[VSA] Volume Spread Analsysis Part III

[VolumeJedi 10]

Hello. Threads kind of' slow. Hopefully this post will generate some helpful discussion.............

 

Q: Where do you vsa experts and newbies see an entry into this very nice up trend in the Euro from Friday?

 

Please feel free to use the chart on the left to annotate what you see and where you would of entered and why.

 

The chart on the right shows various things that I see/saw and where my entries are/were. I do not try and pick tops and bottoms, I let them pick themselves. However, much was "given" away by not entering sooner. What did I miss?

 

A: It all starts here. A wide spread down bar on ultra high volume. Notice that the close is near the low and the next bar is down. We know that strength, when it appears, appears on down bars with high volume. But the next bar is usually up. That is not the case here. Could this be a weak bar?

 

B: If you were not sure of bar A, then this bar only adds to the confusion. It is a narrow range up bar on volume less than the previous two bars. It is no demand. Note that the close is in the lower third of the range and the bar is a NR4 bar. NR4 being the lowest range bar of the last 4 bars. The smart money doesn't seem interested in higher prices.

 

C: Things get more muddled. We now see a narrow range down bar on volume less than the previous two bars. No supply. If one wants to argue that it is not no supply because of the background, then it is still a low volume down bar showing no interest by the smart money. But that means we have no interest in the upside OR the downside as both the up bars on low volume and the down bars also.

 

The only clue for me is that the volume on C is less than the volume on B, indicating even less desire for downside action than the upside.

 

D: This is a "key" bar. For some it is a "key reversal" bar. We have a wider range than the previous bar, the bar makes a lower low, closes in the upper portion of its range, closes higher, and has increased volume. This might be stopping volume? If you enter here, please tell me why (and more power to you).

 

E: At this point, the market has began to move up and we are looking for a test to enter. The previous bar gets stalled and price falls. This bar is narrow and has volume less than the previous two bars. In highnsight, this is the ideal entry bar as it is a low volume bar within the range of a high volume bar (A). But the next three bars close lower than E. Actually the third bar closes back even with E.

 

F: Pushing thru supply. Wide spread up bar on high volume closing near its high on equal volume. This bar is also an Effort to Rise. The BBs are bullish and they are willing to absorb selling at the supply line in anticipation of higher prices. Sometimes the BBs will buy at high prices because they know they can sell at even higher prices.

 

G: Low volume up bar. By definition it is no demand. But we know that there is too much evidence of strength in the background. It is more likely that the BBs have let off the gas and now want to see a test before marking prices any higher.

 

H: No selling pressure. We see an increasing range bar closing near its lows on volume less than the previous two bars. This is not a test as a test bar would be narrow and close on or near the highs. Those at the head of the class may of used this bar to signal entry and confirm that F was pushing thru supply.

 

I: This is a two bar reversal pattern. The first bar closes near it low and the next bar closes near its high. Notice the volume on the bar that closes higher. It picks up. Whilst VSA does not look at the open, notice that the first bar opens near the high and closes near the low. The next bar opens near the low (lower than close of first bar) and closes near the high (higher than the close of first bar and equal to the open of the first bar).

 

J: No Supply. This confirms the two bar reversal as the prior bar looks like a failed test, signaling some residual weakness. I would rather see low volume bar within the range of prior high volume bars. J does trade into the range of the second bar in the two bar pattern, but is not completely within it.

 

K: No Supply. This is just showing another Effort to rise bar followed by no supply bar. This is that high volume bar with a low volume bar within its range idea. So in an area (range) where there was an abundance of activity the first time, there is little activity when price dips back into it. This is bullish.

 

L: As the market begins to top out, we get another narrow range down bar on volume less than the previous two bars. No Supply. The real key is on the next bar. It is an Effort to Rise with no result. Effort without result would be bearish in this case.

[HAL9000 10]

D: This is a "key" bar. For some it is a "key reversal" bar. We have a wider range than the previous bar, the bar makes a lower low, closes in the upper portion of its range, closes higher, and has increased volume. This might be stopping volume? If you enter here, please tell me why (and more power to you).

