[VSA] Volume Spread Analysis Part I

[RAVIN 10]

TinGull,

BTW, the previous post is of YM 5min chart and was in respone to your trade posted earlier, as I mentioned this is how I look at the charts for support and resistance levels ie. let the market tell me where those levels are rather than trying to force the market to turn at any calculated levels that I have placed on the charts. Mind you there is nothing right or wrong about calculated pivot levels, infact they are important in observing what the price does at those levels but majority of the times these act as self fulfilling levels as vast number of traders exit or enter there, however the levels already established by the market i.e previous Higher lows and Lower highs are more logical and in keeping with VSA principles

[TinGull 10]

Hi TG,

 

I would act on a similiar trade, but the bar did not set up right, for a test of supply the market should not close on the low. It should move down, find one one wanting to trade and then move up to an area that price has been accepted before.

Also even more telling, is two bars afterwards. That appears as a no demand, low vol up bar, with a Narrow Spread (NR7), closing off the highs. When I see no demand come in after a low vol test, I tend to move my stop to just below the no demand.

 

note hindsight is always 20:20 and I tend to trade off of daily charts, with more time to think about price actions, in terms of effort, (volume and spread) and results(close in relation prior closed and previous highs and lows).

 

Rajiv

 

Thanks Rajiv,

 

I also didn't take the trade at a S/R level....was really just a stupid trade on my part.

[TinGull 10]

TinGull,

BTW, the previous post is of YM 5min chart and was in respone to your trade posted earlier, as I mentioned this is how I look at the charts for support and resistance levels ie. let the market tell me where those levels are rather than trying to force the market to turn at any calculated levels that I have placed on the charts. Mind you there is nothing right or wrong about calculated pivot levels, infact they are important in observing what the price does at those levels but majority of the times these act as self fulfilling levels as vast number of traders exit or enter there, however the levels already established by the market i.e previous Higher lows and Lower highs are more logical and in keeping with VSA principles

 

I absolutely agree, and I don't trade off of those calculated pivot levels, but do watch them to see how price acts there in case something does happen to set up. I mostly trade off the 30min hi and low.

[Anonymous 11]

Well, a not so good trade today...would love some feedback on what I saw wrong.

 

 

 

To me looked like no supply and went long. What might I have seen to prevent this?

 

First of all remain we all should learn to remain flexible. To candles later there is a No Demand sign. While it is not my preferred definition as the next bar makes a higher high, it is the actual base definition: Narrow range bar with volume less than the previous two bars. Moreover, it is appearing just below a S/R line. If long, one would want to be thinking about a reversal of position. The very next candle is an Effort to Fall. Note how it trades at the S/R level and then moves away. It also engulfs the prior No Demand bar......

 

Let's back up for a second. The base definition for No Demand/No Supply involves volume less than the previous two bars. Eyeballing the chart it seems that the candle you are looking at is NOT less than the previous two bars. Now, I do use a couple variants on this myself. This one, however, is the one I do not like: Volume less than previous volume and equal to the volume two candles back.

 

My question to you, is why are there MAs on the chart and an indicator window if you are not going to use them?

 

As your No Supply candle is formed, the bottom indicator is making a lower low. So there is no divergence here. Isn't this a healthy sign of weakness? Price is also below the green MA. While it is true that MAs lag price volume information, It is on your chart and thus must be of some import to you.

 

I do not mean to sound harsh, but you have shown various charts with divergence at MP areas or Opening range levels or pivot level. These are solid times to be making trades where VSA is in conjunction with them. This trade seems almost random.

 

Look at the next chart where you have a Test/No Supply doji right on the green MA. I hate MAs. Yet this is ideal. Price is above the MA, finds support at that level and from a VSA standpoint, the Smart Money is testing for supply at that level. In other words, shouldn't this candle work better than the one you show here just based on the fact that more of what is on your chart comes into play?

 

As far as volume, I am moving back towards the base definition: Volume less than the previous two.

