[VSA] Volume Spread Analsysis Part III

[Eiger 10]

Since the VSA II thread now has over 2,200 posts and 128,000 visits, it seemed time to start VSA III. To get us rolling, here is quick VSA look at how the market unfolded this morning on the 3-minute time frame (S&P e-minis).

 

 

The market opened higher than yesterday’s close, fell off over the first 15 minutes to A, and then tried to rally.

 

B – the rally to B did not bring out demand, and the bars at B were weak, closing on their lows.

 

C – A very weak bar with an increase in spread and volume to the downside. Supply came into the market here.

 

D – No demand on the first rally after weakness appeared and a good short.

 

E – Volume drops off as the market moves lower into the area of yesterday’s close.

 

F – A bottom reversal on good spread indicating demand.

 

G – the market tests the lows of E/F and is unable to draw supply. As it begins to rally, it tests again at G1.

 

H – An increase in volume with a good close, but the spread narrows – caution for longs.

 

J – Down bar, on wide spread and high volume shows supply has reentered the market.

 

J – No Demand followed by a small hidden upthrust.

 

K – Again we come back into the lows and find no supply and the market rallies.

 

T – Tests occur below the resistance at I indicating a rally and a break of I.

 

L – small bottom reversal/key reversal bar which tests for supply by dipping lower one last time before moving up to close on its high.

 

M – Break through the resistance at I and a rally into the noon hour. Note that the volume falls off as we move into the noon hour and come into the morning supply at A.

 

Hope this is helpful,

 

Eiger

[Tasuki 10]

At the start of this new thread I'd like to share with you an indicator that someone made for me. The idea was as follows: VSA folks often place significance on volume that's less than the previous two bars. Why not create an indicator that reflects this by painting such a volume histogram blue? Well, I started with Tradestation's "Volume Average" indicator (standard issue) and tried to play around with it myself to adapt it, but I'm not good enough at EasyLanguage, so I threw it out to the Tradestation forum and somebody coded up for me the indicator I've got attached.

 

As you can see from the attached chart, it doesn't work so hot. All the vertical lines are places where the volume was less than the previous 2 bars, but it didn't get a blue color added to it. I'm not sure why that is. If someone can fix it so it correctly shows each and every instance where the volume of a given bar is less than the previous two, I'd be very grateful.

 

As it is, the indicator does have some value, especially when you get multiple bars with decreasing volume. It just gives you a visual cue that can be especially helpful when scanning charts.

 

Good trading all,

Tasuki

Volume Avg Vol2Less1.ELD

[Eiger 10]

At the start of this new thread I'd like to share with you an indicator that someone made for me. The idea was as follows: VSA folks often place significance on volume that's less than the previous two bars. Why not create an indicator that reflects this by painting such a volume histogram blue? Well, I started with Tradestation's "Volume Average" indicator (standard issue) and tried to play around with it myself to adapt it, but I'm not good enough at EasyLanguage, so I threw it out to the Tradestation forum and somebody coded up for me the indicator I've got attached.

 

As you can see from the attached chart, it doesn't work so hot. All the vertical lines are places where the volume was less than the previous 2 bars, but it didn't get a blue color added to it. I'm not sure why that is. If someone can fix it so it correctly shows each and every instance where the volume of a given bar is less than the previous two, I'd be very grateful.

 

As it is, the indicator does have some value, especially when you get multiple bars with decreasing volume. It just gives you a visual cue that can be especially helpful when scanning charts.

 

Good trading all,

Tasuki

 

Thanks for posting this. It would be a very useful paintbar application. It is interesting that you post this now as I just sent a check out today to open an account at TradeStation. I haven't used TS for quite some time, but when I did, I thought it was quite good. So, I would find this helpful as well. It would also be useful to color code the price bars as up (higher close than previous bar's close), down (lower close than previous bar's close) and level (same close) -- see example in the chart in the first post on this thread. If no one picks up on this in a day or two, I'll copy it into the coding forum and make the request there. Thanks, Tas - it's a good idea.

 

Eiger

[kuky969 10]

I would like ask Eiger ,what do you think about it. ??

It is chart 5 min ES yesterday.

http://www.sierrachart.com/userimages/upload_2/1241665291_84_UploadImage.png

After spring (S) bar 12,30 -- 12,35 h. I looked for test bar but I didnt find, so I didnt take long trade.

 

It is chart 5 min ES yesterday too,but every bar starts 9,37 -- 9,42,--- 9,47 h.......

http://www.sierrachart.com/userimages/upload_2/1241665703_93_UploadImage.png

Here I see test (T) in bar 12,37-12,42h. What is your opininion. It is good take long trade after this test bar ???

