[VSA] Volume Spread Analysis Part I

[notouch 10]

PivotProfiler, by your post it's obvious you failed to understand my post and also fail to understand the market you trade. When I said "10 pips is nothing" I wasn't talking about the value of 10 pips on your trading account. I meant it was nothing in relation to EUR/USD's average daily range. I assumed it was a futures chart because "Euro FX" is the name usually given to the CME's futures contract. OK, you say it's the spot contract so now explain what the volume in your chart actually represents. It moves between 1.000 and 30.000. Volume is not available in the spot market so where are you getting those numbers from? The thing that is really ridiculous is your belief that "Professional Money" is behind every little 10 pip move in EUR/USD. Who exactly are these mysterious "Professional Money" people manipulating every little move in this market? In spot forex the majority of volume could better be described as "Real Money" i.e. commercial interests that actually need to exchange money for business reasons. Only a tiny percentage is speculative. At that time of day there is no speculative "Professional Money" involved in EUR/USD. The volume is mostly created by banks calmly filling orders by Japanese exporters. The EUR/USD move would have been created by investment banks arbing the EUR/JPY, USD/JPY cross rates.

[Guest cooter]

Volume is not available in the spot market so where are you getting those numbers from? The thing that is really ridiculous is your belief that "Professional Money" is behind every little 10 pip move in EUR/USD. Who exactly are these mysterious "Professional Money" people manipulating every little move in this market? In spot forex the majority of volume could better be described as "Real Money" i.e. commercial interests that actually need to exchange money for business reasons. Only a tiny percentage is speculative. At that time of day there is no speculative "Professional Money" involved in EUR/USD. The volume is mostly created by banks calmly filling orders by Japanese exporters. The EUR/USD move would have been created by investment banks arbing the EUR/JPY, USD/JPY cross rates.

 

Don't get your knickers in a knot, notouch. It's just tick volume from the member banks represented in Spot Forex, that's all.

 

http://www.tradeguider.com/fx_factsheet.htm

 

Whether "institutional money = professional money" is another debate altogether.

[notouch 10]

:p I don't wear knickers cooter, do you?

 

I'm aware that bad approximations of fx volume are available but that doesn't answer any of my questions which I'll leave to PivotProfiler who I'm sure can answer for himself.

[Anonymous 11]

1.that squat (hammer to me) does it need to inside the body of the preceding candle and does the colour matter?

 

No. There are may way for it to appear. Ideally, you would like for it to be a bar that makes a higher high but not a lower low. Some call this a buying bar. The opposite would be a selling bar. There are some posts on this. If you need more just ask.

 

2.does the colour of the volume bars matter?

 

Blue bars mean higher volume than previous bar. Red means less than or equal to previous volume bar.

 

3on the second chart,the candle following the WRB (spinning top)would give the game away,not sure if it was you who said its "change of ownership bar".

5 bit confused about the no demand bar as its not got much of a tail,would not the upthrust bar be more of "no demand"?

thats enough for now,you,ll be pleased to learn i,m getting there,well i thought so!say nothing.

 

Can't make out questions 3 or 4. As for 5, UpThrusts come in two forms: 1. higher volume "upthrusts" and 2. Lower volume "No Demand".

 

The key is that price trades up and then closes on or near the low of the candle. Also No Demand does not need a tail at all. Note that the range is less than the previous bar. The volume is less than the 2 previous volume bars and while the close is equal, a higher high was made. Also note that the next bar was down and did not make a higher high.

 

The base definition for No Demand is a bar that has a narrower range than the previous bar, closes equal to up and has volume less than the previous 2 bars.

[Anonymous 11]

Primary methods:

 

1. Volume Spread Analysis

 

2. WRB & Long Shadow Analysis

 

 

We trade right by first looking left.

 

First we look at the higher time frame. Markets are fractal and the higher frame dominates the lower one.

 

The 15 min chart . As previously stated, the start of the day should be at 0200 New York time according to Mark Fisher. This is when London trading begins.

 

Notice that we see a squat. A narrow range candle (narrower than previous candle) with volume greater than the previous bar. Supply is entering on this candle. At 0400 hrs we get a No Demand sign. At this point we have seen a squat and a dark inverted hammer with a Long Shadow. Supply is entering and volume is less on up candles.

