Pushing Up Through Supply' sign of strength occur with this kind of unusual volume. It is also a useful confirmation of a V-type reversals.

 

Sixty-minute bars may not make for the best comparisons, especially in the last hour. The last hour isn't a full hour and ends up being some sort of an orphan. Forty-five-minute bars would give more accurate data and more reliable results from a statisitcal point of view.

 

Sebastian Manby developed a method to read the last periods of the day with respect to volume and spread. You can frequently forecast the first hour's trading for the next day with this; it can be quite accurate. Sebastian uses the 5-minute bars to do this, though. And, it's only good for how the market trades in the opening hour. I thinlk you may be looking for longer term?

 

I do track the 15-minute period volumes and compare the current period with last 20 days' volumes for that period. Volume directly relates to market movement, and I am looking for the presence or absense of professional traders (Other Time Frame Participants, Large Operators, Institutional Traders, Composite Operators -- take your pick or make up your own term if 'Professional Trader' bothers you) who move the market with their volume. In this early AM comparision of volumes, I get a pretty accurate idea of how the day will trade -- active or range-bound -- because of early period relative volume characterisitcs. It helps me frame the rest of the day.

 

I haven't looked at comparing the final periods with prior similar periods to see what effect it may have on the next day or next couple of days. It would make sense to do and I don't see why this wouldn't tell us good info. It would be a relatively easy research project that could be done in Excel.

 

Hope this is helpful,

 

Eiger

[VolumeJedi 10]

Eiger, just wondering where you would get long or short (if you would do the fromer or the latter or both) on this chart?

[Eiger 10]

Hi VJ,

 

There is a lot in this chart:

 

A - Since this is currencies, I am assuming that this area is occuring before one of the three main markets open. Low volume, narrow spreads - not much interest up or down. The market narrows down into an apex.

 

B - It falls out of the apex on wide spread, increase in volume, close on the lows. We now have our background and know that movement is to the downside

 

C - A weak rally on narrow spreads after the impulse move down. No real VSA signal here, but this would be a first 'choice' location to short.

 

D - More impulse down

 

E - Two-Bar UpThrust/Top into the area where no rally could materialize earlier (Supply). The spread is wide and may have to be discounted by risk rules, but a good short.

 

F - At the time this was unfolding, a probable climactic action as price reaches the Demand Line (reverse TL). Highest volume on chart thus far, wide spread, close in the middle are the clues.

 

G - SC confirmed by the testing at G on lower volume. The lifting supports (lows) at G are a great clue that buying is occuring in this area. Last bar in this area is a Hidden Test. Backrgound is now strength and a long position can be made here.

 

H - Impulse move up on wide spread and strong volume, close near the highs.

 

I - Test - After F, G and H, you know you have have strrength in the background. A good spot for a long trade.

 

J - Reaction and test of the highs made at H. This action telss you in advance the high at A will be reached.

 

Nice chart - lots packed into a small time frame currency. Thanks for posting this, VJ. Maybe I'll take a look at trading these

 

Eiger

[Eiger 10]

Thursday, February 05, 2009

 

A – Bag Holding – Heavy volume on a narrow spread at the bottom of the pre-market Demand Line. Note the NQ made a higher high at this time! Great clue!

B – Bottom Reversal

C – Test

D – Another Test

E – Hidden Test and EOM up with increase in volume

F – Narrowing sopread with close in middle on high volume – supply.

G – SOT

H – No Demand. Next bar is down with narrow spread and low volume – No Supply

I – Hidden Test

J – Test, next bar is up

K – Down bar that closes on lows, but look at the supports and volume from J – K. Supports rise as volume rises.

L – Heavy volume on an up bar. Next bar has high volume and spread narrows, close off highs.

M – Up Thrust-like bar near yesterday’s high. Next bar is down.

N – No Demand.

O – First bar where volume increases to the downside - supply.

P – No Demand

Q – Top Reversal

1 – Volume does not expand as support is approached. Note the narrowing of the spread at support.

R – Inability to close above resistance. Narrowing spread & SOT. Volume and spreads are also not near as great as the last wave up.

S – Stopping volume.