 

P.S. I am not happy that the other thread was closed. My hope was to have the biggest VSA thread out there. I will get over it though. It is nice to see the interaction here. Keep up the good work everyone. Hope VSA is contributing to you bottom line to the good.

[TinGull 10]

Thanks for the words Pivot. Yea, it was a pretty random trade and looking back...no clue why I did what I did.

 

I appreciate the harshness, really. No better way for me to learn. The MA is the VWAP, also. Well, I wouldn't expect this kind of trade to happen again from me. Learned my lesson there.

 

Thanks all, I really appreciate the feedback. And as for the longest VSA thread...I figured it might be easier for people to chunk up the info in the threads. If you *really* want me to, I could open it back up we could continue posting there infinitum. Just say the word

[RAVIN 10]

 

Thanks all, I really appreciate the feedback. And as for the longest VSA thread...I figured it might be easier for people to chunk up the info in the threads. If you *really* want me to, I could open it back up we could continue posting there infinitum. Just say the word

 

Guess PP is right, there are other sites like elitetrader, t2w where there are endless discussions/arguments/controversy on importance (or not) of Volume, however sadly most of it is just theory. Sebastian Manby(Tom William's Prote'ge') made a concerted effort to start up discussion on VSA but that petered out due to failure on the part of most participants to grasp the basic concepts which they tried in vain to apply in isolation without paying attention to the context, hence it would be a good idea to let the other thread run exclusively on VSA. It certainly has the potential to become the longest and most informative thread on the internet. IMHO

[TinGull 10]

Back by popular demand....the longest VSA thread in history!

[RAVIN 10]

Back by popular demand....the longest VSA thread in history!

 

To kick off, here is a copy of one of Sebastian's chart analysis in its original classic form:

 

ANALYSIS BY SEBASTIAN

031904

The 19th was a quadruple-witching expiration and I have nothing wise to say about it.

Therefore, I'm instead providing a "guest analysis" which illustrates reversals.

 

Note that this is not a schematic for buying here, selling there. There are no cutesy names for setups. It's just an observation of and study of price behavior, the first step in the choice of strategy and in the development of tactics.

 

The story plays out on the 3-minute chart. The open . . . dropped down to the low of yesterday afternoon. The first down arrow on the chart shows a wide range bar closing on its low on very increased volume (compared to the prior bar). Selling was clearly swamping the buying. Volume increased on the drop, but fell off on the retest of yesterday afternoon's low, signaling a potential bottom. Look at that bar on the low. It closes well off the bottom.

And the volume has shrunk. Selling is no longer dominant (though confirmation is still needed). The next bar has a nice range up and closes on its high. Volume has dropped off, and that is good for the bulls. That and the next bar -- also an up bar with increased volume -- confirms the change in direction. Note that the volume falls off on the pullbacks. This is decidedly bullish. Volume expands with price as the market moves higher and contracts on pullbacks. Also, look at the price bars on the pullbacks. Their range also contracts. So, you have price bar range expansion with up closes on expanding volume and price range contraction coupled with volume

contraction on the pullbacks. Note also where the closes are on the pullback bars --midrange, for the most part, rather than on their lows. Selling is weak on the pullbacks. All this action is bullish behavior.

Look at the first down arrow in this up trend. It occurs around 10:30. It closes on its low and volume increases! This is the first hint that selling is coming into the picture. The next bar is up and volume increases, but then look what happens. Volume is heavy but the price action is showing weakness. With that increased volume, if this was still going higher, you

would expect the bars to expand in range and close on the highs. But you get just the opposite. Range is contracting, the close is poor, and it occurs on increased volume. It canmean only one thing: selling is swamping the bulls' boat. Next, we move up to the high of the day. This is right into the 935 resistance area from the daily chart. Look at the volume and price action here. Volume expands for several bars, but the price won't go higher. That weakness we saw earlier starting with that first down bar on increased volume at 10:30 is now coming into play. Also, the average volume is lower as

we make a new high. So, background weakness in the form of (1) the 10:30 - 11:00 price/vol action and (2) the overall volume/price divergence is seen clearly in the details of the individual bars.

