[VSA] Volume Spread Analsysis Part III

[monad 10]

Sorry, just can't resist---*savvy* southern England, you mean like the fairy twinklers in Glastonbury?

Again, apologies, it's been a tough morning---the phrase, I believe, is "skeletons in the *closet*, unless you Brits have expanded your cupboard space dramatically since I was last there.

 

From where we are Glastonbury is strictly south west, where as you say "fairy twinklers" "The New Age Crowd" hang out. Don't think they are much bothered about the markets. That would be too mundane for them:)))

 

Spacewise we cannot match anything in US, whenever I get back from a trip to US, everything looks so cramped here but we like to imagine that our closets are like big US cupboards with lot more skeletons;)

 

Good Trading

[Eiger 10]

Hello, I am new to this thread and have found it very beneficial thus far. Have only been reading for a week and still have a lot of catching up to do. However Its seems very logical and since then I have been watching the market with this analysis in mind. Here is a chart of what i saw on friday with a question on one of the concepts I have read about. Any comments would be appreciate it.

thanks to all who have contributed to this great thread.

 

A way to look at this chart from the VSA perspective is to first note the background conditions. The background indicates that this market has been trending down for most of the day. Although some volume came in at A, it was not climactic, which would give a clearer indication that the downtrend was over - so background is weakness.

 

The rally up to C becomes overheated as we reach the old top at B. Spreads widen, volume suddenly expands. The spread and volume indicate activity. Markets do not like high volume on up bars because along with the buying, significant selling occurs within the high volume. We have high volume up bars on both 1 & 2.

 

Stepping back from the individual bars a bit, note how the angle of accent steepens dramatically after D. It is unlikely that this can be sustained, though it looks to the untrained eye to be quite bullish and many traders are buying into the rally here.

 

At bar 2, volume is essentially the same as the volume on the wide spread bar at 1. Notice the difference in the spreads between bar 2 and bar 1, yet the volume is nearly identical. This can mean only one thing - significant selling occurred on this bar. The volume indicates substantial activity (both buying and selling), but the spread shows that for all the buying taking place, the selling not only matched the buying, but prevented price from moving higher. Another way to think about it is this: if buyers were truely in control on bar 2, then bar 2's spread would be similar to the spread of bar 1 and price would have rallied up to about the level of E, give or take. Instead, it is the narrowest bar in the rally. Only large, professional interests who have the wherewithall can do this.

 

Bar 3 tends to confirm the immediate weakness. The market tries to rally higher and makes a new high, but then falls and closes well below bar 2. The thrust to the upside has shortened, and we see a close just below resistance at B. The spread has also widened (compared to bar 2) to the downside, indicating weakness.

 

Bar 3, though, has volume less than the previous two bars. So some may see this as a Test bar. It is a bit wide for a clean Test bar, but more importantly, there is weakness in the background. We discount tests when the backround is bearish.

 

But, let's say you weren't sure. Maybe you are thinking that this is a Test that is occuring after some weakness has come in and maybe the test is negating that weakness.

 

The key to solve this dilemma is the next bar or two, and the very next bar tells us.

 

The bar after 3 is another down bar (lower close) and closing under the resistance at B. It is also making a lower high and a lower low (bar high and bar low). Note the volume. This is the key here. It increases. It is showing downside pressure as it slips lower.

 

Again, another way to think about this is that if the increase in volume was buying over selling, then the bar after 3 would be up making a higher high and the spread would likely be wider as well.

 

Instead, it has the largest volume of any down bar since the rally at A. During the rally from A to C, down bars brought out lighter volume (it was the up bars that had good volume). Now this has changed and we see volume come in to the downside. So, this shows us that market behavior has indeed changed from up to down, further confirming the weakness we have seen on bars 1, 2, & 3.

 

When you are unclear about what is going on, wait for a bar or two -- it will usually tell you (a useful rule of thumb).

