[VSA] Volume Spread Analysis Part I

[Anonymous 11]

Mister ed, again, nice work and thanks for the post. This thread is only strong when ALL participate.

 

In contrast to Mister ed, I define Effort bars as follows:

 

EffortU1:=If(H>ref(H,-1) and L>=ref(L,-1) and (H-L)=ref((H-L),-1) and O<=((H-L)*0.1)+L and C>=((H-L)*0.9)+L and C>ref(C,-1) and Mp()>ref(H,-1) and V>ref(V,-1) and V>VolAve and V<=2*VolAve and WRB=1,1,0);

 

EffortD1:=If(L>ref(L,-1) and H<=ref(H,-1) and (H-L)=ref((H-L),-1) and O>=((H-L)*0.9)+L and C<=((H-L)*0.1)+L and C<ref(C,-1) and Mp()<ref(L,-1) and V>ref(V,-1) and V>VolAve and V<=2*VolAve and WRB=1,1,0);

 

EffortU2:=If(H>ref(H,-1) and L>=ref(L,-1) and (H-L)>ref((H-L),-1) and O<=((H-L)*0.2)+L and C>=((H-L)*0.8)+L and C>ref(C,-1) and Mp()>=ref(H,-1) and V>ref(V,-1) and V>2*VolAve and V<=4*VolAve and WRB=1 and C<ref(C,+1),1,0);

 

EffortD2:=If(L>ref(L,-1) and H<=ref(H,-1) and (H-L)>ref((H-L),-1) and O>=((H-L)*0.8)+L and C<=((H-L)*0.2)+L and C<ref(C,-1) and Mp()<=ref(L,-1) and V>ref(V,-1) and V>2*VolAve and V<=4*VolAve and WRB=1 and C>ref(C,+1),1,0);

 

EffortU3:=If(H>ref(H,-1) and L>=ref(L,-1) and (H-L)=ref((H-L),-1) and O<=((H-L)*0.1)+L and C>=((H-L)*0.9)+L and C>ref(C,-1) and Mp()>ref(H,-1) and V>ref(V,-1) and V>2*VolAve and V<=4*VolAve and WRB=1 and C<ref(C,+1),1,0);

 

EffortD3:=If(L>ref(L,-1) and H<=ref(H,-1) and (H-L)=ref((H-L),-1) and O>=((H-L)*0.9)+L and C<=((H-L)*0.1)+L and C<ref(C,-1) and Mp()<ref(L,-1) and V>ref(V,-1) and V>2*VolAve and V<=4*VolAve and WRB=1 and C>ref(C,+1),1,0);

 

EffortU4:=If(H>ref(H,-1) and L>=ref(L,-1) and (H-L)>ref((H-L),-1) and O<=((H-L)*0.2)+L and C>=((H-L)*0.8)+L and C>ref(C,-1) and Mp()>=ref(H,-1) and V<VolAve and V>ref(V,-1) and V>ref(V,-2) and WRB=1,1,0);

 

EffortD4:=If(L>ref(L,-1) and H<=ref(H,-1) and (H-L)>ref((H-L),-1) and O>=((H-L)*0.8)+L and C<=((H-L)*0.2)+L and C<ref(C,-1) and Mp()<=ref(L,-1) and V<VolAve and V>ref(V,-1) and V>ref(V,-2) and WRB=1,1,0);

 

EffortU5:=If(H>ref(H,-1) and L>=ref(L,-1) and (H-L)=ref((H-L),-1) and O<=((H-L)*0.1)+L and C>=((H-L)*0.9)+L and C>ref(C,-1) and Mp()>ref(H,-1) and V>VolAve and V>ref(V,-1) and ref(V,-1)>ref(V,-2) and WRB=1,1,0);

 

EffortD5:=If(L>ref(L,-1) and H<=ref(H,-1) and (H-L)=ref((H-L),-1) and O>=((H-L)*0.9)+L and C<=((H-L)*0.1)+L and C<ref(C,-1) and Mp()<ref(L,-1) and V>VolAve and V>ref(V,-1) and ref(V,-1)>ref(V,-2) and WRB=1,1,0);

 

 

Beautiful shot showing No Result from an Effort to Rise/or Negative Action.