 

Hi, I haven't traded on Friday, so its just hindsight,

and probably I wouldn't have stepped in, because I am still

sorting my rules out. If I would have entered, I would have

tried to enter on the extreme readings, to maintain a very

small stop.

 

But these kind of pictures, I see often.

And while some might fail, the R/R seems to fine IMO.

But I can't prove it, so just take it as a nice picture.

 

 

Anyway, as I don't use VSA, I would be interested too,

if there is a reason to enter here based on VSA rules!

 

 

 

Regards,

 

Hal

Edited August 2, 2009 by HAL9000

[habi 10]

Hi

 

I don't trade Forex, therefore my comments are all derived from hindsight analysis.

 

First of all, you don't provided enough data on the left side to judge the background. As you see in Hal's chart, the key candle apeared slightly above an important support area and becomes therefore more significance. Bar A and the following (I call it A1) formes a sharp downmove. After A1 you see 6 bars within a narrow range, I see it as some kind of accumulation. Volume before D increased and was higher on D, but prices reversed, all the selling was absorbed at this time. IMHO a good place to try a trade with a good RR-Ratio. If you imagine bar D and the bars before and after D as one bar, you become an even stronger reversalbar, but your risk is higher, when you enter at this time. It's up to you, how much confirmation you need to enter a trade.

[VolumeJedi 10]

Hi

 

I don't trade Forex, therefore my comments are all derived from hindsight analysis.

 

First of all, you don't provided enough data on the left side to judge the background. As you see in Hal's chart, the key candle apeared slightly above an important support area and becomes therefore more significance. Bar A and the following (I call it A1) formes a sharp downmove. After A1 you see 6 bars within a narrow range, I see it as some kind of accumulation. Volume before D increased and was higher on D, but prices reversed, all the selling was absorbed at this time. IMHO a good place to try a trade with a good RR-Ratio. If you imagine bar D and the bars before and after D as one bar, you become an even stronger reversalbar, but your risk is higher, when you enter at this time. It's up to you, how much confirmation you need to enter a trade.

 

Thank you for the reply but I must respectfully disagree. Hopefully we can start a nice debate on this subject for all to learn from. There are two main reasons why I disagree:

 

1. Post clarity. I think it is easier to see the bar in question in my chart than in Hal's chart. A reader should not have to struggle to see the individual bars unless the post is more "grandiose" in scope. Also the chart goes back enough to show the Supply line to the left which is important, but only in looking at that Effort bar.

 

2. This is the real reason and gets to my belief system with regards to the markets and especially VSA. I believe VSA is about the NOW MOMENT. This moment is defined by activity of the professional players. Said activity is seen thru VOLUME. When the BBs are active, they leave foot prints in the market. These foot prints are first in volume and second in range and third in close (within that range on that particular volume).

 

Therefore, One wants to begin analysis when the volume spikes up. An ultra high volume bar is the NOW moment. What happens before matters to be sure, but when the elephants leave a huge foot print, its time to pay attention.

 

As I stated, Point E, although Hindsight, is the best entry for me. Why? Because price has moved down on ultra high volume (A). It then moves thru this area and falls back into it. But now on this fall back in, there is no volume. If the volume bar at A was selling, we now see little selling as price enters this range again. This is bullish. This area does not seem to be bring in traders off the sides lines (that are bearish). If the volume was buying, this is still bullish because the buyers are looking to see if a return to the area (range) brings out new bears.

 

Again, I missed this point in real time. But my point now is this: regardless of what is on the chart 6 hours ago, 6 days ago or 6 months ago, we need to focus on the NOW and the high volume bar at A is the now.

 

I have attached a chart from the start of today's market. While this is not an ideal time to be trading, there is a nice set up here for a short trade. Only what is presently seen in the chart is needed to make this trade.

 

How much more do you need?

 

A: Not a real important bar, especially at this time. This is an effort o fall bar. Of course volume is low.