 

This is a nice study and I am glad you posted it. It illustrates how to properly use VSA:

 

• Always, always, always seek first to understand the background
  
• Identify key support & resistance levels
  
• Look for the important VSA principles to unfold on your chart, especially at S/R
  
• Be detailed about how you look at the bars, but always stepping back to gain a wider picture
  
• If unclear about what is happening, be patient. The next bar or two will usually help you interpret what is going on.
  

 

Hope this is helpful,

 

Eiger

[SRspider 10]

Thank you for a well thought out explanation. It was very educational.

[TheRumpledOne 14]

Thanks for sharing, Eiger.

[delta 10]

Thanks Eiger. I have copy pasted your post to save it for future reference.

[TheRumpledOne 14]

Would

 

volume * ( Close - Open ) / point

 

be of any use?

 

My thought is it shows the "force". Similar to VWAP.

 

If you look where price bottomed, you'll see there wasn't much downward force.

 

As price climbed, the downward force that appeared was also weak.

[SRspider 10]

Here is another chart I tried to analyze with some VSA principles. Please disregard the MACD indicator, it was not used in the analysis. Any comments are welcome.

 

SRspider

[VolumeJedi 10]

Haven't posted in a while is solidarity with CW over his treatment here, but I attended the webinar today and decided to post at least twice more...........

 

The below chart shows many VSA principles and ideas that it offers a great opportunity to learn from. One thing I would not first, is that this is a 1 minute chart. I consider this a "scalp" trade. Due to the timeframe, not the length of time the trade is held or the amount of pips of the trade. Tom is not a fan of the 1 minute timeframe. Beginners should just be aware of this point.

 

 

A: There are a few things that are of note on this bar. First, it is a wide spread down bar closing off its lows on high volume with the next bar up. We know that strength, when it appears, appears on down bars. If that bar was weakness and all the volume represented selling, why would the next bar be up? Also note that this green paintbar is a "selling bar". That is, it makes a lower low than the previous bar but not a higher high than the previous bar. But check out the very next bar. This bar fails to trade lower. In other words, lower prices have been rejected-a sign of strength. This is bar forms the basis of our background, but there's more......

 

B: This bar is mentioned as it trips up many traders. It is a narrow range up bar on volume less than the previous two bars with the next bar down. Simply, it is no demand. More correctly, it is no demand by definition, but its placement is suspect. We have just seen a major sign of strength in the background and now we see this bar. It has to be ignored in this location.

 

C: More information here. We see a down bar on increased volume closing in the upper third of its range. While this bar closes lower than the previous bar it still is closing closer to its high than its low. When know strength comes in on down bars when it shows up, and the close relative to the range tells us that the bulls were in charge at the end of the period. Yet again we have a "selling" paintbar that fails to have price trade lower on the very next bar. This is more background information of the strength/changing strength of the market.

 

D: Beautiful example of what we want to see when we want to see no demand. It is a narrow range bar on volume less than the previous two bars and closing on its high with the next bar down. Again, as far as definitions go, it is no demand, but we have far too much strength in the background to consider this a tradable signal.

 

E: Something has changed. At point E we get a bullish UP bar. When weakness appears it appears on up bars. However, not all up bars are weak. Here we have increased volume (but still relatively low) and a close in the upper portion of the bar, with an increasing range. This bar is also a "buying" paintbar. As it has a higher high than the previous bar and not a lower low. Take a look at the next bar, it does close down but It makes a higher high than our buying paintbar at E. This shows some acceptance of higher prices in the market. In short, we have another sign of strength.

 

F: This is the market hitting us with a 2x4. We have a wide spread bar on ultra high volume known as a shake out. Again, note the close relative to the low of the bar. We are pips away from the high and miles away from the low. The BBs think on more than just the 1st level. 1st level thinking says, this is a selling bar on ultra high volume so the market must be weak. In reality, we know that the close near the high on this bar (and with the next bar up) means this bar is strong. The BBs have gunned for some stops of the early longs and tried to "freeze" out those on the sidelines. For some that got short on the low volume bars (no demand), they may be convinced to stay in the market on the short side and thus be forced to buy the position back at HIGHER prices.