 

Note how price fails to close above the close of the Effort candle.

Edited March 28, 2008 by mister ed
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[Anonymous 11]

When it all comes together:

 

15 min chart.

 

Valid White Hammer (open>close) Pattern. The whit hammer line completes at 0930.

 

5 min chart.

 

Dark hammer line creates a Long Shadow. We see a doji, which in VSA terms is a Test bar. Now the hammer closed in the upper portion of its range on higher volume and closed equal to the previous bar-there must of been Demand entering on that bar. The next bar is a test for Supply. Technically a test is confirmed by a close higher than the close of the test bar one to two bar later. One bar later we get that. The time is 0930.

 

So as the trade-frame is confirming a test within the range of a Long Shadow bar where demand swamped supply, the trend-frame completes a Bullish White Hammer Pattern.

Edited March 28, 2008 by mister ed
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[mister ed 10]

Thats a great example PivotProfiler. The addition of WRB analysis really enhances the VSA analysis - the value of confluence.

 

One thing that struck me from the 15 minute chart is the noticeable change in the character of the price movement leading up to the entry. The price activity from 2.30 to about 7 was very choppy, non-directional, range-bound then clearly changed from 7 on. I don't know if this was related to an economic or news release, but it is a very clear change. I have read Brett Steenbarger's comments on stationarity, your example seems to be a very clear illustration of a change in whatever was influencing the market. Such a change in market behaviour could be used as an alert to watch out for opportunities.

 

One question for you, elsewhere you have defined a WRB as the widest open to close for the past 3 bars/intervals (the 3 being negotiable as long as consistency is applied). My bias is always to be a bit more statistical so I define a WRB as greater than say 1 standard deviation (edit: or 2 std devs or whatever) above the moving average of the abs(open-close). Any thoughts on this?

[Anonymous 11]

Thats a great example PivotProfiler. The addition of WRB analysis really enhances the VSA analysis - the value of confluence.

 

I have a slightly different take: Although I consider VSA and WRB & Long Shadow Analysis my two primary methods, I really think WRB & Long Shadow analysis IS VSA. That is, once one adds the open to the mix, Wide Spread bars become WRBs or Long Shadows. Therefore when Tom or Todd talk about something happening in the range of a high volume bar, they actually are talking about something happening within the body or long shadow of a high volume bar.

 

They do not mention this fact much but they do look to see low volume signs in the area of a chart where there was once high volume. Most of the time that is the same as looking for a low volume sign within the body of a WRB that had high volume.

 

Simply, They leave out the open, but the concept is highly correlated if not the same.

 

One thing that struck me from the 15 minute chart is the noticeable change in the character of the price movement leading up to the entry. The price activity from 2.30 to about 7 was very choppy, non-directional, range-bound then clearly changed from 7 on. I don't know if this was related to an economic or news release, but it is a very clear change. I have read Brett Steenbarger's comments on stationarity, your example seems to be a very clear illustration of a change in whatever was influencing the market. Such a change in market behaviour could be used as an alert to watch out for opportunities.

 

Understanding WHY Price Action is the way it is very important to the Price Action Only trader. We know that the Smart Money uses news events to manipulate the herd in various ways. Very astute of you Mister ed.

 

One should ignore the news but be cognizant of when it is being released.

 

As this is a picture of the spot Euro/Dollar market, the fact that New York traders entered the market also might of played a role in the change of the Price Action.

 

One question for you, elsewhere you have defined a WRB as the widest open to close for the past 3 bars/intervals (the 3 being negotiable as long as consistency is applied). My bias is always to be a bit more statistical so I define a WRB as greater than say 1 standard deviation (edit: or 2 std devs or whatever) above the moving average of the abs(open-close). Any thoughts on this?

 

My definition of a WRB is a candle (or bar) with a body (Open -Close) larger than the previous 3 candles. Hence there are 4 candles(bars) in the definition, not 3. While the amount of candles used in the definition can be changed to 4 or 5, 3 should be the minimum amount. This is the definition used by the man who pioneered this concept, NihabaAshi.