 

B: Tricky bar. Narrow range up bar closing near its high, but making a lower low on volume less than the previous two bars. First note that this bar is within the range of our Effort to Fall bar. This bar is a test, it looks like a No demand type of bar because it closes up. However it is a test. The bar opens and price is ramped down (making a slightly lower low) and move all the way back up closing higher than the open and near the top of its range. Not an entry signal for me.

 

C: This proves that the previous bar was a test. This is an Effort to Rise bar. If we look to the left, we see a small supply line and yesterday's high. This bar is pushing thru these areas. This is our first NOW point. Look at the volume. Something is happening on this bar. For whatever reasons, the BBs are become active. If the BBs are active, we want to get active. Not before.

 

D: Our second NOW point. Very high volume on an down bar that makes a higher high and closes near the bottom of its range on a wide spread. This is an Up thrust or thrust type of bar. This bar speaks of market weakness.

 

E: NR7 up bar on volume less than the previous two bars after weakness: No Demand. And where are we? Within the body of the ultra high volume bar-the effort to rise bar.

[VolumeJedi 10]

Just an update.

 

Full Discloser: this was not a trade taken due to time of day, simple a trade called in the prior post.

 

 

Remember: How you manage a trade is up to you. But at this point a good 30 pips could be realized. @ $10.00 a pip, that’s $300.00 per contract.

[shreem 10]

Hello VolumeJedi.

 

Thanks so much for your great contribution on these VSA threads. It is muhc appreciated. I really enjoy very much your analysis and the way you see VSA in action in a chart.

 

Your way of looking at the market is really enlightening and help me so much how to read VSA setups correctly.

 

Also, i do agree, that signal and clue from a previous high volume WRB is one of the best setup one can look for as the high volume WRB do represent big activity of the BB and a retest of that previous zone, will show the prints of the BB and how much are they interested at those same price, either up or down.

 

Again, thanks so much for your effort and it is appreciated by a lot of people

 

Sincerely

 

Shreem:)

[VolumeJedi 10]

Beautiful.

 

Hope you like this chart and can learn something. Please tell me what you think is important that I may have missed. As the thread is not very active currently, the view you are getting is a bit one-sided, I hope that's not a problem. Let's take a look at the chart below:

 

A: This is a "transfer of ownership" type of bar. We have a narrow range down bar with ultra high volume closing in the middle of the range. This bar is very bullish. We wouldn't go long just off this type of bar anyways, but we have to be especially careful here as it is just after the "open".

 

B: For the Market Profilers, this bar sets our initial balance, or opening range, low. What the VSAers care about is that this is a wide spread down bar closing off its lows on ultra high volume with the next bar up. All that volume can not be selling. Otherwise, the next bar would not be up. There is a desire to take the market lower on this bar, hence it is also an Effort to Fall. This will become a key thing to keep in mind. Some BBs are entering on the sell side in this price area. Remember, VSA states that not only are the BBs at war with the herd, they are at war with themselves. No smoke-filled rooms with all the BBs making decision together here.

 

THE ENTRY SIGNAL ZONE

 

The numbers on the volume correspond to the bars in the shaded area. 1 is the first bar reading from the left and so on.

 

1: This is a narrow (NR7) rage bar closing down on volume less than the previous two bars. This is no supply. The BBs on the "right" side of the market, are checking to see if there is more supply in this area. If there is an abundance of sellers in this area that means there is too much supply in the market. Why here? Because this was the area that brought sellers into the market once.

 

2: Increasing range bar that closes near its low on volume less than the previous two bars. This is no selling pressure. The increased range and close near the low belie the fact that there is little professional activity on this bar. Argo the professionals are not interested in lower prices. Yet another example of a low volume bar within the range of a high volume bar.

 

4: This bar makes a lower low then trades up and closes near its high and higher than the previous bar. Taken with the previous bar it is a not so good example of a two bar reversal. Some might think it one though. Regardless, it is a bullish bar. It is an up bar closing near its high on increasing volume. Yet the volume is not too high. We also note that this up bar has volume greater than the two previous bars where volume was decreasing on each bar.

