VSA: Couple of Questions

[lhookway 10]

Hi there,

 

I'm trying to wrap my addled brain around VSA and I have a couple of questions that hopefully some VSA guru can answer.

 

Taken from Master the Markets p39, Effort vs Results

 

If the additional effort implied in the higher volume and wide spreads upwards had not resulted in higher prices, we can draw only one conclusion: The high volume seen must have contained more selling than buying. Supply on the opposite side of the market has been swamped by demand from new buyers and slowed or stopped the move.

 

This has me scratching my head. If the high volume contained more selling than buying then doesn't this imply that there is more supply than demand? The quote above from MTM suggests that the opposite is true and that supply has been swamped by demand. If supply is being swamped by demand then wouldn't we expect to see higher prices and a continuation of an upward move?

 

Mark-Ups and Mark-Downs

 

In MTM mention is often made of the Smart Money (i.e. the Pro's) marking prices either up or down to facilitate their nefarious purposes.

 

Just so I can get a handle on marking up and down but without getting into very detailed specifics how does the Smart Money do this?

 

Using Forex as an example if the Smart Money wanted to mark-up say EURUSD would they buy a whole bunch of EUR, gobbling up some of the EUR that other traders have previously bought but now want to sell, thereby forcing the price up?

 

Likewise if the Smart Money wanted to mark-down EURUSD would they sell a whole bunch of EUR presumably to other traders that have previously sold EUR themselves but now want to buy, thereby forcing the price down?

 

Regards,

 

Laurence.

[forrestang 10]

Disclaimer: I'm knew to VSA as well, so don't expect much.

 

About your first part, the quote, I'm having a hard time visualizing it?

the higher volume and wide spreads upwards had not resulted in higher prices

 

I guess this is assuming a bar like in this picture? The quote said there is a wide spread, huge volume, but price did not move higher.

 

I'm still confused as to the question, but generally, I think the market does not like WRBs. I guess, if the market heads up on high volume, then immediately falls, there can be no other explanation other than the fact that large amounts of selling was occuring, or distribution during the up move(Buying Climax).

 

You can't see it though. Because if you plot Up/Down Volume over-layed on each other during an upmove, you will naturally see more buying than selling occuring. But immediately the market fell, so what other explanation can there be, other than we were in the distribution phase? See the other attached picture.

 

 

Do you have an example we can disect?

[lhookway 10]

Hello Forrestang, thanks for the reply.

 

If there is a WRB that closes towards the low then the implication is that there was more supply (i.e. selling) than demand (i.e. buying) and that caused the price to fall. Your example picture of a buying climax fits the bill.

 

The quote from MTM says...

 

If the additional effort implied in the higher volume and wide spreads upwards had not resulted in higher prices, we can draw only one conclusion: The high volume seen must have contained more selling than buying. Supply on the opposite side of the market has been swamped by demand from new buyers and slowed or stopped the move.

 

The last sentence ... "Supply on the opposite side of the market has been swamped by demand from new buyers and slowed or stopped the move." ... is what has me scratching my head.

 

Shouldn't that last sentence actually say ... "Supply on the opposite side of the market has swamped demand from new buyers and slowed or stopped the move"

 

Regards,

 

Laurence.

[forrestang 10]

 

 

 

Mark-Ups and Mark-Downs

 

In MTM mention is often made of the Smart Money (i.e. the Pro's) marking prices either up or down to facilitate their nefarious purposes.

 

Just so I can get a handle on marking up and down but without getting into very detailed specifics how does the Smart Money do this?

 

Using Forex as an example if the Smart Money wanted to mark-up say EURUSD would they buy a whole bunch of EUR, gobbling up some of the EUR that other traders have previously bought but now want to sell, thereby forcing the price up?

 

Likewise if the Smart Money wanted to mark-down EURUSD would they sell a whole bunch of EUR presumably to other traders that have previously sold EUR themselves but now want to buy, thereby forcing the price down?

.

 

About Mark Up/Down. I'm a bit conflicted about this. But as i understand it(at least the way Todd Kruegar explains it), there are four phases in the market. You have Accumulation -> markup -> Distribution -> mark down.