Thank you

[sevensa 10]

Thanks for posting this. It would be a very useful paintbar application. It is interesting that you post this now as I just sent a check out today to open an account at TradeStation. I haven't used TS for quite some time, but when I did, I thought it was quite good. So, I would find this helpful as well. It would also be useful to color code the price bars as up (higher close than previous bar's close), down (lower close than previous bar's close) and level (same close) -- see example in the chart in the first post on this thread. If no one picks up on this in a day or two, I'll copy it into the coding forum and make the request there. Thanks, Tas - it's a good idea.

 

Eiger

 

Hi Eiger

 

I've been hesitant to post the volume indicator I am using because I am not a very efficient programmer and also don't really want to start supporting indicators, but here it goes... Maybe someone can use this as a building block, or optimize the code.

 

The colors used are:

Green = Regular up bar

Dark Green = No Demand

Red = Regular down bar

Dark Red = No Supply

White = Same close than previous bar on higher volume

Yellow = Same close than previous bar on lowest volume in two bars

Magenta = Highest Volume of last two bars, smallest range of last two bar and at a 5 bar high or low.

 

I also plot the 20 bar moving average of volume and 1.5 and 2 times the average volume.

 

I am using MultiCharts, but the code should compile on TradeStation.

 

inputs:	PlotAvg(True), 
	AvgLength(20 ), 
	Val1(1.5),
	Val2(2),
	UpColor(Green),
	DownColor(Red),
	NoDemandColor(DarkGreen),
	NoSupplyColor(DarkRed),
	ChurnColor(magenta);	

variables: 
Vol( 0 ),
VolAvg( 0 ),
StdVal(0),
Body(0);

If BarType >= 2 then Vol = Volume else Vol = Ticks;	

VolAvg = AverageFC(Vol, AvgLength ) ; 
StdVal = StandardDev(Vol, AvgLength, 1) ;

Plot1(Vol, "Vol" );
If PlotAvg then begin
Plot2(VolAvg, "VolAvg" ) ;
Plot3(VolAvg * Val1,"SDV1");
Plot4(VolAvg * Val2,"SDV2");
end;	


if C > C[1] then begin
SetPlotColor( 1, UpColor ); 
If Vol < Lowest(Vol,2)[1] then SetPlotColor(1,NoDemandColor);
end	
else if C < C[1] then begin
SetPlotColor( 1, DownColor ) ;
If Vol < Lowest(Vol,2)[1] then SetPlotColor(1,NoSupplyColor);	
end	
else begin
if C = C[1] then SetPlotColor(1,White);
If Vol < Lowest(Vol,2)[1] then SetPlotColor(1,Yellow);	
end;	

If (Vol > Vol[1] and Vol > Vol[2]) and Range <= Lowest(Range,2)[1] and 
(High = Highest(High,5) or Low = Lowest(low,5)) then SetPlotColor(1,ChurnColor);

[teodosy87 10]

I just wanna say thank you for opening this new thread!I hope that it will be as successful as other 2 : }

[Eiger 10]

Hi Eiger

 

I've been hesitant to post the volume indicator I am using because I am not a very efficient programmer and also don't really want to start supporting indicators, but here it goes... Maybe someone can use this as a building block, or optimize the code.

 

The colors used are:

Green = Regular up bar

Dark Green = No Demand

Red = Regular down bar

Dark Red = No Supply

White = Same close than previous bar on higher volume

Yellow = Same close than previous bar on lowest volume in two bars

Magenta = Highest Volume of last two bars, smallest range of last two bar and at a 5 bar high or low.

 

I also plot the 20 bar moving average of volume and 1.5 and 2 times the average volume ...

 

 

Hi Sevensa,

 

Thanks for posting this. I am glad you did -- it's a big help.

 

FWIW - For volume, I have always used a standard deviation function off the 20-period SMA of the volume. Even though our data is not normally distributed, the standard deviation function gives us a pretty good sense of the probabilities of the volume bar. We know, for example, that about 68 percent of all individual volume bars should fall within one SD of the mean. When the volume hits or exceeds 2 SDs,we know it can be significant (either producing an impulse move when pushing though a trading range or stopping/climactic volume). An upper Bollinger Band applied to the volume or a SD function both do the same job.

 

Hope this is helpful,

 

Eiger

[Eiger 10]

I would like ask Eiger ,what do you think about it. ??