Note where I labeled the "No Demand" bar and its accompanying volume. We get a higher close on low volume. There is no demand or buying to drive prices higher. The no-demand event occurs again later.

The noontime countermove starts right on time [NB: the lunchtime reversal is not as reliable as it used to be; stay tuned]. Look at the bar and volume at the turnaround. Like the waves, monotony is good.

The market moves up a bit, but then goes into a lot of chop. Although there is an upside bias, volume is very low and the price bars are contracted and few close on their highs. All bearish action.

 

Look at the last 3 bars in that area occurring around 1:00. They try to push it higher(probably gunning for stops), but volume isn't with them, and the buyers get swamped. Another no-demand event. Just before 2:00 there is another attempt to rally. But you can see the price and volume

action shows weakness. The first bar highlighted by a down arrow shows a midrange close on increased volume. If they were going to take it up, that increased volume should have resulted in an up close. Compare this attempt with the rally that occured in the AM.

As the market falls, the average volume increases. On the bars where price expands to the downside, volume expands, showing a consistant relationship. Note the two pullback areas in the downtrend (highlighted by the down arrows). Both the price action and the volume contract. This is nice bearish action. The bottom of this move is reached at the AM low. The price action and volume is a repeat of what we have been seeing, as is the push into the resistance at the 925 area ...

[Anonymous 11]

Tracking the Smart Money & Event trading:

 

I think this chart is very telling.

 

First, I did not make any trades here and this is being done after the fact. That does not change the fact that there are obvious signs of professional money manipulation going on. Economic reports give Professional Money the opportunity to take advantage of the herd, as the increase in volume (herd) masks the intentions of the Smart Money.

 

Take a look at the chart. This is a 15 min chart of the Euro.

 

First thing of note is the Effort to Fall candle PRIOR to the jobs report release. The Smart Money is selling BEFORE the news is out. Do you think they know something? THIS IS KEY: before the news the Smart Money is dumping Euros into the market (dollar bullish). So they are Selling high, which means they are likely to be buying back lower.

 

The news comes out, price gaps down. We get an Ultra Wide Spread bar that closes down, and closes off its high on Ultra High Volume. While the volume does not seem high in this chart, when you see what comes after, it was the highest volume at the time. That shadow is both profit taking and getting net LONG by the Smart Money. As the herd rush in to sell Euros, the Pros take the other side of the trade. With all that volume to the downside, one must ask why the next bar is up? It can only be that BUYING was going on in the prior high volume bar.

 

Skip a couple bars to the right and we get the highest volume bar on the chart. Note that this candle has a smaller range than the previous bar with Ultra High volume- a squat. It also closes in the bottom half. If that candle represented buying, then the close should be in the upper portion of the bar. The Smart Money is again taking profits, this time on the long positions taken during the 0845 candle.

 

This is confirmed by the appearance of a No Demand sign on the next bar. Thus, while price moves up, we see that Professional Money is not interested in higher prices. They were taken profits on the prior candle. Price spends the rest of the day drifting sideways...

Edited March 29, 2008 by mister ed
Add back chart

[RAVIN 10]

Great analysis on the shenanigans of Smart Money PP

 

I am not trading currencies at present but am thinking about it, whether to focus on Currency Futures which have enough liquidity and traded via a central exchange/regulated, or Currency Market(FOREX) where one is effectively trading against a broker. Any comments.

[RAVIN 10]

This is first time I pluggged in the Pivot Ranges as per Mark Fisher modified by PP, The High, Low, Close on Friday were 8089,8006, & 8086,

 

Dax 15min has the POC(BLACK) AT 8058, the inner pink levels (deviation range) and the outer pink levels(reaction ranges) again as per PP(KPcurrency on MoneyTec) Hope I have got this right, would be quite happy to be corrected.