 

But it doesn't sound like that's what you're referring to?

 

It seems like you might be talking about when someone is checking for supply or demand.

 

So say you had a Selling Climax, naturally this occurs on HEAVY volume, and an increase in the velocity of price. So price is headed down fast in furious. Now we're in the accumulation phase supposedly, where someone is accumulating supply.

 

Now, they want as much supply as possible, and they want it from the masses. They also want people to believe the market is heading lower. So they would artificially mark prices down, in an attempt to acquire more inventory at a lower price or to trap unsuspecting shorts and shakeout any longs.

 

You want price to be lower, supposedly this is seen after a selling climax, with a narrow range bar, with reduced volume, showing the lack of interest in selling at these lower prices. This "Test" bar would dip below the selling climax checking for supply, and trapping new shorts and breakout shorts.

 

Disclaimer: Again i don't know what the hell I'm talking about, just trying to learn here.

Edited June 2, 2009 by forrestang

[lhookway 10]

Hello Forrestang,

 

Now, they want as much supply as possible, and they want it from the masses. They also want people to believe the market is heading lower. So they would artificially mark prices down, in an attempt to acquire more inventory at a lower price or to trap unsuspecting shorts and shakeout any longs.

 

It is how they artificially mark prices down and conversely how they artificially mark prices up that I was enquiring about.

 

Regards,

 

Laurence.

[forrestang 10]

Hello Forrestang,

 

 

 

It is how they artificially mark prices down and conversely how they artificially mark prices up that I was enquiring about.

 

Regards,

 

Laurence.

 

I don't think I meant "artificially" the way I put it, as if something was happening that really wasn't happening.

 

I'm unsure how they do it, could be temporary unloading some supply to check for the presence of sellers or to see if anyone is interested in continued selling beyond this point?

[brownsfan019 17]

Hi there,

 

I'm trying to wrap my addled brain around VSA and I have a couple of questions that hopefully some VSA guru can answer.

 

Good luck, not sure that exists...

 

[lhookway 10]

Thanks for the replies although I must admit I am quite suprised that no-one as yet has been able to answer my queries.

 

Regards,

 

Laurence.

[monad 10]

Laurence

I am not a guru.

I have studied and use both Wyckoff and VSA concepts.

 

Understand this: VSA is derived from Wyckoff.

 

In wyckoff there is nothing like

"markets do not like upbars on high vol" and "professionals lurking in the background to pounce on you". This is all hype in VSA. Context is the what matters.

 

There are some very useful setups in VSA , again based entirely on Wyckoff but presented in somewhat simpler way and that is all you require. Drop the rest, especially the urge to figure out who is moving the market, each bar in the right context reveals if there is Buying or Selling pressure. Vol is activity, on each bar selling and buying contracts are equal, what the price does tells you who is in control and that is all you need to know. Anything else is just distraction.

 

In your quote ref P39 chart 7, the explanation is confusing: The context is "Pushing through Supply", There are lots of traders who were long and are itching to get out at breakeven if price reaches the level at which they bought after a fall. To absorb this vol, the demand has to be greater than supply ie. buying pressure is in control, there are more contracts on the bid, totally forget about professionals:)))

 

If you wish to progress without getting mired into lot of VSA jargon, get hold of the latest Al Brooks Book "Reading Price Charts Bar by Bar", Preface alone will set you on the right path. and is worth the price of the book

 

Attached is a pdf : The first section of the book on "Price Action".

 

Next go to the Wyckoff forum, there is enough there to guide you further on how to read vol which is Effort and price move which is Result. You really do not need any more, no fancy software, seminars, etc period.

 

End of day, Your choice.

 

Good Luck

AL BROOKS BOOK.pdf

Edited June 3, 2009 by monad

[lhookway 10]

Thanks Monad, I will heed your advice.

 

Regards,

 

Laurence.

[BlowFish 10]

OP, It looks as if the last sentence has the words supply and demand reversed, a typo. The original Williams book had quite a number of these.