 

7: This bar looks a lot like 4. This bar is marked down lower than the previous bar like 4, but this one goes even further to the down side versus the previous bar. We see rejection as price is marked back up only to close on its high. Again volume is increasing on this up close. If you look at this bar you see that it is a "selling bar". This is where the second level thinking of the BBs enters. The herd think this is a weak bar because it makes a lower low and not a higher high-the definition of a selling Dunnigan bar. But the up close on the high after the strength in the background tells the VSAer that this is a weak bar. The lower low shows professional support entering to Prop price back up.

 

Whilst Tom argues for only entering long on down bars (1&2), any of these bars are good places to get long. Of particular note is the fact that we never got a test. We got other evidence that the BBs were not interested in lower prices, but we did not get a test bar. If either of bars 4&7 had closed lower, then that would be a failed test show some residual weakness(supply) still in the market.

 

C: Markets do not like up bars on high volume, because there could be hidden selling into the up bar. However, not every up bar is weak. This bar closes on its high with the next bar up and has decreasing, although somewhat high, volume. This is a strong bar. Note that the mid point of this bar is higher than the high of the previous bar. This bar takes us thru the opening range high.

 

D: This is an Effort to Rise. Here we do have increasing volume on an up bar that closes off its high with the next bar down. Normally a sign of weakness. This bar, however, is strong. The high volume is absorption volume. This bar is pushing thru an old top to the left (see previous chart about the short) and yesterday's high (not shown).

 

E: I just put this bar in to show an up bar on ultra high volume closing in the lower portion of its range with the next bar down. This is a weak bar. However we now have acceptance above the balance area and the market finds support around the high of the balance area. Also look at the bar prior to E. It is a strong bar. Note how the first test after E is within its range.....

[Tasuki 10]

VJ, thanks for the very informative posts. I've always been confused about one aspect of test bars. Maybe you'd be kind enough to straighten me out.

 

I was always taught that test bars were bars whose lows dipped down into supply but closed strong. They were successful test bars if the volume was low, meaning that there was no supply left down below, and they were unsuccessful test bars if the volume was high (like it was in your chart for bars 4 and 7), meaning that there was indeed supply down below, and those lows would probably be tested again before any meaningful advance could begin.

 

My description of a test bar leaves out one crucial element, and that is whether the bar in question makes a high that is higher than the bar before it. In your chart, neither bar 4 nor 7 did so. Does this mean that they're not real test bars?

 

Question: to be a proper test bar, does the high of the bar have to exceed the bar before it?

[VolumeJedi 10]

VJ, thanks for the very informative posts. I've always been confused about one aspect of test bars. Maybe you'd be kind enough to straighten me out.

 

I was always taught that test bars were bars whose lows dipped down into supply but closed strong. They were successful test bars if the volume was low, meaning that there was no supply left down below, and they were unsuccessful test bars if the volume was high (like it was in your chart for bars 4 and 7), meaning that there was indeed supply down below, and those lows would probably be tested again before any meaningful advance could begin.

 

My description of a test bar leaves out one crucial element, and that is whether the bar in question makes a high that is higher than the bar before it. In your chart, neither bar 4 nor 7 did so. Does this mean that they're not real test bars?

 

Question: to be a proper test bar, does the high of the bar have to exceed the bar before it?

 

Hello. Thanks for the questions. Hope I can help. Like yourself, I am a student of VSA so I may be wrong here. But if we put our heads together, we should get to the answer. LOL.

 

As I understand it an ideal test bar will make a LOWER low and not a higher high. It will close down and have volume less than the previous two bars. The close will be either in the middle of the narrow range or at the high and DOWN from the previous high. It is confirmed when price closes higher than the close of the test bar. And this should happen within the next 1 or 2 bars. Again, I have mentioned the idea of "Selling bars" before. A "selling" bar makes a lower low and not a higher high. The herd calls them "selling" bars because they make lower lows and they see this as a sign of weakness. One definition of a downtrend would be successive price bars making lower lows.