 

Eiger

[VolumeJedi 10]

Thanks a lot Eiger. I have posted my chart in VSA part II thread.

 

P.S. Hope this weekend goes well .

[Eiger 10]

VJ made a terrific post on the VSA Part II Thread of the Euro/EUD chart that includes applications of Market Profile. You can see how other high quality analysis can be used along with VSA -- there is nothing wrong with that at all.

 

http://www.traderslaboratory.com/forums/151/vsa-volume-spread-analysis-part-ii-3428-214.html#post58814

[JeremyGoh 10]

Hi everyone,

 

I have converted Eiger VSA analysis to PDF for my own use,

however I decided to share it with everyone here.

 

Do let me know if I can or should continue to post the PDF here,

if not this will be the first and the last.

 

Jeremy

Eiger 02-03-2009.pdf

[JeremyGoh 10]

Hi Eiger,

 

Can you please explain why.

 

B - Market falls, but volume recedes. On B and the bar before B, closes are in the middle indicating buying coming in. Note the lack of progress on the lows from the bar before B and B. Next bar is up.

 

My Question : With low volume on B, next bar up, indicate buying I can understand. Isn't this bar B with low volume shows that professional traders are not interested in the up move?

 

C - Market rallies and volume comes in on C, indicating buying.

 

My Question : I thought when we see a UT on C, with the next bar down, it indicate selling. Why did you indicate buying? How do you know what bar is buying and not selling?

 

Many Thanks,

Jeremy

[Eiger 10]

 

... My Question : With low volume on B, next bar up, indicate buying I can understand. Isn't this bar B with low volume shows that professional traders are not interested in the up move ...

 

 

My Question : I thought when we see a UT on C, with the next bar down, it indicate selling. Why did you indicate buying? How do you know what bar is buying and not selling ...

 

 

Hi Jeremy,

 

I'll try to answer your questions.

 

Bar B is a down bar (not an up bar). The lessening volume as the market drops down to B along with the lack of downside progress (look at the lows) does indicate professionals are not interested in the downside. The closes in the middle indicate there was buying on B and the bar before it. Were the market weak and going down at this point, we would have seen wider spreads down on increasing or sustained voulme, closes on the lows, and progress to the downside being made (each bar would be quite lower than the last bar with closes well below the last low and not back into the spread of the preceeding bar).

 

There certainly was some selling on Bar C, but the volume on C and the bar before C - both up bars - was greater than the downside volume from the open at A to B. It is a change in character of the market, so to speak. We had been going down, now, all of a sudden, volume comes in to the upside on wide spread up bars. Look back over your charts and find a downtrend. You will note that rallies in a downtrend are weak on low volume, narrow spreads. Had the move from B to C been weak (consisting, for example, of bars mostly like the bar after B), then you would assume supply was still in control. Here, we see the opposite and read that (at the time) as potential demand. D and E confirm the demand.

 

Also, C is not really an UpThrust. For a true UT, there has to be an old top in the background. Bar A on this chart is a better example of an UT. At best, bar C would be a 'Hidden' UT - a hidden UT just means that it was an UT on a smaller time frame making it a bit difficult to see on the trading time frame. I haven't checked, but if you look on a tick or 1-minute chart you would probably see an UT there. And that is the problem with the smaller time frames. Unless you are scalping only, you would be taking a wrong position against what the market is truely saying, which is easy (easier) to see and clearer on the 5 & 3-min charts.

 

I do watch for Hidden UTs and also Hidden Tests. Many times, I will enter a position on a Hidden UT or Test. I do this, though, only when the hidden VSA indication is congruent with the overall market movement and background. For example, when in a down trend, a Hidden UT is a great trade; in an up trend, I like Hidden Tests. As always, knowing the background is the key in VSA.

 

Hope this is helpful,

 

Eiger

[HAKUNA 10]

From your posts(btw which explain VSA in a very clear way), would I be right in saying that the VSA signals are more relevant if read on larger timeframes, so for strictly intraday trading, reading from 15min charts after having gauged the trend, s/r levels etc from 60min would suffice. Then for entry one can look at 5min or 3min. This is I presume what you do in your trading.