 

At 0430 we see another No Demand sign. It is a good guess that there are no buyers in the market. If Professional money is not buying (supporting) then the path of least resistance is down.

 

Jump over to the 5 min.

 

The fist significant candle is the Effort to Fall candle just after the No Demand candle. Note that we see a test candle after this WRB, which is also an effort to fall candle. While the volume on the test is low, we have not seen strength on the 15. No reason to be looking to go long.

 

The next candle is up on Ultra High Volume. Markets do not like up bars on high to ultra high volume. Indeed, supply entered the market on this bar. But we now have our WRB that creates a Support/Resistance zone. This is where we would like to see an entry signal. Preferably a low volume signal where there was once high volume. Or a high volume (squat) or UpThrust.

 

AT 0435 we see a narrow range bar that closes up on volume less than the previous two bars. This is No Demand. We have seen Weakness on the 15 min chart and now we are getting No Demand on the 5 min. Even though there is no "vsa indicator" we are reading the candles and see our entry.

 

We note that this No Demand is both within the body of the large white WRB and within the body of the Effort to Fall candle. If the Smart money was trying to push prices down around this area (range), then it is a good sign (of weakness) to see little volume on a candle in the opposite direction within that range.

 

Hope this helps.

Edited March 26, 2008 by mister ed
Add back deleted chart

[mroalan 10]

thanks for that Pivot,i realise about the colours on the vol.bars,what i meant was do you take any notice of buying/selling in the bars or is it just volume your concerned with? have you ever used equivolume or candle volume?

[dod 10]

I have a question concerning spot forex volume. With most forex data, volume isn't available. However, I believe ESignal supply Tradeguider with tick volume data, with they claim is adequate. I follow forex with a broker called FXDD. They supply volume data, but haven't responded to my emails as to what this data is made up of. On another forum, someone suggested it was tick data, but it would only be representative of FXDD clients rather than the industry as a whole.

 

Can anyone clarify whether the proportion of 'smart money' to 'retail money' that would be expected to prevail with 'full' volume data from the industy as a whole is likely to be approximately the same as tick volume from one broker? Or would it be wholly unrepresentative?

 

The reason I ask is because I'm currently trading forex (daily and weekly time frame) using price action - one or two bar patterns - with a couple of indicators to clarify likely direction and it struck me that adding VSA to the mix might help me a lot and even wean me off the indicators altogether; but I don't want to spend my time trying to 'see' relationships between volume and spread if the volume data is suspect!

 

 

Nick

[Guest cooter]

From what I've heard the "volume" for Forex is indicative of tick data from member bank transactions in the ESignal feed.

 

More info: http://www.tradeguider.com/fx_factsheet.htm

[notouch 10]

Tick volume can increase even when no trades are going through. E.g. during the Japanese session the Yen may strengthen against the USD but weaken against the EUR so the banks will increase the bid/offer on EUR/USD to prevent arbitrage. So it looks like there's been an increase in volume even though there hasn't - it's just the banks' computers automatically doing their thing. It certainly isn't evidence of "Professional Money" intervening.

[dod 10]

Does this mean tick volume is not satisfactory for VSA purposes? The sort of automatic fine tuning described must go on all the time; but, doesn't this represent volume, of a sort?

 

My knowledge on the subject is very scanty. I guess the answer is I should look carefully at the volume data I get and draw my own conclusions as to whether it and the spread relate in the way Tom Williams describes.

[walterw 10]

Tick volume can increase even when no trades are going through. E.g. during the Japanese session the Yen may strengthen against the USD but weaken against the EUR so the banks will increase the bid/offer on EUR/USD to prevent arbitrage. So it looks like there's been an increase in volume even though there hasn't - it's just the banks' computers automatically doing their thing. It certainly isn't evidence of "Professional Money" intervening.

 

ooops... on esignal at least... to be a tick there has to be a trade... I can agree that ticks could represent very diferent amount of real volume, but ticks without trades.... nop

[notouch 10]

I'm not sure that's right. Banks don't report trades, they just report their bid/ask quote. That's why when you chart forex you have to choose bid, ask or midpoint.