 

What the herd does not see is the lack of volume on the bar. We know that the reason for the dip to lower lows is see, or test, for supply. If there are sellers in this area volume should increase. Also take note that an ideal test will close lower. Yet another sign of weakness to the uninformed.

 

Of course there are test that are not ideal. Tom talks about some futures markets that usually have high volume tests rather than low volume ones. Normally, as you correctly pointed out, high volume means a test has failed. The BBs marked prices down to search for supply and found some. Hence the high volume.

 

In the case of 4&7 we get higher closes on or near the top of the range. In these cases the high volume signals that there was support (buying/demand) as price was marked down. Had these bars closed lower than their respective previous bar, they would have been failed tests.

 

Now as I said in the next post, some test do in fact close up. The bar I described as a test that closed up was immediately followed by a surge in price. That helped me see the bar as a test. Generally, there should be immediate reaction to a test. That is why another way to see a failed test is to not see a higher close within the next 1 or 2 bars.

 

Things do get even trickier as it is possible for a test to be an inside bar (not make a lower low nor higher high). But let's leave these for later.

[4rings2snails 10]

VJ, just want to say thank you for the last three charts as they really helped clarify and confirm a few things for me. And nice short FX call on that chart. Worked out exactly how you thought it would, again, good stuff.

[4rings2snails 10]

Hey VJ,

 

Can you have a look at this chart on LVS and tell me your thoughts on what the two excessive volume, up an down (side by side) bars are trying to tell us? FYI, the 1 week backround is trending up strong after hitting resistance 2-3 trading days ago.

 

FWIW I'm currently Long at 11.19.

 

Any insight would be appreciated.

[VolumeJedi 10]

Hey VJ,

 

Can you have a look at this chart on LVS and tell me your thoughts on what the two excessive volume, up an down (side by side) bars are trying to tell us? FYI, the 1 week backround is trending up strong after hitting resistance 2-3 trading days ago.

 

FWIW I'm currently Long at 11.19.

 

Any insight would be appreciated.

 

Hi 4rings. Glad to have you aboard. We need more posts like yours so we can all learn from one another. I think its very helpful to see different opinions of the same chart. Anyway, this is a hard one for me. Not sure what LVS is, not that it matters. But please post a chart to so I can see what DID happen. Thanks.

 

Again this is a tuff one here. I hope what I say helps and if I am wrong , hopefully somebody will chime in and put me on the correct path. That's all I can hope for.

 

 

A: This is a narrow range up bar on ultra high volume. A squat. Supply is swamping demand on this bar. The high volume and narrow range tell us that the "market makers", the ones who can see both sides, are bearish. There is a lot of supply being dump into the market to the herd. They think they are getting a good price here, but don't understand the reason behind it. As we see on the next bar B, price falls confirming the supply on the previous (A) bar.

 

Now it gets muddied.

 

B:

 

Scenario 1: Increased volume on a down bar closing in the middle of its range or slightly above it. The close is down and the bar makes a lower low. This bar could be a failed test as the volume is too high for a successful test. If this is the case, there is supply in the market and price is likely to fall. Note that the next bar © is an up bar on volume less than the previous two bars closing near its high. It is no demand. This is consistent with bar B being a failed test. There would be little smart money participation to the upside with all that supply lingering in the market. The next bar narrows further and the volume continues to dry up. More signs that bar B was a failed test.

 

Scenario 2: Increased volume on a down bar that makes a lower low and closes in the middle to upper portion of its range. The long tail of this bar could be showing professional support thus making this a bullish bar. We know when strength appears, it appears on down bars. If this is bullish, we would expect prices to rise slightly, but come back down and TEST around this area. The low of this bar should act as resistance.

 

Basically I am neutral here. If it is 1 (weakness) I would look for an up bar or a slight pull back finding resistance at the low of B to go short. Of course that up bar should be on low volume.

 

If it is 2 (strength) I would wait for a pull back and a test in the area of B. This time the down bar should be narrow and on volume less than the previous two bars.