 

Prices are marked down just as a store would. Essentially you lower the price you will do business at. Nothing really nefarious. If you are being pedantic marking up or down is not actively selling it is rearranging your order book i.e changing the price at or above best ask you are prepared to sell, or the price at or below the best bid you are prepared to buy. It is my hunch that when some people talk about marking up or down they include active buying or selling (market orders).

 

Some participants might mark down (or actively sell) even if they are bullish on the market. Again nothing nefarious, if you are a broker/dealer working an order for a million shares for a customer you probably don't want to hit the market all in one shot.

[DbPhoenix 42]

Thanks Monad, I will heed your advice.

 

Regards,

 

Laurence.

 

If you do decide to investigate the Wyckoff Forum, feel free to ask whatever questions occur to you. The subjects of buying and selling, supply and demand, volume and trend are regularly made far more difficult than they need to be, largely because the person seeking to understand is assumed to know more than he does. But if you've ever made a purchase that did not involve a take-it-or-leave-it price, the subject should not drive you batty.

[Eiger 10]

I think Blow Fish is right, that looks like a typo.

 

There was a nice example of pushing through supply over Friday and Monday in the ES. We have been discussing this on the other VSA threads. In Wyckoff terms, it's called "Jumping Across the Creek." Both talk about the same principles, just in different words.

 

Supply exists along the tops of a trading range where price has been turned down. A level of effort is often seen via spreads and volume when pushing up and through this supply. When that occurs, it is viewed as a Sign of Strength and we can anticipate higher prices. In this case, price moved into an apex (red lines) before it generated the SOS - this is referred to as a Springboad, signifying that the market is poised to make a move. To help traders understand these principles, Robert Evans, a great master of the Wyckoff Method, created the "Creek Story" about a boy scout looking to cross a creek. After trying to cross the creek at spots too wide (supply points early in the trading range), the scout pulls back, gets a running start, and jumps across. He is basically jumping across the supply points, or in VSA, "pushing through the supply."

 

Now, we are seeing a Backing Up to the Edge of the Creek -- a testing for supply. If no significant supply is found, higher prices can be anticipated. We can read this in the spreads (should be narrower) and the volume (receding) as price backs up.

 

Hope this is helpful,

 

Eiger

[lhookway 10]

Thanks for the reply and explanation Eiger, very much appreciated.

 

:applaud:

 

Regards,

 

Laurence.

[Eiger 10]

You are welcome. Here is another one of Bob Evans's great Wyckoff set-ups -- a Spring. This is one of my favorites to trade. In a Spring, the market dips under support then springs back up above it. This one occurred towards the end of the day and gave a nice rallly into the close. VSA doesn't really talk about Springs, except as a sort of reverse Up Thrust. Springs are good odds trades in an uptrending environment and occur with regularity, so it's a useful trade to know.

 

Eiger

[kuky969 10]

Eiger

Thank you for examples ,I watched this spring in yesterdays ES but there was not test bar . Did you entry without test of supplly bar ???. Thank you.

[disperados-x 10]

Laurence

I am not a guru.

I have studied and use both Wyckoff and VSA concepts.

 

Understand this: VSA is derived from Wyckoff.

 

In wyckoff there is nothing like

"markets do not like upbars on high vol" and "professionals lurking in the background to pounce on you". This is all hype in VSA. Context is the what matters.

 

There are some very useful setups in VSA , again based entirely on Wyckoff but presented in somewhat simpler way and that is all you require. Drop the rest, especially the urge to figure out who is moving the market, each bar in the right context reveals if there is Buying or Selling pressure. Vol is activity, on each bar selling and buying contracts are equal, what the price does tells you who is in control and that is all you need to know. Anything else is just distraction.

 

In your quote ref P39 chart 7, the explanation is confusing: The context is "Pushing through Supply", There are lots of traders who were long and are itching to get out at breakeven if price reaches the level at which they bought after a fall. To absorb this vol, the demand has to be greater than supply ie. buying pressure is in control, there are more contracts on the bid, totally forget about professionals:)))

 

If you wish to progress without getting mired into lot of VSA jargon, get hold of the latest Al Brooks Book "Reading Price Charts Bar by Bar", Preface alone will set you on the right path. and is worth the price of the book

 

Attached is a pdf : The first section of the book on "Price Action".