 

Those that can read a chart, have seen the elephant's foot prints and get can get long on the next bar 1 tic/pip above the high of the shake out.

[VolumeJedi 10]

A very interesting trade set up here.

 

This is another 1 minute Euro example.

 

Let's start by looking at the left of the chart. Where else ? In trading we are always looking left to trade right. At least we should be.

 

One of the best signals to start your analysis from is some type of Climatic Action bar. We see a green paintbar that is indeed a Climatic Action bar. It has a wide spread on high volume closing off its highs with the next bar down. Once again, we know that when weakness (supply) appears it appears on UP bars. So while this is an up bar and "buying" bar, we know that the volume tells us that this bar is weak not strong. The BBs are selling into the move. Take a quick glance to the right, and note how the market moves sideways after the appearance of this high volume bar. While we do not know this now at the time of the bar, this sideways motion is further signal of supply (weakness) entering the market.

 

The very next bar is no supply. Like the no demands in the previous post, the location makes it suspect. Moving 4 bars to the right, we see a blue paintbar that is also a buying bar. The very next bar trades higher than the high of our buying bar showing some residual strength in the market. But we don't want to get long.

 

The market meanders sideways for awhile showing various "deceleration" sings, that is, no demands and no supplies/tests. With the background weakness, we are not looking to take the no supplies/tests. With the evidence of some residual strength, we don't want to take no demands. More over, notice that the no demands are not ideal. The second one, for example, makes a lower low and not a higher high. That is, it is a Selling bar. We would rather it be a buying bar.

 

Finally, we get a better no demand after price has risen from a test. Notice that this no demand is narrow. It does not make a higher high, but does close on its high (which is equal to the previous bar). At any rate, we have a narrow range up bar closing on it highs with volume less than the previous bars. More over, the next bar is down and an Up Thrust. Up Thrusts often follow directly after no demands. This sets up an aggressive entry to the short side. I think it is aggressive as we have seen some residual strength in the market after the initial sign of weakness.

 

Moving two bars to the right, we see another no demand. This no demand sets up another aggressive entry. What is key here is the confirmation bar. The very next bar which confirms the no demand, turns out to be a paintbar and a balance area. More importantly, however, it is a selling bar that is confirmed with price trading lower than the low on the very next bar. This counter acts the prior buying paint bar and now we are convinced of the market weakness. Not to mention that this bar is an effort to fall.

 

In order to get short we would like price to move back into the area of our Effort to Fall bar (in this case balance area). Price moves down and then moves back up. We than get a no demand bar that is narrow, closing on its highs, and a buying bar.

 

Our ideal entry comes a few bars later in the form of an Up Thrust. Note how the bar makes a higher high but closes on its lows and down from the previous bar. This is a text book example of market "manipulation". Once again we see an example of a Buying bar that is actually weakness (supply).

 

What is key about this chart is the residual strength, as shown by the buying paint bar followed by prices trading above it; is eventually countermanded by a selling paint bar followed by prices trading below its low.

 

Some may ask, why not short the no demand. Notice that the market does not trade below the low of that no demand before it forms the Up Thrust. In other words, if you placed a sell order below the no demand, it would not of been hit. In addition, the no demand followed by the up thrust is one of the 3 main set ups.

[TheRumpledOne 14]

 

Thanks for sharing VolumeJedi.

 

I don't know much about the CW battles on this forum but I know the ones I have to fight elsewhere. Such a waste of time but one has to defend their reputation.

[VolumeJedi 10]

Here's another chart for you viewing pleasure.

 

There's a few things that are really interesting here. First, what we can't see on the left of the chart is the fact that we are in a down trend at this time. This information is obviously important as most traders would want to be shorting in a down trend and going long in an uptrend (more on this later).