 

The only thing I see as a potential problem with your definition is that it is hard to SEE that a candle(bar) is a certain standard deviation wider than other candles. That is to say, the traditional way is more Visual and thus more adaptable when one is watching multiple markets/charts.

 

I also think you can miss a great deal of what is going on as the WRB does not have to be a set amount larger than the previous 3 candles, only on handle(pip/tick) larger. While the more significant WRBs tend to be large, they do not need to be.

 

Mark would tell you that WRBs represent, among other things, volatility changes in the market. Sometimes that change or shift is subtle (think of three dojis followed by a candle with the open 1 pip below the close-a dark WRB by definition). In this case the WRB is not large and not all that important, but it is expected. As we would expect to see increased volatility after a period of little or no volatility. Volatility here of defined by the size of the body.

 

Having said all that, That is not to say your way can not work. In fact I do see certain uses of it right off the bat. Please post some pics.

 

P.S. There is a separate WRB thread you should check out.

[TinGull 10]

In the spirit of sharing, here's a chart of my trades yesterday. I've been using some principles of VSA in my trading and love it. Here's 1 trade that was great, and then the first trade that was not so great, just to illustrate some VSA things to look for.

 

The first trade, there was a wide range candle on bigger volume that extended outside the opening range. For my setup, I'm looking at a close outside the range on larger volume to signal a breakout potential. So, since this is my setup I went ahead and took it. When there wasn't any follow through to it, one would get nervous, but seeing what looked to be just a little long covering (no real supply looking at volume) I held it. Then came the sellers, and stopped me out. Also, this wide range candle happened not at the bottom of a dip, but at the top. Should I have taken this trade? In hindsight, nope. It fit my setup though, so I did.

 

Second trade was a bit better. Note the excessive volume on the 2nd red spinning top to the left of the big blue hammer. This is pretty much the exact same thing that happened on my breakout trade...only I learned from that stop out. A close outside the range on bigger volume....so, the next candle was in the lowest of volume category for the day and if there are no results from that effort to push lower, then what is the path of least resistance? UP!

 

I waited for a confirmation of an upmove and got it with that big blue hammer. I entered long at 99 and it was a drawn out process to get even 20 points. I trailed it up and eventually just got stopped on my trail for that 20.

 

Here's the chart.

 

[Anonymous 11]

TG:

 

Thank you so much for the post, please keep 'em coming. Great stuff.

 

My two cents:

 

Trade 1- I see a valid High close Doji pattern. From a VSA point of view, I see an Effort to Rise bar. Which you correctly pointed out. In short, I would of most likely gone long here too :sad:.

 

Trade 2- I see a valid white hammer pattern which culminates with the white hammer line. You are correct with the No Supply (low volume) candle prior to the hammer line. I have also marked off another No Supply that appears within the range of a WRB as an alternative entry signal.

 

Moving back a bit. We see the candle prior to the first No Supply has High Volume and a wide spread but closes on the upper portion of the range. Some Demand must of entered on this bar. (Strength comes in on down bars)

 

Thanks again. We can all learn from your knowledge and skill. Very nice work.

Edited March 28, 2008 by mister ed
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[ranj 10]

Hi All,

 

Setup for review on a daily chart. Looking to short XLF at the 50 % fib retrace. from May high to Aug low. I see a very high vol up bar closing in the middle (weakness), followed by a low vol up bar closing the middle (no demand) two days later. Looking to enter on a break of of the prior day's low. I am still working on my VSA skills, any insights would be helpful.

 

Thanks

Rajiv

 

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[mister ed 10]

Thanks for the comments PivotProfiler (post#329 - I gotta try harder to keep up ...) and for the correction to the WRB definition. I think my definition makes me comfortable (which is nice but not necessarily useful) because it has roots in stats, but the idea of looking at the most recent bars is more in keeping with getting in tune with what the market is doing right now. Much more useful.

 

And thanks for the reference to the WRB thread - yes have read it and actually done a bit of a summary so I can reread it when I am offline.

[Anonymous 11]

Hello Ranj and welcome to the thread and the forum. I hope you have found a place to call home. Thank you for posting.

 

While I believe in Fibs, I have not been able to apply them in trading. I never know when to apply them. So I am looking forward to seeing more posts from you showing VSA principles in action around certain Fib areas.