 

Next go to the Wyckoff forum, there is enough there to guide you further on how to read vol which is Effort and price move which is Result. You really do not need any more, no fancy software, seminars, etc period.

 

End of day, Your choice.

 

Good Luck

 

 

You has a full Al Brooks book? Will Be able its here show? Long ago want to look her. But while on the first part me she did not like on interpretation of the material. Wanted hear whole she such.

[BlowFish 10]

This thread http://www.traderslaboratory.com/forums/f104/futures-i-trade-show-brooks-book-6008.html is about Brooks work.

[rako 10]

Quote:

 

 

Taken from Master the Markets p39, Effort vs Results

 

If the additional effort implied in the higher volume and wide spreads upwards had not resulted in higher prices, we can draw only one conclusion: The high volume seen must have contained more selling than buying. Supply on the opposite side of the market has been swamped by demand from new buyers and slowed or stopped the move.

 

 

This has me scratching my head. If the high volume contained more selling than buying then doesn't this imply that there is more supply than demand? The quote above from MTM suggests that the opposite is true and that supply has been swamped by demand. If supply is being swamped by demand then wouldn't we expect to see higher prices and a continuation of an upward move?

 

Im new but here's my humble opinion : I think there's no typo:

 

you have higher volume,wide spreads UPWARDS (green) and NO HIGHER PRICES (doesnt mean lower prices). why ? cause there was selling there , supply, which then got swamp by demand caused by new buyers who stop or slow the (down) move. it means weakness, the market may go up but not very far, we should wait to see some no demand bars, then an up thrust and.............go short !!!

[rako 10]

It is how they artificially mark prices down and conversely how they artificially mark prices up that I was enquiring about.

 

Im not sure about how they exactly do that but think that market makers are supossed to fill orders at every price level, HOWEVER... the amount of orders they trade at every level its up to them...what would you do if you were them and wanted the price to go up??? or down ???

 

please any VSA experts out there correct me if Im wrong, I wouldnt like to missinform anybody.

[BlowFish 10]

Im not sure about how they exactly do that but think that market makers are supossed to fill orders at every price level, HOWEVER... the amount of orders they trade at every level its up to them...what would you do if you were them and wanted the price to go up??? or down ???

 

please any VSA experts out there correct me if Im wrong, I wouldnt like to missinform anybody.

 

Dunno about that, the only market that I can think of where the market maker (specialist) is expected to 'facilitate an orderly market' is the NYSE. Even so I don't believe that there is any requirement on them to fill orders at any particular level. In short I think you have probably been misinformed:)

[VolumeJedi 10]

Im not sure about how they exactly do that but think that market makers are supossed to fill orders at every price level, HOWEVER... the amount of orders they trade at every level its up to them...what would you do if you were them and wanted the price to go up??? or down ???....

 

First, we must admit that times have changed. In Wyckoff's and Tom's day, every market had market makers. Today is a different story with electronic trading. Where there were once floor traders, there are now streams of data in cyber-space.

 

With that said, the principles remain the same.

 

According to VSA bearish market makers would do this:

 

1. first we understand that they are bearish becuase they can see both sides of the market. And the market players. If they are bearish, therefore, it is because they see a large number of sell orders from the players in the know.

 

2. Price is allowed to rise slightly as the buyers (the people ultimately on the wrong side) enter the market.

 

3. The range is kept artificially narrow. The herd (buyers) thus think they are getting a good fill. In reality, however, they are buying into a "flood" of smart money selling. In other words, the presence of a lot of supply, allows the market maker to match the orders easily and keep the range small. Econ 101 would tell us that a lot of buyers (high volume) would bid the price up. What is really happening is that the buyers are buying into a lot of selling (supply). The smart money will have more supply than the herd. So ultimately price will fall on the abundance of supply in the market. But you would at some point see that narrow range up bar on high volume.........

 

This is the type of bar Bill Williams called a squat. Tom calls such a bar "end of a rising market", when it is into new territory and closes in the middle or high of the bar.