It is chart 5 min ES yesterday.

http://www.sierrachart.com/userimages/upload_2/1241665291_84_UploadImage.png

After spring (S) bar 12,30 -- 12,35 h. I looked for test bar but I didnt find, so I didnt take long trade.

 

It is chart 5 min ES yesterday too,but every bar starts 9,37 -- 9,42,--- 9,47 h.......

http://www.sierrachart.com/userimages/upload_2/1241665703_93_UploadImage.png

Here I see test (T) in bar 12,37-12,42h. What is your opininion. It is good take long trade after this test bar ???

Thank you

 

Springs are one of my favoirte trades. I have studied and traded them for a long time and have a pretty good grasp on their characteristics. Because of that, I usually don't wait for a test for confirmation. Many times springs will just take off like it did here.

 

So, how would you know whether a spring has high odds or not. Your chart has all the characteristics I look for in a spring:

 

First, the background. Here, the market is in an uptrend. It has made higher highs and higher lows. Springs do not work well in a downtrend. I never take a spring when the trend is down unless a clear SOS and a base (cause) have occured. When I see an uptrend in place, I start thinking pullbacks and springs. Note that once again, the all-important background is always the first consideration.

 

What is particularly nice about this spring is that there was a reaction back to support on relatively light volume. This is a choice setup; I really like this look. It is described in the Wyckoff texts as a Jump Across the Creek, and then a Back Up to the the Edge of the Creek. The creek represents supply and the jump across the creek indicates a sign of strength. The market will frequently come back to the edge of the creek and test, as it did here. Testing in this context means not on a single bar as in VSA, but coming back into the area of supply (red curved line) aand testing it to make sure no additional supply is there which would thwart an up move. Volume on the reaction was lighter than the rally.

 

The bar before the Sping was telling. That bar looked ominous, closing on its low and closing lower than the closes of the last four bars. Volume did not increase substantially, however, and the spring bar dipped lower, turned around, closed on its highs, and volume came in. If you were watching this bar develop real time, you would have seen the volume come in as the bar rallied up - this is demand off the bottom. The spring bar is also a bottom reversal in VSA terms, so it had that going for it, too.

 

The final piece to this is that the spring bar was powerful enough to come right up to the minor supply line of the reaction. Any further advance in price would take out this line, which occured shortly thereafter.

 

Regarding switching how the chart displays the bars to look for confirmation -- I personally wouldn't do that. This is akin to committing "confirmation bias," or looking for indications you normally don't look at to support a decision. It is better to either study springs until you are completely confident in trading them without a test for confirmation or specifying that a spring must be confirmed by a test and if a test does not occur, just let the trade pass. Either is perfectly fine.

 

If your criteria includes a test and a test does not occur, so what. A trade was missed. No big deal. There is always another good trade coming just around the next corner. If you note on the chart after rallying aggressively off the spring, the market moved up above the last high (HH) making another new high, rested, held its gains, and gave a nice VSA Test for entry (green arrow).

 

Hope this is helpful,

 

Eiger

[kuky969 10]

Eiger

thank you very much for your free lesson. It is excellent .

[Tasuki 10]

I am using MultiCharts, but the code should compile on TradeStation.

 

 

Yes, it does work in Tradestation version 8.6 build 2525.

Very nice indicator. thanks, sevensa.

[Mini J 10]

I just wanna say thank you for opening this new thread!I hope that it will be as successful as other 2 : }

 

I second that..

Anyone trade forex here? I just found this forum and haven't finished reading VSA I or VSA II..

 

Thanks

[BlowFish 10]

You will discover the answer to that as you read through the threads! Don't be fooled by what people tell you, there is no volume reported on forex, People happily (and successfully apparently) use tick volume as a proxy for volume. Be aware it is only actually a proxy for order book activity so you get ticks without trades taking place. For example If I best bid then cancel it this will cause ticks without a trade taking place. So in short why pick an instrument where there is no volume reported when there hundreds of thousands where there is?

[Mini J 10]

You will discover the answer to that as you read through the threads! Don't be fooled by what people tell you, there is no volume reported on forex, People happily (and successfully apparently) use tick volume as a proxy for volume. Be aware it is only actually a proxy for order book activity so you get ticks without trades taking place. For example If I best bid then cancel it this will cause ticks without a trade taking place. So in short why pick an instrument where there is no volume reported when there hundreds of thousands where there is?

 

Did you mean to trade others than forex?

I saw people trade successfully in forex with VSA at another forum..but the forum didn't have much info coz they were focusing on indicators..

[BlowFish 10]

Of course its up to you but why trade using a method that relies on volume with probably the only instrument that does not have volume reported?