 

I am sure some of the many capable readers of this thread can give you insight.

 

Your analysis of the Ultra High Volume Bar that closed up from the previous bar and closed in its middle as a transfer of ownership bar is correct. Supply entered on that bar. HOWEVER, look at the very next bar:

 

1. it is a selling bar (positional relationship) that closes down, has a smaller range than the previous bar, and has volume less than the previous two bars.

 

2. the bar after it (the one you labeled No Demand), closes up. THIS IS KEY FOR MY DEFINITIONS OF NO DEMAND/SUPPLY. This next bars does not make a lower low and closes up, which to me confirms the previous bar was No Supply.

 

Note that the bar trades below the 38.2, but the close is at that level. That has got to mean something to the Fib trader.

 

From a VSA standpoint, There was supply on the Transfer of ownership bar, but that supply was actually swamped by demand as evidenced by the No Supply the very next bar.

 

Things get a bit murky after that. While the base definition of No Demand is an Up bar with volume less than the previous two bars and a narrow range, TG looks for a close in the middle or low AND a close lower on the following bar. Personally, one way I define No Demand would also mean that this bar needs to have a close higher than the bar that follows it and not have a lower low. Hence for me, it is NOT a No Demand bar.

 

Joel Pozen would consider that bar No Demand and the previous bar No Supply as both have the key element of volume less than the previous two bars and close up or down, respectively, from the prior close.

 

This is not to discourage or scorn, just to point out that there are various subtle differences used by various users. Which is the greatest assets of this thread and why it is imperative that everyone participates.

 

As to the issue of going short. I have no idea. I know that for me I see possible strength in the market. Based on the No Supply, which is supported by the Fib level. With that said, I would not be looking to go long just yet.

It is possible that the No Supply can be viewed as a test. As a test it would be a low volume test (Volume less than the previous two) but also a high volume (actual) test. In this scenario, we would expect the up move to be muted, or drift sideways, as there would still be too much supply in the market.

 

I know I haven't been of much help, but "when in doubt, stay out".

 

Can somebody help us out here?

 

P.S. I like to look for low volume signs within the range of high volume candles. In this case, I would like to see something happen within the Shadow of the transfer of ownership bar. Or within the body of the WRB candle which is the engulfing candle prior to the Transfer of ownership bar.

[mister ed 10]

Hi Rajiv,

 

Sorry to do this after the event, and its not really VSA, but I hope the comments are of some value. I am a believer in using complementary forms of analysis, so if I was to be looking for a shorting opportunity at or around a Fib retracement I would like to see it backed up by some other resistance.

 

I have attached your chart with short-term support and resistance drawn in by myself - the levels are rough but hopefully get the idea across. Support 1 and 2 show where there were small bounces in the downtrend, then a (small) gap lower. Then resistance forms just under the prior support.

 

The large white candle off the low shows demand coming in, and you would expect to get a trade higher in coming days. What you do get is an immediate reaction, on the following bar no less, all the way up to short-term resistance, above the 50% retracement but below the 61.8. In conclusion, and from a short-term perspective, this is the reaction, and with the confluence of the Fib retracement levels and the support that has now become resistance, this is the shorting area and bar, if that is the trade sought.

 

I know this is not a VSA analysis (and PivotProfiler has already posted his), and also that it is hindsight analysis, but I hope it is useful

 

[Tasuki 10]

The Breakout Breaker.

Have any of you heard Tom Williams analyze a chart? He is completely amazing. He will go through a chart and explain every single bar. The Tradeguider software will give you indicators every so often, but not every bar like TW. Even Todd Krueger doesn't seem to be able to do what TW does. Well, if Tom's VSA prowess is such that he can see meaning in every bar, and if VSA terminology doesn't seem to have an explanation for every bar, maybe there's room for some new definitions? I'd like to offer one I call the Breakout Breaker.

 

To illustrate, I'll use Tingull's great chart from page 33 (permalink #330) (see attached chart). This is the same chart TG showed, except with the classic HLC bars, as well as my notes.