 

The one thing that I do know is that neither bar is a signal to jump into the market at this moment for me. Hopefully others can enlighten us on the situation.

 

Edit: added chart

Edited August 6, 2009 by VolumeJedi
Forgot the chart

[4rings2snails 10]

Hi VJ,

Yeah, this stock really confused me yesterday. I got out with a marginal gain right before it almost touch my stop. So I got pretty lucky. Funny thing is, is that this damn thing is trading at 11.39 this morning in pre-market action on decent volume. I hate holding positions overnight, but had I done that I'd be up a few thousand today. Hindsight = 20/20 :doh:

 

Well, here's the remainder of yesterday's action so you can see what it finished up doing for the day.

 

Thanks for trying to figure this one out. I'll chime in later about what it does today with regard to that last heavy down-bar from yesterday. Meaning that possibly scenerio 2 is bullish.

 

Thanks again for your insight VJ.

Cheers.

[habi 10]

The one thing that I do know is that neither bar is a signal to jump into the market at this moment for me. Hopefully others can enlighten us on the situation.

 

Edit: added chart

 

Yes, I agree. Such high volume bars within a range are very hard to interpret and I can't find some more information in a 1 minute chart. The reversal with bar 2 and the following formed at least a support area, but the difference in volume for those two bars are extremy high and not much helpful.

A possible entry could be at aroung 10:20 (your time) against the high volume reversal after 10.

 

It would be interesting, why and when you entered at 11.19

 

If you look on a daly chart, then you are in the area of a high volume reversal from May 5,6, which closed the gap from last November. It's not surprising, that we have some problems to go up further here.

[BlowFish 10]

My hunch is the high volume was block trades http://www.nyse.com/pdfs/5672_Block_Trading.pdf look about half way down to see some of the mechanisms to match large buyers and sellers outside the auction. Once the deal is done bam a print for 250,000 (or whatever) crosses the tape.

 

Block trades are something that anyone who uses volume as part of there analysis should consider.

[4rings2snails 10]

It would be interesting, why and when you entered at 11.19

 

Attached I show you what I mistakenly thought was a good, yet aggressive, entry point. The green line idicates what I thought I would see after the three strong down bars that aggregated to be about 3m shares.

 

If you look on a daly chart, then you are in the area of a high volume reversal from May 5,6, which closed the gap from last November. It's not surprising, that we have some problems to go up further here.

 

Truth be told, if I look in the backround that far I my mind would produce so many mixed signals that I would never find a comfortable entry.

[VolumeJedi 10]

what do you guys/gals see here?

 

Took a loss on this one. Seemed to set up so perfectly.

 

While there is obvious strength in the background, here is what I saw:

 

1. There was an effort to rise bar : this is key in my thinking as we will see.

 

2. Price falls back below the Opening range high.

 

3. There is an Up thrust bar/trap up move type bar signaling some weakness in the market.

 

4. An absolutely beautiful example of a two bar reversal. The first bar closes near its high then the next bar is wider closes near its low, makes a lower low and not a higher high. This is a text book example of a two bar reversal.

 

5. Here is the kicker. A narrow (NR4) up bar on volume less than the previous two bars. No Demand. Note that it is back within the range of the reversal bars AND the range of the Effort to Rise bar. So where we once saw high volume, we are now seeing little interest (volume).

 

The bar just prior to the first bar in the two bar reversal did look like no supply and a possible place to get long. I thought the up thrust showed more immediate intent. Did I also mention the fact that the two bar reversal is a bounce of a "known" resistance line (i.e. the initial balance high)?

 

Thanks in advance.

[flimbo 10]

VolumeJedi:

It would be really helpfull if you could write in text what Symbol is on the chart and also which Time Frame

Thanks

[shreem 10]

Hello Flimbo.

 

The VolumeJedi chart is of the EUR/USD spot forex and it is a 5min chart.

If you see his others posts on this thread, it is the pair that he is following and often the timeframe that he shows exemples of.

 

VolumeJedi, thanks again for another great post.