 

Note the pink paint bar on the left side of the chart. This bar has ultra high volume with a close off the lows and the next bar up. VSA tells us this type of bar shows buying (strength) by the BBs. Also note that this bar is a "selling" bar since it has a lower low than the previous bar but not a higher high. Once again, we need to use second level thinking and realize that this is a bar of strength despite what the masses are oft to think.

 

What we can do here is use Gavin's trigger number concept. A yellow line was placed at the close of the bar and drawn into the future. This level, or number, should be an area where price will react in the future.

 

As noted, the trend was down at this time and the high volume that entered moved the market to the sideways a bit, but there was no demand for higher prices at this time. Note the blue paint bar (Effort to Fall) that shoots thru the yellow line and below the low of the pink paint bar. The next bar is a narrow range up bar on volume less than the previous two: No Demand. Although it is not marked, this is a good place to take a trade or add on whichever the case may be.

 

Things get interesting later on. Note that a Balance Area forms where there are two successive blue paint bars. Because the low is made before the high, we know that this balance area was made by buyers. Looking closer at the first bar of the balance area, we note that the close is in the upper portion of the bar on a down bar on increasing volume. Buyers have to be stepping in here or the close would be lower on the bar. This is the spread analysis of volume spread analysis (LOL). For the aggressive counter trend/scalper type of trader a long sets up as we see a no supply bar that trades down to the midpoint of the balance area. With the blue paint bar, two bars earlier showing some price acceptance to the downside we know the market is ultimately still weak. Any pop in prices is expected to be short lived when we couple this with the actual direction of the trend.

 

The really interesting thing is what happens as price pops higher. Price hits a resistance point and bounces. The resistance point is the yellow line, our trigger number. Gavin would say, "There are no accidents". As price bounces off this level we see a narrow range up bar on volume less than the previous two bars followed by a down bar that makes a higher high on increased volume. This is an up thrust. BINGO

 

We see what we want to see and in the location we want to see it. Time to get short. This trade is in harmony with the market.

 

The real take away here is, if you can define ultra high volume bars you can use these to create your trigger number (support/resistance lines).

[2trade 10]

Hi the bars you show as no demand after the stopping volume are not ND they are low volume upbars because there is now strength in the background the bar you have as a shakeout is a reverse upthrust or in wyckoff terms a spring -- hope this helps.

[delta 10]

VJ,

 

What is GAVIN trigger number concept? how is this line drawn? Have not read about it in any vsa book.

[VolumeJedi 10]

VJ,

 

What is GAVIN trigger number concept? how is this line drawn? Have not read about it in any vsa book.

 

You wont find them in any book (yet). Tom once referred to them as Gavin's trigger number, with the emphasis on Gavin. Indicating to me that they are not strictly VSA.

 

Gavin has spoken about them a couple of times but many more times he refuses to say much about them. Basically he draws a horizontal line at the close of certain high volume bars. These lines tend to act as support/resistance areas or areas where valid signals show up. Hence the name trigger.

 

The point I was showing was a defacto method of creating a trigger number, which very often makes for better support/resistance than plain vanilla floor pivots.

 

The one I show is used because it: (1) has ultra high volume (2) is a buying bar with no immediate follow thru (or selling bar as I am not looking at the chart as I write this) (3) is not part of a balance area.

 

Simply one could look for an ultra high volume bar that forms a swing high or low ........

[VolumeJedi 10]

I like this chart. The song remains the same. Why shouldn't it? Repeating patterns are good from a trader's point of view.

 

A: Ultra high volume bars are always a good place to start. These are the type of bars that signal professional involvement or activity. Notice that we have a green bar on ultra high volume that closes on its highs. It does not close down, although it makes a lower low, it closes equal to the previous bar. Clearly, buying had to occur within this bar. How else could we have a wide spread ultra high volume bar that closes on its highs with the next bar up?

