Supply vs Demand

[Soultrader 12]

Why do price lift and why do price decline? It has nothing to do with indicator crosses or price pattern breakouts. It is a simply law of supply vs demand. If there are more sellers price will decline until selling dries up and finds buyers interested in price. Price lifts because there is more demand and will continue to lift until buyers start to find price unfair.

 

 

End result for ER2. Feb. 27, 2007.

 

[Anonymous 11]

Nice.

 

The markets are moved by imbalances of Supply and Demand.

 

Here's a look at the Euro.

 

First, Markets do not like Wide spread, high volume or ultra high volume bars that close up. Why? Because of the possibility of Professional Selling into the bar. As VSA teaches, strength comes in on down bars and weakness comes in on up bars.

 

I have placed pink lines at some areas of Resistance. These are areas of supply. Some traders have gone long at these levels. Their only hope going forward is to get out at break even. Hence, if price moves back into these areas, we would expect to see them sell (SUPPLY).

 

Professional Money knows this. So what do they do if they know prices are going to rise? They have to absorb the supply (buy). Now if they are buying high, they certainly expect prices to go higher.

 

Note the first bar with a green arrow. This is a wide spread bar but the volume is not that high. This is a "healthy" up bar. That is, this is the kind of up bar the market likes. The lack of ultra high or high volume lessens the chance of hidden selling within the bar.

 

Now check out the very next bar. If you think this is weakness you are wrong. This is absorption volume (volume is ultra high). Note that this bar trades through the resistance tops and the POC (yellow line). THIS IS PUSHING THRU SUPPLY. PROFESSIONAL MONEY WANTS TO KEEP THE LONGS FROM SELLING (SUPPLY). SO THEY RAPIDLY MARK PRICES UP. IN THIS BAR, THE MOVE IS TO LOCK TRADERS IN, NOT KEEP TRADERS OUT.

 

The late shorts now have to buy back their positions, placing more order flow on the dominant side (up side) and further hurting themselves.

 

The next bar is key. Note that it closes up on less volume. Had this bar been down, then we would have to think there was actually Selling in that bar by the Smart Money.

[walterw 10]

Pivot : the histogram on the bottom is forex volume ? and what is the histogram on the top ? thanks Walter.

[Anonymous 11]

I do not talk much about it, as I don't really like indicators.

 

Wyckoff Effort IndeX (WEX)

 

Volume = Activity= Effort=Order Flow

Price=Result

 

The basic idea comes from Wyckoff. It measure the amount of effort to rise and the amount of effort to fall. Effort is the volume and is seen thru the open/close relationship. Open<Close Effort to Rise. Open>Close Effort to Fall.

 

What is nice about this is there are no parameters or averages involved. It simply sums up Effort to Rise until it sees Effort to Fall. Note that a "doji" a sign of indecision is summed up as both Effort to Rise and Effort to Fall.

 

For those who like such things, this tool is good for divergence.

 

Note on the attached chart the Effort to Fall as prices moves down towards and then thru the lower portion of the Value Area.

 

 

p.s. For those familiar with Ensign Software, this is also known as VolumeSum

[Anonymous 11]

Like I said, I don't really like indicators. But here is an example of the WEX showing divergence.

 

Notice how we are making lower lows but the Effort to Fall is not as great. In Physics, when the momentum is slowing down, they say the momentum in the opposite direction is increasing. Here we can SEE that as the Effort to Fall decreases, the Effort to Rise increases.

 

In fact, we move to VSA. The first large wide spread bar (in the rectangle) closes lower than the previous bar, closes near the middle of its range and has high volume. THERE IS PROFESSIONAL DEMAND (BUYING) IN THIS BAR. Note also that we close just above the lower purple, Value Area low line. We would expect to see some support at this level.

 

The next bar does indeed move higher on lower volume. Then on the next bar we see a narrow range bar that closes near its highs on volume less than the previous two bars: No Demand. The Smart Money is not yet ready for higher prices. One more thing needs to be done.....

 

On the very next bar, we get a 'test'. The Professional Money is testing for sellers (supply) underneath the market. While the volume is a bit higher than we would like to see, the bar does indeed trade lower than the previous bar and close near its highs. Again, notice that the test bar trades down to just outside the Value Area Low (lower purple line).

 

The last bar in the rectangle is an up bar (higher than previous bar's close) and confirms the 'test'.

 

 

While the indicator shows divergence at this level, the key to getting in tune with the market is reading price and volume. In truth, an indicator only trader may have gotten in sooner. But the Volume Spread Analysis user knows why he is getting in when he gets in: Supply and Demand imbalances brought about by Professional Money.

[walterw 10]

ok Pivot, interesting concept as to setup, my question on this example is where would be your exact entry (timing) what exact criteria to pull the trigger..... cheers Walter.

[Anonymous 11]

ok Pivot, interesting concept as to setup, my question on this example is where would be your exact entry (timing) what exact criteria to pull the trigger..... cheers Walter.

 

Once the 'test' is confirmed. That is the close of the up bar after the possible 'test' bar. Which makes it a 'test' bar. So close of the confirmation bar/open of next bar.

 

criteria? That's it. Professional Money showing itself at a support/resistance area-the Value Area Low.

 

Track Professional Money then jump on their coattails. The when and the why from previous post.

[Neal 10]

Pivot, your entry would effectively be at close of the fifth bar in the box you highlighted, as the confirmation of the test for supply. It is confirmation because it is an up bar (price closed above the close of the previous bar).