 

The basic premise is this--

you're coming up to resistance, and the live bar pierces that resistance on increased volume, and closes near the high. All of these factors are designed to fool traders into thinking that there really is demand coming in, and that higher prices will follow. The fact is, the professionals have figured out that people are looking at volume nowadays, so they bump up the volume to make the breakout look real. When this happens at resistance, BEWARE. Wait to see how the next bar behaves.

 

p.s. if anyone else has new VSA definitions that are not covered in the canonical writings, please share!

[stock 10]

Will be interesting to see how mister ed's chart pans out.

 

To me both the very high volume bars are demand, the second one should be coloured green. How else could the price bar close so high from the days lows and so high above the previous days close. It could not do this if supply was overcoming demand on that day. Given the response I see this as one for the too hard basket (or wait and see).

 

Tasuki, I follow professionals bumping up the price to fake a breakout during periods of low volume. If it takes a lot of volume to push the price away from the direction they wish to trade, they would be trading against them selves.

[ranj 10]

Pivot,

 

Thanks for the insight. I am still trying to hone my skills with VSA. And your analysis is excellent.

 

I use Fib retracements to kind of get an area of interest on the chart. In this example, I saw the HV Up bar closing in the middle. So I thought why would the ETF be weak at this time, or why would this bar form like it did. So one of my assumptions is that some traders (many based on the volume) may have plotted a fib retracement on their chart and acted upon it and that is why it closed where is did.

 

I don't find any special property to fib retraces and extensions, it is just an area that I expect other trades act upon and I am trying to detect their participation by looking at the price action via VSA. I apply the same process to MA and trendlines and intraday pivot numbers.

 

Thanks

Rajiv

[Anonymous 11]

..............When this happens at resistance, BEWARE. Wait to see how the next bar behaves.

 

ON PATIENCE:

 

I am not a fan of TG software, as many know. My reasons have nothing to do with what the most oft heard criticism is, however.

 

This criticism has to do with "signs" showing up "after the fact" or in hindsight. More broadly, this same criticism can be laid at the foot of Volume Spread Analysis.

 

Those who look at static charts see signs with an almost uncanny precision. That is, they see many market turns being "called" by these signs. They go as far as to say, "I can buy tops and bottoms on these incredible buy and sell signals". What the charts do not convey, is PATIENCE.

 

Many signs of strength or signs of weakness show up as two or three bar patterns. Most fall into the two bar category.

 

No Demand is defined as an up bar with volume less than the previous two bars on a narrow spread. This base definition, however, fails to look at the next bar where we would want to see the close LOWER than the previous bar, confirming a lack of demand.

 

This is true of a Test. While a low volume test will close lower than the previous bar, close on its middle or high and have volume less than the previous two bars, it is not truly confirmed until we see a close higher than the test bar. This needs to come on the NEXT bar or the bar after that at the latest.

 

That is why these will show up "one bar late" to some. In truth, what is happening is this: one bar is looked at as cause and the following bar is looked at as effect.

 

If you see a wide spread bar on ultra high volume closing near the high (cause), but the next bar is down (effect), then there must of been SELLING in the Wide Spread bar.

 

"..A wide spread up on high volume shows effort to go up. If the next bar is down, this demonstrates that with the high volume seen on the day before, selling overcame the demand, otherwise, prices could not possibly have fallen the next day........." Master the Markets,Tom Williams, P. 145.

 

"If a market is moving upwards on wide spreads, accompanied by high volume and no progress is seen on the NEXT day (bar), this shows the volume contains more selling than buying." IBID, p.154

 

"For a market to drop, selling pressure needs to be evident, which normally shows itself as wide spreads down on high volume. If the next day is down this usually confirms that the volume seen on the day (bar) before is genuine selling. However, if the next day is up then it shows that there was selling going on, but the professional money was prepared to buy and support the market as well...." IBID, P. 166

 

Again, the point is that one should usually be waiting one bar after seeing the high volume or the low volume (in the case of No Demand/No Supply or Tests). Having the patience to wait one day(bar) or two allows for a more acurate and complete view of what is happening.

 

Nice work Tasuki. You have basically "proven" to yourself what Tom has written about in the book. The name is not as important as the underlying concept.

 

Tom says the two most important things a trader needs to understand are Volume and Support/Resistance. You seem to be on your way there.