 

Much appreciated

 

Shreem:)

Edited August 7, 2009 by shreem

[Tasuki 10]

Hello. Thanks for the questions. Hope I can help. Like yourself, I am a student of VSA so I may be wrong here. But if we put our heads together, we should get to the answer. LOL.

 

As I understand it an ideal test bar will make a LOWER low and not a higher high. It will close down and have volume less than the previous two bars. The close will be either in the middle of the narrow range or at the high and DOWN from the previous high. It is confirmed when price closes higher than the close of the test bar. And this should happen within the next 1 or 2 bars. Again, I have mentioned the idea of "Selling bars" before. A "selling" bar makes a lower low and not a higher high. The herd calls them "selling" bars because they make lower lows and they see this as a sign of weakness. One definition of a downtrend would be successive price bars making lower lows.

 

What the herd does not see is the lack of volume on the bar. We know that the reason for the dip to lower lows is see, or test, for supply. If there are sellers in this area volume should increase. Also take note that an ideal test will close lower. Yet another sign of weakness to the uninformed.

 

Of course there are test that are not ideal. Tom talks about some futures markets that usually have high volume tests rather than low volume ones. Normally, as you correctly pointed out, high volume means a test has failed. The BBs marked prices down to search for supply and found some. Hence the high volume.

 

In the case of 4&7 we get higher closes on or near the top of the range. In these cases the high volume signals that there was support (buying/demand) as price was marked down. Had these bars closed lower than their respective previous bar, they would have been failed tests.

 

Now as I said in the next post, some test do in fact close up. The bar I described as a test that closed up was immediately followed by a surge in price. That helped me see the bar as a test. Generally, there should be immediate reaction to a test. That is why another way to see a failed test is to not see a higher close within the next 1 or 2 bars.

 

Things do get even trickier as it is possible for a test to be an inside bar (not make a lower low nor higher high). But let's leave these for later.

 

Brilliant stuff, VJ. Thanks very much. I'd like to continue this discussion with an observation and a question:

Observation:

The more I mull over these test bars, the more complexity I see. There are a whole bunch of factors to consider, but there's one that we don't talk about much in VSA, and that's the spread between the open and the close. Tom Williams' word "spread" refers to the distance between the high and the low. He doesn't even consider the open. I think that may be a mistake, or at least that he's missing some potentially valuable information (I notice that most people's charts posted on these forums include the open price for each bar).

 

Returning to VJ's chart in permalink 132, p. 17, those two pesky test bars, #4 and #7, would seem to show strength to me preicsely because their open/close spread was wide--by the close of each bar, the bulls had pushed price nicely above the open, showing strength.

 

Question for VJ:

You say that a successful test bar should NOT make a higher high. Why is that? What's the psychology behind it?

 

Let's review the conditions for a successful test bar:

1) makes lower low---price probes the low to see if there's supply down there.

2) low volume---BBs do not find supply down below

3) higher close---close of the test bar should be above the close of the previous bar, showing strength. A lower close would be worrisome---not enough "oomph" (that's a technical term) to make price rise.

4) lower high--the high of the test bar should be lower than the high of the previous bar---this is the one I'm puzzling over.

 

Any thoughts welcome.

Tasuki

[VolumeJedi 10]

Brilliant stuff, VJ. Thanks very much. I'd like to continue this discussion with an observation and a question:

Observation:

The more I mull over these test bars, the more complexity I see. There are a whole bunch of factors to consider, but there's one that we don't talk about much in VSA, and that's the spread between the open and the close. Tom Williams' word "spread" refers to the distance between the high and the low. He doesn't even consider the open. I think that may be a mistake, or at least that he's missing some potentially valuable information (I notice that most people's charts posted on these forums include the open price for each bar).

 

My software does not have an option of H-L-C bars and if it did I am not sure I would use it, as I do agree with you here. Take the best No demand bars, many times they turn out to be dojis (open=close). This fact is completely missed by the VSAer without an open hash.

 

Returning to VJ's chart in permalink 132, p. 17, those two pesky test bars, #4 and #7, would seem to show strength to me precisely because their open/close spread was wide--by the close of each bar, the bulls had pushed price nicely above the open, showing strength.