 

When you wait for this 'test and confirmation' to occur, sometimes it does not, and price runs up quickly from your support level. Is this a scenario you accept, and look for the 'test and confirm' setup elsewhere or at another time or level of support or resistance?

 

When you wait for the full 'test and confirm' setup to occur, price will move away from support, thus increasing your risk and decreasing your potetnial reward.

 

When you have the initial indication of possible strength coming in on that wide spread, high volume down bar, do you ever enter at the close of that bar, and set your protection stop loss exits such that you allow for the possibility of a test?

 

I suppose if you considered entering 'early' on the high volume down bar, you could: 1) trade a partial position and re-enter the remainder on the test if it happened, or 2) trade a full position and have a quicker profit target for a portion of your position, and if the profit target is hit, adjust your stops to consider the possibility of the test and securing a break even trade.

 

I am interested in how you might manage this trade and what your experience has shown to be recommended.

 

Thank you.

[Anonymous 11]

Pivot, your entry would effectively be at close of the fifth bar in the box you highlighted, as the confirmation of the test for supply. It is confirmation because it is an up bar (price closed above the close of the previous bar).

 

Yes. Sorry if that was unclear. There is a reason that the rectangle contains these 5 bars. Each bar plays a role in the set-up.

 

If there is not an up bar in the next two bars after a test, the test has failed and the market is weak. Yes, one must wait for confirmation.

 

Think of it as a candle pattern. On another forum, there is an excellent thread on hammers. The author makes this point: a hammer is a hammer line UNTIL the pattern is complete THEN AND ONLY THEN does it become a hammer pattern. And in some of those patterns, the hammer comes before the completion of the hammer pattern. That is, the hammer itself is not always the last bar in the set-up.

 

When you wait for this 'test and confirmation' to occur, sometimes it does not, and price runs up quickly from your support level. Is this a scenario you accept, and look for the 'test and confirm' setup elsewhere or at another time or level of support or resistance?

 

If there is not an up bar in the next two bars there are two options:

 

1. Understand that no up bar means the market is weak. Thus look for reasons (more) to now be a seller and a place to sell.

 

2. Wait for another test that is confirmed to go long. If the market is actually strong, there will be another test or shake out. Or maybe you will see a wide spread bar on ultra high volume that closes down. We know this bar is potentially strong. Then you see a No Supply bar. This is an off-shoot of a 'test'.

 

When you wait for the full 'test and confirm' setup to occur, price will move away from support, thus increasing your risk and decreasing your potential reward.

 

I like to see them at support in order to use that area for stop placement. However, if I have to wait for full 'test and confirm', a good place to put a stop is always just below the low of the test bar. By definition, the Smart Money did not find any sellers below this level (at that time). Therefore, if price trades lower than that, something has changed.

 

I think most people look at reward incorrectly. How much can be gained in a trade is not truly known until after the trade ends. I do not use profit targets, as that is speculating on the future when it is not necessary to do so. So I will stay in the trade until the market takes me out.

 

I look at like this:

 

1. assume we have a market that has moved from 10 to 20.

2. one enters at 20. This is after a 100% rise.

3. if the market moves to 110 then the trader has gotten in within the first 10% of the move.

4. The risk was a pull back to 10, so the risk/reward is 10/100.

 

But suppose the market only moved up to 25. The risk/reward would be 10/5. Yes, a trader will not be a trader for long with this risk/reward. BUT ONE DOES NOT KNOW HOW FAR THE MARKET WILL GO. THE FUTURE IS UNKNOWN AND NOT KNOWABLE.

 

This is why in this case, one would not want to wait until the market moved back to 10. At about 15-13, a trader should recognize he is on the wrong side of the trade. Why wait for the stop to be hit?

 

On the opposite side, if you are in tune with the market, grab every pip/tick/hand/point it is willing to give you. Will you get every last point? No. The market will turn around and eventually stop you out. But one need not be concerned with getting in at the bottom and getting out at the top. The middle is where the reward is at.

 

To the extent that there is an element of control, that control comes on the risk side. Good stop placement, Willingness to admit one is wrong and get out, and precise trade entry all combine for some modicum of risk control. Reward will take care of itself.

 

When you have the initial indication of possible strength coming in on that wide spread, high volume down bar, do you ever enter at the close of that bar, and set your protection stop loss exits such that you allow for the possibility of a test?

 

No.

 

You have to wait and see what happens. Does the next bar close up? IF there was buying on the down day then the next day should be up. But the next bar could be Down. Wide spread down days with ultra high volume can be either : 1. Pressure to Fall (p. 166) or 2. Hidden buying. You have to wait and see what the market does with that volume the next day.

 

Now, Tom Williams, the father of VSA, would enter on the close. He is the exception rather than the rule. Most prefer to wait for the confirmation on the next bar. If we are talking about Stopping volume or a Selling Climax.

 

Generally, looking for the test or a no supply bar after the initial buying bar offers the best low risk entry.

[wuming79 10]

You have to wait and see what happens. Does the next bar close up? IF there was buying on the down day then the next day should be up. But the next bar could be Down. Wide spread down days with ultra high volume can be either : 1. Pressure to Fall (p. 166) or 2. Hidden buying. You have to wait and see what the market does with that volume the next day.

 

Hi, may I know which document are you referring to when you say p.166?

 

Are there supposed to be charts attached? I only see the first 2 charts on this threads. The rest seems to be referring to some drawings but no picture there.