[monad 10]

Did you mean to trade others than forex?

I saw people trade successfully in forex with VSA at another forum..but the forum didn't have much info coz they were focusing on indicators..

 

If you are keen on trading currency why not trade Currency futures (CME) a regulated market and where true vol is reported, VSA principles will work just as well and the moves will be in line with forex, only less spikey.

[BlowFish 10]

If you are keen on trading currency why not trade Currency futures (CME) a regulated market and where true vol is reported, VSA principles will work just as well and the moves will be in line with forex, only less spikey.

 

Absolutely. Not only that they have recently introduced mini futures (which I hear are picking up in liquidity) which would suit those with smaller accounts.

[Eiger 10]

.... Be aware it is only actually a proxy for order book activity so you get ticks without trades taking place. For example If I best bid then cancel it this will cause ticks without a trade taking place...

 

I have always understood tick volume (in general) to reflect actual trades and not withdrawn bids/offers, but then I don't trade FX, so this is new for me?? When I traded commodities futures years ago I do remember seeing a study done comparing tick with true volume in commodities (grains, I think) and having a correlation of about 85-90%.

 

In addition to currency futures and emini futures, there are currency ETFs with good liquidity and, thus, good volume.

 

Eiger

Edited May 8, 2009 by Eiger

[humdesggg 10]

Eiger

 

Do you have any VSA related indicator/template for ensign, that I can use. Some posted alerts, but I am able to put up those alers in ensign. The alerts painted bars with volume < 2 previous bars and r quite helpful. Any1 could upload them as a template here.

Thanks

 

Thanks for posting this. It would be a very useful paintbar application. It is interesting that you post this now as I just sent a check out today to open an account at TradeStation. I haven't used TS for quite some time, but when I did, I thought it was quite good. So, I would find this helpful as well. It would also be useful to color code the price bars as up (higher close than previous bar's close), down (lower close than previous bar's close) and level (same close) -- see example in the chart in the first post on this thread. If no one picks up on this in a day or two, I'll copy it into the coding forum and make the request there. Thanks, Tas - it's a good idea.

 

Eiger

[humdesggg 10]

Eiger

 

As the thread starter, maybe u may want to come up with some directives for newbies who accidentally came across this thread and start posing noobie questions without reading part 1 and part 2. I think it should be mandatory reading for any VSA enthusiasts to read Tom Williams MTM, and to at least take the time to read the 1st 10 pages of part 1 and part 2, before posing questions. Another second directive should be that when noobies or recent arrivals to VSA posed questions, their questions should be annoted on charts. Certain directives need to be put to grow the thread, so that we can each day come and poss our readings, or better, post mo realtime developments on the charts.

[Eiger 10]

Eiger

 

Do you have any VSA related indicator/template for ensign ...

 

Sorry, I don't use Ensign.

[Eiger 10]

Eiger

 

As the thread starter, maybe u may want to come up with some directives for newbies who accidentally came across this thread and start posing noobie questions without reading part 1 and part 2. I think it should be mandatory reading for any VSA enthusiasts to read Tom Williams MTM, and to at least take the time to read the 1st 10 pages of part 1 and part 2, before posing questions. Another second directive should be that when noobies or recent arrivals to VSA posed questions, their questions should be annoted on charts. Certain directives need to be put to grow the thread, so that we can each day come and poss our readings, or better, post mo realtime developments on the charts.

 

See this thread:

 

http://www.traderslaboratory.com/forums/f151/helpful-ideas-for-newcomers-to-vsa-5944.html#post64769

[hilltrader 10]

Tasuki,

 

In the last line of the code change "xv[1]<xv[2]" into "xv<xv[2]".

[teodosy87 10]

1- no demand

2- no demand

3- uptrust

 

So short ;]

[Eiger 10]

1- no demand

2- no demand

3- uptrust

 

So short ;]

 

Can you show why, from the perspective of the background, that this was a choice short?

[teodosy87 10]

That is what i try hard to learn.The backgroung.I read a lot of post from a lot of tarders and saw that most common mistake is not to look for the background.Pro traders or expirienced one talk much abt it but no one say this and this is the background.So that`s why i post this to see if anyone could give me a reasonable explanation if this is a valid signal not based only on these individual bars but on the back ground.As for background looking in my charts i see no previous highs or something i see that the trend is down.This is short term down from yesterday.This is the only thing i can see.So could someone give me reasonable explanation why this should be a good short or why not due to all we need to enter a tarde .. background and individual bars ... Thanks a lot.