 

P.S. This is not unlike some candlestick patterns that have multiple candles where some come AFTER a hammer or doji line.

[Tasuki 10]

Thanks, PP. I have indeed been spending way too much effort thinking of VSA as one bar patterns. I need to re-evaluate my VSA signals as two bar patterns at least. BTW, you mentioned that there are some VSA patterns that unfold over three bars. Is there a list somewhere of which ones are one, two or three bar patterns? Maybe it would be helpful to create a comprehensive checklist of the VSA patterns, where members can add, subtract, and refine the definitioins? I was creating one for myself, but obviously I need to re-think my descriptions in light of PP's (as always) brilliant commentary.

[BlowFish 10]

Great points PP.

 

Let me just add a couple of things.

 

When you look at bars/candles you are choosing an arbitrary period of time to 'sample' what is happening to price and volume. Sometimes things take longer to happen some time less. Its constant evaluation of the ebb and flow of supply and demand. As an example a wrb down folowed by a wrb up on a 5 minute chart will be a long legged doji (test) on a 10 minute chart.

 

Some VSA bars are somewhat more 'powerful' than others.

 

Some VSA bars have little (or no meaning) unless the context has been set by other bars/patterns. For example a test has to test something.

 

There is often a progression through a series of events. e.g. stopping volume (demand enters) - followed by low volume bars (no supply and often no demand too) - followed by a test (any supply left) - followed by strength appearing on up bars as price rises.

 

You can also look at what should not be happening. e.g. should not be seeing weakness (no demand) on a rising market.

 

There is no shortcut for learning the underlying principles. i.e. just learning a couple of bar patterns will only get you so far. (maybe thats far enough for you).

 

Cheers,

[shreem 10]

Hello to all, nice to see all keeping this great thread alive. I just wanted to show some great example of multi-timeframe analysis in VSA by comparing complementary signals in 2 timeframes, the hourly and 15 min charts of the EUR/JPY pair spot forex.

 

First, on the hourly chart, we see a WRB which serve as a change in polarity between buyers and sellers and serve as a support/resistance zone that we can use to find possbile entries in the future.

 

Later, we see an up-trust which is also a squat bar which illustrate again the concept in VSA of change in polarity from the buyers to the sellers. In effect, if there was a real intention by the big players to continue to push price higher as indicated by the previous bar, why then after making a higher high on higher volume than the previous WRB candle, this bar closed in the low and at the same time having a spread range lower than previous bar but with volume bigger than previous bar?

 

This activity, on one hand, show the intention of big players to suck in new longs so that they can take their stop and add fuel to the downside (up-trust) and, on the other hand, a definite turn around of polarity represented by the formation of the squat bar which is also the same bar as the up-trust. This squat bar, by having a higher volume with a narrower spread and making new high show clearly that the "balance of power" shifted to the sellers.

 

Most importantly, in relation to the previous WRB support/resistance zone, we see an effort to fall candle (19:00-20:00pm est) with high volume but failing to close on the low followed by a successful test ( 21:00-22:00pm est) with a volume less than the 2 previous bars.

 

The salient point of these 2 candles is that they do appears in the previous WRB support/resistance zone and both of them failed to filled the open of this previous WRB.

 

Finally, looking at the 15 min chart, we see a failed test (19:45-20:00pm est) on high volume in the previous WRB support/resistance zone followed 6 candles later by a successful test (21:15-21:30pm est) with a range narrower than the previous test and with a volume less than the previous test.

 

According to my little understanding of VSA concepts, this multi-timeframes analysis is a good example of the power of VSA in one own's analysis. Particularly if one look to find signals of lower volume in the range of previous higher volume in a zone of a previous WRB support/resistance zone.

 

All of the above is just my 2 cents and do just represent my new and beginner understanding of VSA concepts and WRB concepts from PivotProfiler and NihabaAshi by their posts on this forum and others.

 

As my understanding of VSA and WRB and long shadows analysis will deepen, I will definitely become more and more an active member of this great thread.

 

Wishing all a great trading week

 

Sincerely

 

Shreem:)

[Anonymous 11]

I like this pic.