 

If so really speaking messing around with tick or 1min chart is not strictly required,ie. to pinpoint the exact turn affording a very close stop loss, ofcourse depending on how much risk a trader is willing to take. as on 3min or 5min the bars would be that much wider in range and hence stop losses further away from entry.

[Eiger 10]

... would I be right in saying that the VSA signals are more relevant if read on larger timeframes, so for strictly intraday trading, reading from 15min charts after having gauged the trend, s/r levels etc from 60min would suffice. Then for entry one can look at 5min or 3min. This is I presume what you do in your trading.

 

If so really speaking messing around with tick or 1min chart is not strictly required,ie. to pinpoint the exact turn affording a very close stop loss, ofcourse depending on how much risk a trader is willing to take. as on 3min or 5min the bars would be that much wider in range and hence stop losses further away from entry.

 

 

Great questions. I'll do my best --

 

I think any signal is more significant the higher the time frame. If we saw an Up Thrust on a weekly chart after a SOW, for example, we would expect a pretty good reaction. It would set the tone for trading (mostly to the downside) for the next several weeks. In general, I like using the 60-minute chart to "frame" the market. In other words, I can see the current structure of the market on that time frame fairly well, including important areas of support and resistance. You can see how the 60-minute chart reveals the structure and background on the attached chart. I also look carefully at the 180-minute, the daily, and the weekly charts. Different pictures and different clues are revealed by all.

 

Framing the background and structure also helps me anticipate posiible scenarios for the next day or two. For example, we are only a short distance from the 876 high made in late January. Any pullback that holds, might take a run up to that area. If it gets there, another possibility is an UpThrust of the resistance. I am not saying that the market will act in either of these ways - I never try to predict what it will do. I am wrong enough to know I can't ever predict what the market will do. But, I can lay out possible scenarios that are likely and if the market acts consitent with those scenarios, I have trades to make.

 

Always, always, always keep the background in mind. This is the key to VSA. We then watch the market unfold and look for appropriate VSA signals to trigger trades. When we frame out the market, and the market then acts consitently with the framing, we have a very clear sense of the background picture. If an UpThrust does occur around the 876 level, for example, we can lean on the resistance present in the 60-minute chart and be not only confident in the trade, but reasonably confident to hold that trade for a while, assuming the market continues to act consistent with background weakness.

 

In terms of trading time frames (the time frames traded from), I prefer the 3 & 5-minute charts. Sebastian Manby will often trade off a 4-minute chart -- it splits the difference and has it's own unique characteristics. I do watch the 30-minute chart during the day. That's a hold over from trading Joe DiNapoli's techniques where the "Key of the Day" for intraday S&Ps was considered the 30-minute time frame. I know that Sebastian and Tom Williams will also look at 7-minute charts, and sometimes 9-minute charts. I think it comes down to watching what you become familiar and comfortable with.

 

No good VSA trader that I know will trade off a tick or 1-minute chart - just too noisy and too easy to 'see' trade set-ups that aren't really there. Look at the posts by Tawe, VJ and JJ on the VSA II thread. Check their trading time frames. Look on the VSA I thread for the activite traders there and you will see the same. Tom Williams says that trading off the 1-minute chart is like being in combat during WWI. You stick your head up out of the trenches and immediately get picked off. That has been my experience, too.

 

If you are concerned about tight stops, you could look into trading the YM. Because of the dollar value and tick size, there may be a little more 'forgiveness', though I don't trade that market so take this suggestion with a healthy grain of salt. Regardless of the market, you should understand money management priciples and never risk more than a specific percentage of your account size. Your first priority, especially in the early stages, it to live to trade another day. But this holds true regardless of experience. If the stop is too wide for your pre-established risk parameters, you simply pass on the trade. There are so many trades that occur that this should not pose a problem. If it does, you need to check what you are trading -- the market or your ego/emotions. Needless to say, it had better be the former!

 

Hope this is helpful,

 

Eiger

[Eiger 10]

Be sure to check out VJ's post on the VSA II thread:

 

http://www.traderslaboratory.com/forums/151/vsa-volume-spread-analysis-part-ii-3428-214.html#post58862

 

Outstanding analysis which I learned something from. Pay particular attention to VJ's approach. Great stuff, don't miss it.

 

Eiger