 

Actually, I do not see these as tests. I see them as strong bars for the exact same reason you state: The spread between the open and close on higher volume closing up and on or near the high after first making lower lows.

 

Question for VJ:

You say that a successful test bar should NOT make a higher high. Why is that? What's the psychology behind it?

 

They SHOULD make lower lows and NOT higher highs. First if the bars does both, then it is not narrower than the previous bar and this would be bad in the case of a test bar. As for the highs, if the bar makes a higher high and then closes lower in its range there is supply present at the top of the bar. In other words the BBs stepped in and pushed prices down when they reached a certain level. This could purport weakness, not strength in the bar.

If we reverse the logic, we see why we would want to see the test bar make a lower low: closing off the lows shows buyers stepping in. We do need to be a bit careful with that one however, because in reality a test bar is about probing for sellers not buyers. Which is why we like the volume low.

 

Let's review the conditions for a successful test bar:

1) makes lower low---price probes the low to see if there's supply down there.

2) low volume---BBs do not find supply down below

3) higher close---close of the test bar should be above the close of the previous bar, showing strength. A lower close would be worrisome---not enough "oomph" (that's a technical term) to make price rise.

4) lower high--the high of the test bar should be lower than the high of the previous bar---this is the one I'm puzzling over..

 

3) should read lower close than the previous bar. This is the case of strength showing itself on down bars.

[flimbo 10]

Hello Flimbo.

 

The VolumeJedi chart is of the EUR/USD spot forex and it is a 5min chart.

If you see his others posts on this thread, it is the pair that he is following and often the timeframe that he shows exemples of.

 

VolumeJedi, thanks again for another great post.

 

Much appreciated

 

Shreem:)

 

thanks Shreem. sometimes iam not watching thread posts by post so then iam lost .but now i have it clear

[habi 10]

The more I mull over these test bars, the more complexity I see.

 

Hi Tasuki

 

I think, you go to far to define roules for test bars. Let's think about what we need for a succesful test. First of all we have to search for an area, that will be tested later. I prefer some kind of reversal on higher volume, the test should the be on lower volume.

 

I give you an example from a trade I made last week, in this case it's not just analysis in hindsight and I will show you the same price movement in three different time intervals.

 

5min: After an initial sharp downmove prices started to move slightly downwards. Bar 1 is a hammer on high volume, after that not much to see from a test. Bar 2 could be a test bar, but I can't see what it should test. It looks more like a reversal bar, the test followed on bar 3 on lower volume.

 

3min: We see allready a little bit better, that the volume increased sharply on the reversal bar 1, the following bar made its low within the range of bar 1 on lower volume. A short term test? The situation for 2 and 3 looks similar than in the 5 min chart.

 

1min: We see, that more volume came in at the two bar reversal at 1. Prices came then down three times in the area of the reversal pattern, it looks like we had three test bars on lower volume. It looks different depending which time interval we choose. Therefore it's not necessary to define exactly, how a test bar should look like. The only thing we need is that prices go down again in the area that should be testet preferably on lower volume and then reverse from there. This price movement can occur in one ore more bars for the choosen bar interval. My entry was on the first bar after the two bar reversal at 1603.75, I moved my stop up to 1605.50 and later to 1608 and was stoped out with bar A. It was looking good until A, prices came slowly down on lower volume.

[VolumeJedi 10]

I think, you go to far to define roules for test bars....

 

Great post Habi.

 

But let us not forget that the great masters and revolutionary artisans KNEW the rules of their craft BEFORE they broke them.

 

We start out with the black and white so we can understand shades of grey........

[BlowFish 10]

My software does not have an option of H-L-C bars and if it did I am not sure I would use it, as I do agree with you here. Take the best No demand bars, many times they turn out to be dojis (open=close). This fact is completely missed by the VSAer without an open hash.

 

 

I am sure a VSA'er (which I am not really) would argue that close to close will show you all you need. Anyway its pretty academic with anything less than daily bars.