 

The trade for the day was to the upside (see next post). Thus, this would be a counter trend trade until the market falls far enough to constitute a change in trend. Also there are time of day issues to be concerned with.

 

I really like the interaction between the 15 min chart and the 5 min chart. In this example we see signs on the 15 that there may be a top of some sort. That is, we get a No Demand sign after a healthy day's trend. The market falls and then we see a Squat. Supply is entering the market on this bar. Note that we do not see a WRB with something happening within its body here at the top.

 

Shift to the 5. First we get a Test. The bar that confirms the Test, turns out to be a No Demand candle itself. A few bars later we see a dark WRB that closes below the low of the test bar: No result from a test/Negative Action. Simply, weakness.

 

We then see a Squat which is also an Up Thrust. Note that we close on the low, make a higher high and have higher volume than previous bar. Supply enters here. Yet, the market claws it way even higher. Then we get a Trap Up Move, or Squat. Again more supply entering the market.

 

Finally, we get a narrow range bar that closes up from the previous bar on higher volume and closes in the middle of its range. This is a clear sign of supply entering the market and a Squat. So we have a WRB that has high(er) volume and a high volume sign with the body of said WRB.

Edited March 28, 2008 by mister ed
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[Anonymous 11]

As promised a trade for the day. This is an add on if already long from a trade prior to this time. That is, if your day starts when London opens, you might already be long. However, if you start your day around the NY open here is a way to get in. We don't have to feel as if we missed the bulk of the move and can't trade the action.

 

Here we have a nice set-up on the 15. This is the type of set-up to look for on the 5 (the trade frame). However, it comes on the trend frame. As markets are fractal, we know that the higher timeframe has a bearing on what the lower timeframe is doing. We can keep our risk lower, by moving to the smaller timeframe as well as get a more precise entry point.

 

In this case, the 5 min does not have a trade set-up per se. But we do see that the market is attempting to rise. There is a No Supply candle and three Effort to Rise candles.

 

By 10:30 we know we want to get long. We have just had a valid set up via the trend frame (15 min). At 10:45 we get an Effort to Rise bar. Notice the difference on the next bar. This bar is narrow range Doji on low volume. While not a No Supply bar, it does have lower volume and a narrow range. It is also contained within the body of the WRB. Again, we already know we want to get long, the question is simply when. Here.

 

The trend is up, we have a valid set up on the higher timeframe and now we have a down bar on low volume after an Effort to Rise candle. As if we needed another reason, we also know that there is more Bullish volume in the market than Bearish volume at this time.

 

Markets can rise on high volume but they can also rise on low volume. In this case we know that the volume does support the move : up move on increasing volume.

Edited March 28, 2008 by mister ed
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[Anonymous 11]

Very Nice. You've been holding out on us Shreem. LOL. Please keep the posts and the analysis coming.

[Anonymous 11]

Just wanted to post this chart 'cause I like it.

Edited March 28, 2008 by mister ed
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[shreem 10]

Hello PP, nice chart that you have put today and thank for your comments. I really begin to like what I see when applying and combining the VSA concepts with the WRB and long shadow analysis from NihabaAshi in regard to the EUR/JPY pair cross spot forex.

 

PP, you are absolutely right when you says that the best setup occur when we see a low volume candle signal in the range of a previous high volume candle in a WRB or Long Shadow (lower or higher) support/resistance zone as it represent a shift in supply/demand dynamic.

 

Again, please see both attached charts of the EUR/JPY spot forex. The first chart is a 60 minute chart and we see that on August 26th 2007 at 22:00pm est, we have established a WRB right at a reversal swing point. This WRB creates a support/resistance zone dynamic which will help us find high probability trade in the future in this range.

 

That is what we get on the multi-timeframes analysis with first a no-demand bar on August 29th 2007 at 17:00pm est in this zone of the previous WRB.

 

If we turn to the second chart, a 15min chart, we can see that, on the same day, the 16:45pm est and 17:15pm est, both of them give no-demand signals also on this previous WRB support/resistance zone.

 

Still on the same 15 min chart, the dark WRB at 18:00pm est on the same day gaves us a nice signal to go short as this candle in top of representing a shift in supply/demand (WRB) is also a strong bearish signal as it engulfing the previous 7 candles including the 2 no-demands candles.