 

VSA does not look at the open, but take a look anyway. Based on where the open is, we know that the market went down and then was moved up and closed higher than the open. The bulls were in charge at the end of the period.

 

This paint bar follows another paint bar thus creating a balance area. Thus we now have a location (area) within which we would be looking for signals. We can conclude that strength has entered the market and thus we would be want to get long.

 

B: Blue paint bar that is also a buying bar. The next bar trades higher than the high of the paint bar. This tells us there is some price acceptance of these higher prices. Another sign of strength in the market. While this next bar is a low volume up bar (hence the diamond), we like the fact that it makes a higher high than our blue buying bar.

 

C: This is the antithesis of the action at B. Price has fallen slightly from the high of the bar proceeding B and now we have another blue paint bar. This one, however, is a selling paint bar. But look at the close, the close is in the middle portion of the bar and closing higher than the previous bar. Also note that there is no action below this bars low on the very next bar. Here again we see strength as there is a rejection of lower prices as seen by no follow thru on the next bar to the downside.

 

But we are not yet in this market on the long side. We are looking for a nice Test bar.

 

D: Decreasing range on an up bar that makes a higher high and closes on or near its low on volume less than the previous two bars. This is an Up Thrust in the form of No Demand. Not a reason to get short, but a sign that the market is not yet ready to head north. This is good cause we are not in it yet. We recognize the strength (demand) in the background so we are not in the least bit tempted to take a short trade.

 

E: This blue paint bar completes a small balance area that is not shown. No matter. The real point here is that we get another selling paint bar with no follow thru on the next bar. One more clue that the market's bias is for higher prices. E takes us back into the balance area and we would now be expecting to see a Test (of supply).

 

F: The bar we have been waiting for. A narrow range down bar closing on its high with volume less than the previous two bars. Not only is it within the range of the balance area, but it is roughly at the midpoint of the area. Price dips below the midpoint and move back above and is immediately tested. The BBs don't find anymore supply down below so the path of least resistance is to the upside. Hitch a ride on their train........

[BlowFish 10]

You wont find them in any book (yet). Tom once referred to them as Gavin's trigger number, with the emphasis on Gavin. Indicating to me that they are not strictly VSA.

 

Gavin has spoken about them a couple of times but many more times he refuses to say much about them. Basically he draws a horizontal line at the close of certain high volume bars. These lines tend to act as support/resistance areas or areas where valid signals show up. Hence the name trigger.

 

The point I was showing was a defacto method of creating a trigger number, which very often makes for better support/resistance than plain vanilla floor pivots.

 

The one I show is used because it: (1) has ultra high volume (2) is a buying bar with no immediate follow thru (or selling bar as I am not looking at the chart as I write this) (3) is not part of a balance area.

 

Simply one could look for an ultra high volume bar that forms a swing high or low ........

 

I believe the idea came from some one else, not that that is important.

 

What is important is the close is a bit of a hit and miss affair. It sometimes 'works' because when price comes off from a high/low it will often rest somewhere. If it happens to be resting there when the bar closes you will likely have a decent level if it is not you wont. Bars are a simply a way to sample continuous data so we can make sense of it. I don't think it takes much persuasion to see that using an arbitrary fixed datum based on a single point in time might not be that reliable. Extending that thinking one could use for example the mid point of the bar which as it is based on the high and low has had the whole bars duration to establish itself.

 

Edit: as an example look at VJ's chart in the previous post. Which is the better datum on the green bar marked 'balance area' the close or the mid point?

[2trade 10]

F is not a test with strength in the background but 3 bars later is --

[zoli 10]

Hi all,

 

this is my first post here. I am reading through VSA 1 and 2, not finished with 2 yet. I really appreciate your work and all. I am new but VSA seems to me the way of the force. I just do like that there is a logical explanation for price action. I think some of yu are great traders here and I learned a lot from your posts. Thank you for that.