 

On the subject of whether tick volume can be useful, I think it can for the higher timeframes but not the lower timeframes. 3 minute tick volume would have too much noise to be useful. On the daily or hourly charts though, it should be a good indicator of activity.

[hdcafe 10]

In the Forex markets volume is made up of changes to the bid/ask and not actual trades. Tom Williams calls this "indicative volume". I have one of Tom's videos where he states that "indicative volume" is actually more useful for VSA than trade volume because it shows areas in price where there is increased or decreased trading activity. Because Esignal uses many different feeds it provides a broader overall look at this activity than a single data feed.

[idaxtrader 10]

Hello,

I'm new here to T.L. I want to thank all the particpants of this thread for their inputs. They have been invaluable.

 

A few months back a came across Mr. Williams first book Undeclared secerets and ever since I have been hooked on V.S.A. My first question is it necessary to read his more current book or is the original one good enough?

 

My second question stems from a recent trade that resulted in a stop out for me. I have included the chart to illustarte the point of how I was tricked by the volume on the ES. My question is this what are the objective ways that V.S.A. can help identify a bar as hidden supply?

 

In the book he stated if I'm correct that it should be determined as hidden supply if the bar closes in the middle of the range, has enormous volume, a climax typer of bar, or the next bar is down right after an important bar with spread,or the next bar is level then the following bar is down.

 

In the instance where I was stopped out. The next bar was level right after a breakout. But before a down bar took place there was a follow through up bar. It is apparent that I should have been very alert for hidden supply since right after the break the next bar was level. But in actual practice with the market the bar following a break is often level on good signals.

 

I thank everyone again for this thread and I really hope someone can shed

some light on the possible ways to determine hidden supply in a up bar.

[Z_trade 10]

idaxtrader,

 

I marked your chart to illustrate pretty simple concept. Price revisited supply area where market has spent some time on the way down. Short entry can be taken on the very next candle after narrow range low volume green /up/ candle.

[hdcafe 10]

idaxtrader,

 

A few things to look for here some VSA some not.

 

A) Your trade took place during lunch time trading 11:30 to 12:30 when volume becomes relatively light.

B) The WRB just after 11:30 has no follow thru (lunch time trade?) This tends to cause the shorts to cover their positions prematurely which is what stopped out your trade.

C) You have to consider the WRB with ultra high volume to be a sign of strength whether it truly is or not and once that occurs you then have to get a strong sign of weakness to take a short posistion. That sign does not come until the upthrust occurs at 1:00

 

I am sure you are fully aware of this but I will comment anyway. When trading the futures markets IMHO it pays NOT to use the terms "Supply and Demand". With futures, the supply is unlimited and demand is not. I prefer to use the terms "Willing Buyers and Willing Sellers". This reminds me that the Smart Money has to be searching for signs of what other traders are willing to do and not do rather than searching for the availability of a limited amount of stock. This makes the futures market that much more of mind game.

 

It appears that you are using a 2 minute chart here. That is alot of noise to have to filter thru especially with the ES. I use a 5 minute chart on the ES and then use 3 and 4 minute charts to back up the 5 minute. Sometimes the VSA bars will be more recognizeable in different time frames. This also helps with volume changes during different times of the day.

 

The high just before 12:30 is also an upthrust but a weak one and you could have taken the trade at the close of the down bar. I would have waited and taken the trade at the 1:00 upthrust.

 

As far as the books go I do not have both so I cannot comment. I think someone else wrote about the difference between the two in this thread.

 

I have owned Tradeguider for about 18 months now and it was not until I got the Boot Camp CD's that I really got a good understanding of VSA. The Tradeguider folks should not even sell the software without these CD's in my opinion.

 

 

Hope this helps

Good luck!

[Anonymous 11]

 

A few months back a came across Mr. Williams first book Undeclared secerets and ever since I have been hooked on V.S.A. My first question is it necessary to read his more current book or is the original one good enough?

 

It is my understanding that the original book, has many mis-labeled charts and grammatical errors.