 

At the bottom of my 1 hour chart, there is another important WRB created by the FOMC minutes which is a zone for me that I will keep an eye on in the future to look for signals and high probability trades and setups.

 

Again, thank to all contributing posters on this great forum. I really think that if one take the time to really learn to grasp and mix together the concepts of VSA and WRB and long shadow analysis, one can be certainely on the right path to success.

 

Sincerely

 

Shreem:)

[shreem 10]

Another great exemple of combining the power of VSA with WRB or Long Shadow analysis.

 

Look at the same 15 minutes chart that I have attached in my previous post.

 

At the 12:30pm est candle today, we see a high volume test with a ultra-wide long lower shadow. At some time, this long lower shadow was a dark WRB but then failed to stay on the low and close near the high. In fact, looking at the relationship between the open and close of this candle, we almost have a long leg doji candlestick.

 

Eventhough the next candle is up, there is no real follow through to the up-side and we even see a no-demand candle 2 candles later. According to VSA, why does it failed is the fact that the volume on this test is too big compared to the previous 3 candles and the market will have a high probability to test this lower shadow range to see if there is still significant supply present.

 

That is exactly what happened with the the 15:00pm est candle which is a successful test with a range and volume lower than the previous failed test. Eventhough the volume on this candle is higher than the volume of all candles between itself and the previous failed test, what is important is it relation with the volume of the previous failed test.

 

This successful test confirm us that there is not real enough supply left to mitigate the ongoing shift in supply/demand from the sellers to the buyers.

 

Most importantly, all of this is happening in the range of the previous long lower shadow of the previous test which is a natural support/resistance zone to look for a high probability trade setup.

 

Again, this example shows the power of the concept of looking at a high probability trade by looking at a lower volume signal in the range of a previous high volume candle zone.

 

Finally, it is true that 3 candles later, we got another push for supply through an effort to fall but with a volume lower than the successful test, we see negative action or no follow through and then the path of least resistance is to go up.

 

In fact, negative action or the path of least resistance are others VSA concepts wich logically imply that if there is no immediate action to the previous direction, the natural path is to go the other way. By itself, this candle is another signal to help us looking to go long.

 

Sincerely

 

Shreem:)

[Tasuki 10]

shreem,

In your first chart you say, "Up-thrust and a squat bar at the same time." Aren't they the same thing? If not, how are they different? Maybe it depends on the volume?

[shreem 10]

Hello Tasuki, thank for posting.

 

Effectively, there is a difference in the definition between an up-trust and a squat bar. In this case, both definitions "fit" in this candle.

 

An up-trust is generally a high volume candle with either a large, medium or narrow spread (ususally wide spread though due to the lenght of the long upper shadow) which make a new high and close near its low.

 

The purpose of an up-thrust is to bring new longs so that the big players can take their stops and add fuel to their desired direction which is down. An up-thrust can have different size of candles and is usually on high volume. Volume of up-thrust do not necessarily needs to be bigger than previous candle. In fact, if it is, it has more chance to be tested again.

 

A squat, by definition (from PP) is a spread narrower than the previous bar or candle (not necessarily the case for up-thrust) with a volume greater than the previous bar or candle (again not necessarily the case for up-thrust). The close can be anywhere in the candle although a close near the open (doji) make it more powerful.

 

The purpose of the squat, by its definitation, is one of the most powerful reversal candle or bar one can find especially if the volume is high to ultra-high and the candle looks like a doji.

 

The squat, by its very nature having a strong volume than previous candle and at the same time a narrower spread than previous candle make it a prime exemple of an intense battle between buyers and sellers and the "last breath" of the current direction of the market. To put it simple, it is a strong reversal signal.

 

Of course, as for the up-thrust, the squat alone is not enough to trigger a trade but if you find this dual candle of both of them within few intervals in the range of a previous WRB or long upper shadow support/resistance zone, you have definitely something to look for going short in this case.

 

So, by definition, both of them can appear in the same bar and both of them have a result to change the market direction depending on their strenght.

 

Hope my comments help and PP please correct me if I made a mistake in my understanding of a squat bar.

 

Sincerely

 

Shreem:)