 

Now in the meanwhile I do paper trade forex - for I have little capital in the first place, but lately I figured that I can use the strategy tester in MT4 (I have order script and everything so can monitor and record my trades accurately). It is faster and I do not need to be out on the weekend. I am trying the GBPJPY pair on 5m.

 

I do understand the principles, but it is hard to read the market, hard to recognize things.

I some 17 trades and I managed to be with a small profit. But only because I was lucky. I lost mostly just had a big lucky trade, possibly past news event of sudden 200 pips movement in my favor. I did not know what is wrong, and I realized that these trades were on the same day!

 

I concluded that for some reason I want to be in the mkt all the time, I want to force out set ups from the mkt. One accurate profit trade would make me happy a day.

 

My question is how to overcome on this thing? How many trades are reasonably for a newby like me a day? I think I would do way better if I just took the trades with very clear background and indications. Should not try to trade all the time. I can not possibly catch all movements and be in profit.

 

So I have a likely mental obstacle here. What do you suggest?

 

Thanks a lot!

[irastorza 10]

hi im posting my analsys of the SPY, this is the first time that im posting here. Open to discussion. I pesrsonaly tihink that the market will not going very far in the mid term.

 

[Tasuki 10]

hi im posting my analsys of the SPY, this is the first time that im posting here. Open to discussion. I pesrsonaly tihink that the market will not going very far in the mid term.

 

Good job, irastorza. The overnight market on the ES futures seems to bear out your prediction. You're right, high volume on up bar followed by low volume up bar is not a bullish combination.

[cmach123 10]

I know this is VSA part3, but where are the charts in VSA part 1? I could benefit from these charts b/c the explainations were really clear....

[shreem 10]

Hello Cmach123. Happy that you like the VSA approch to the markets.

 

About charts in VSA 1 thread, they are still there up and running. So do not really understand what you means.

 

I am reviewing the thread now and the charts are they ( i am on page 12 though so maybe that change later on.)

 

Also, if you look in all the threads on VSA, particularely the sticky ones, you should see lots of interesting posts and charts there.

 

As VSA in now my main focus for my trading methodology coupled with market profile and S/R levels, this forum on VSA is really great and we are very much priviledge to have great VSA traders like VolumeJedi, Eiger, PivotProfiler and CandleWhisperer before (if they are the same person should not concern anybody but and is not important at all). The quality of their posts and charts is what make me so happy studing this application of VSA

 

Sincerely

 

Shreem:)

[kuky969 10]

I am not sure what charts cmach123 looking for but some charts from just a few Eigers posts was demaged . I dont know now what exactly problem was, but I asked Soultrader and he answers me that is not possible restore this pictures. I dont know what number of posts have this problem , but just chart is not possible open.I estimate about 10 pictures of charts - no more.

[mjackson 10]

Haven't posted in a while is solidarity with CW over his treatment here, but I attended the webinar today and decided to post at least twice more...........

 

 

Hello VolumeJedi

 

You have great posts and a lot to learn from...I want to ask you what is platform you use...? It has VSA built in? Thank you for sharing your experiance with rest of who are eager to learn...

[cmach123 10]

Hello Cmach123. Happy that you like the VSA approch to the markets.

 

About charts in VSA 1 thread, they are still there up and running. So do not really understand what you means.

 

I am reviewing the thread now and the charts are they ( i am on page 12 though so maybe that change later on.)

 

Also, if you look in all the threads on VSA, particularely the sticky ones, you should see lots of interesting posts and charts there.

 

As VSA in now my main focus for my trading methodology coupled with market profile and S/R levels, this forum on VSA is really great and we are very much priviledge to have great VSA traders like VolumeJedi, Eiger, PivotProfiler and CandleWhisperer before (if they are the same person should not concern anybody but and is not important at all). The quality of their posts and charts is what make me so happy studing this application of VSA

 

Sincerely

 

Shreem:)

 

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