 

Master the Markets cleans up these errors. I do not know if there are additional concepts in the new book, but there is more of a Tradeguider (the software) emphasis.

 

My suggestion is to contact Gavin Holmes at TG and ask for the link to the PDF version of Master the Markets.

 

and yes, think about the bootcamp either way.

 

My question is this what are the objective ways that V.S.A. can help identify a bar as hidden supply?

 

* On the bar itself:

 

1. Closing in the middle on Ultra High Volume is a good sign of supply within the Upbar. As is closing on the low.

 

2. If volume is too excessive, there is a good chance that supply is swamping demand.

 

*the real keys come in the next bar:

 

1. If we see Ultra High Volume on an Up bar that closes off its highs and the next bar is down. There must of been some selling (supply) in that first bar.

 

2. If the bar closes on its high but the next bar is down, again, some selling in the first bar.

 

3. If next bar is up, but the range narrows and the close is in the middle or low, there was selling (supply) in the first bar. Why else would this bar have a reluctance to go up? Reluctance is demonstrated by narrow range and middle to low close.

 

Also look for tops to the left. If price is trading into new ground, then there may be supply contained within the bar. IF, however, there are tops to the left, or places where supply previously entered, then the volume may mean the Smart Money is willing to absorb the supply.

 

Nice of you to join us. Keep posting and let's all learn together.

[habi 10]

My suggestion is to contact Gavin Holmes at TG and ask for the link to the PDF version of Master the Markets.

 

Hello

 

I was searching for a Thread like this one, great work here. Thanks for all the interesting informations about VSA.

 

I found the link for the free Online-PDF-File Master the Markets, hope, it is still working. I'm just reading the book

 

http://www.cbprotect.com/cgi-bin/cbprotv2/MCID9026/MTM0001/thank877678.pl

[habi 10]

(As I am not the thread starter, I have no compulsion to keep the thread alive. With the lack of interaction, my posts and enthusiasm have dried up. Which is why this one sucks.............)

 

Hope, that this thread keep alive. I'm relatively new in VSA, I will try to make some interpretations. In the YM 60 minute chart I saw on 24.5. a candle with a very large upper shadow, ultra high volume and closing near the low. It was my intention to find a setup for a short within this shadow. It failed yesterday on the lower range of this S/R zone with a high volume candle in the 15 min chart.

 

The gap down today gave another weak signal, but the last two hours changed the picture. The first one went into the S/R zone with ultra high volume, the second touched the high of the shadow.

 

Weakness or strenght?

 

I analysed the action in a 15 min chart and saw, that most of the volume was in the first three bars. Thats the reason why I believe, that there was mor buying then selling of the smart money.

 

Other opinions?

[Anonymous 11]

..........The gap down today gave another weak signal, but the last two hours changed the picture.

 

First, thanks for posting. Please keep it up. The more interactive the thread the more we all gain.

 

Please take a look at that gap.

 

We had a gap lower on ultra high volume that closed in the middle. This is a sign of strength not weakness. If all the volume represented selling (weakness) than the close should not be in the middle of the range.

 

Strength enters on down bars and weakness enters on up bars..........

[thrunner 10]

I found the link for the free Online-PDF-File Master the Markets, hope, it is still working. I'm just reading the book

Probably doesn't work any more, but the CBOT webinar is working, just need to sign up CBOT - Detecting High Probability Turning Points Using Volume Spread Analysis

Detecting High Probability Turning Points Using Volume Spread Analysis

View recording.

* Viewable with Windows Media Player 10 or better, Version 9 Mac Media Player * (Download latest version).

 

Most traders believe there are two ways to look at the market - fundamental analysis and technical analysis. This seminar will introduce traders to a third way - volume spread analysis. Join Todd Krueger of TradeGuider, with a very special appearance by Tom Williams, the creator of Volume Spread Analysis, as they demonstrate how to incorporate Volume Spread Analysis into trading CBOT mini-sized Dow futures. Sponsored by Infinity Brokerage.

An introduction to Volume Spread Analysis.

The benefits of understanding hidden professional buying/selling with volume analysis.

Using mutiple time frames effectively to confirm market direction.

Question and answer session.

About the Speakers

Tom Williams, formerly a very successful US Syndicate Trader. He retired from professional trading at the age of 40, taking up a number of commercial ventures during this period. However, Tom's real ambition was to help traders operate in a more informed way, and this idea formed the basis of his software development company, Genie Software Ltd, 14 years ago. Tom has spent many years refining the signals in his flagship product, VSA (The forerunner to TradeGuider). Apart from his own expertise, the company also relies heavily on customer feedback to enhance and develop its products.

 

Todd Krueger's interest in investing and trading accelerated after earning his Series 3 license in 1985. His passion for trading has grown immensely over the years and he has invested heavily in educating himself on being a better trader. Todd was a previous customer of VSA and believed so strongly in the power of the software that he purchased a shareholding in TradeGuider Systems, LLC. Out of all the trading courses Todd's taken, and all the trading software packages that he's owned, there is one common denominator that he has learned that is essential to being a profitable trader; your approach to the market must be your own, the approach has to fit your individual personality and trading style.

 

Frankly, I get more out of reading this thread than watching the webinar. Everytime I look at VSA I can't help but wonder if there is something missing in the whole concept...

[Guest cooter]

Probably doesn't work any more, but the CBOT webinar is working, just need to sign up CBOT - Detecting High Probability Turning Points Using Volume Spread Analysis

 

Try this direct link then: http://mediasrv1.cbot.com/04252006_williams

[Tasuki 10]

Cooter,

I'd be very grateful if you could explain what "tick delta volume" is and how you get an RSI that's based on it. I've got Tradestation (seems like your chart is a TS chart) but I've never heard of tick delta volume. The TS user's guide didn't have anything on it, nor did the support center. Real curious what this is.

Thanks, Taz

[Guest cooter]

I don't recall mentioning it in this thread, so I won't clutter it up with my musings.

 

You might want to review a more appropriate thread, such as http://www.traderslaboratory.com/forums/f34/momentum-vs-non-momentum-1763.html#post11042 for an better response.

 

There are many custom indicators that are not native to TS which you will find on this forum here:

 

http://www.traderslaboratory.com/forums/f46/

 

Hope this helps.

 

P.S. WalterW created the Volume Delta (aka Tick Delta) - might want to ask him as well.

[habi 10]

 

We had a gap lower on ultra high volume that closed in the middle. This is a sign of strength not weakness. If all the volume represented selling (weakness) than the close should not be in the middle of the range.

 

Strength enters on down bars and weakness enters on up bars..........

 

PP, thanks for your answer. Yes, I agree, that the gap down with the first candle represented some strenght and not weakness. I compared the volume with the ultra high volume on Mai 24 and thought, that it needs more strenght for a biger turn. I observed several times, that higher volume led to longer moves.

 

When I made a review of Thursday's action I came to the conclusion, that we have seen to different phases on that day. The first was for closing the gap and retest the high of the 29th. After the "FOMC minutes" we saw a candle wit a narrow body and closed in the middle with ultra high volume, much higher than the first candle of the day. It looks to me, that more professional money came in at this time. The strong move was based on this volume an not or less with the first candles of the day.

 

Let's have a look on a 5 min chart for Friday. We gaped up with a high volume bar wich closed near the midpoint, some weakness came in. After 30 minutes we saw a wide spread candle on ultra high volume with a long upper and lower shadow. In my mind, the lower shadow represented strength, the upper shadow weakness. At this time, how do you decide, if there ist more strengt or weakness in the market? We got the answer with the two wide downbars, the second one with ultra high volume, following by a bar with a long lower shadow and closing higher than the previous bar.

A sign of strenght and appeared as a test of the wide spread bar before.

After closing the gap, the next up move was not very confidential, because the volume diminished.

Some strenght came in again with a hammer candle on high volume followed by the red downbar on high volume, wich formed the low of the day. After another wide white candle we had a lack of demand, wich led to the last downmove of the day on low volume, except for the red bar that tested the previous low.

 

It seems to me, that we have not enough strengt at this time to go higher, I would expect more volume on the intraday lows.

 

I'm sorry for the not always correct english