 

Dax 5min has the first 30min range (blue), note this is the range was established after the cash market opens which is 1hr after the futures open.

 

The strategy here was reversal and the tactics of entry were via Dax 2min shown within the pink boxes, based on VSA principles of no supply and no demand.

 

It was interesting to note how all of this stuff comes together, the calculated pivot ranges and the support/resistances established by the market structure i.e previous pivot swing points and also those of Marubozos(candlestick jargon for wide range bars)

[ranj 10]

This is first time I pluggged in the Pivot Ranges as per Mark Fisher modified by PP, The High, Low, Close on Friday were 8089,8006, & 8086,

 

Dax 15min has the POC(BLACK) AT 8058, the inner pink levels (deviation range) and the outer pink levels(reaction ranges) again as per PP(KPcurrency on MoneyTec) Hope I have got this right, would be quite happy to be corrected.

 

Dax 5min has the first 30min range (blue), note this is the range was established after the cash market opens which is 1hr after the futures open.

 

The strategy here was reversal and the tactics of entry were via Dax 2min shown within the pink boxes, based on VSA principles of no supply and no demand.

 

It was interesting to note how all of this stuff comes together, the calculated pivot ranges and the support/resistances established by the market structure i.e previous pivot swing points and also those of Marubozos(candlestick jargon for wide range bars)

 

Hey Ravin,

 

could you explain a little more about the deviation and reaction ranges.

Thanks

Rajiv

[RAVIN 10]

Hey Ravin,

 

could you explain a little more about the deviation and reaction ranges.

Thanks

Rajiv

 

These are the terms given by KPCurrency aka PivotProfiler here. Click on the following for more info:

 

http://www.moneytec.com/forums/f46/learning-speak-language-market-volume-price-21166/page16.html

 

The calculations for these pivot ranges are slight modification of those of Mark Fisher i.e the POC , POINT OF CONTROL is ( H+L+2*C)/4 instead of

(H+L+C)/3 and so on.

 

When there is a confluene of these levels i.e traditional pivots, Mark fisher's pivots, fib numbers, high and low of wide range bars, previous S/R levels from swing points and VSA signs appear in the vicinity then it is time to pay attention for there is now context as well.

I was just experimenting with this today for it is claimed that the Pivot Ranges mirror Market profile generated by traditional means, hope Pivotprofile would be able to shed more light

[Blu-Ray 10]

Just knocked up a quick indicator for Tradestation that follows the rules set by PivotProfiler for the pivots.

 

 

Hope this helps

 

Blu-Ray

PP'SPIVOTS.ELD

[MC 10]

Just knocked up a quick indicator for Tradestation that follows the rules set by PivotProfiler for the pivots.

 

 

Hope this helps

 

Blu-Ray

 

Man you guys are awesome on here.

[RAVIN 10]

Hey Ravin,

 

could you explain a little more about the deviation and reaction ranges.

Thanks

Rajiv

 

Hi Rajiv,

Hope you managed to find some more info. on Moneytec, here is the same stuff on YM another market which I trade.

 

YM 30MIN WITH FIB. LEVELS

 

YM 15MIN WITH FLOOR PIVOTS AND KPcurrency Pivot ranges, black line is POC at 14134 which is the region where support was evident during the lunch period on Friday 5th Oct, 07, now acting as resistance

 

YM 5MIN WITH FLOOR PIVOTS AND 30MIN RANGE. Note the breakout of this 30min range,

 

Support is at 14091 which is S1(floor pivot) , also 62% fib level, Deviation range low (value 1low) and finally Friday's Low, all coming together in conjunction with that BOZO on high volume at lunch time , classic sign of strength on a down bar, low risk high probability trade long

 

There was also a short this morning off the POC and 31.8%fib level

 

It is nice when all this confluence takes place, however during times like last month when the market really gathers momentum, all support and resistance levels are blown away, have seen signs of strength and weakness in Tradeguider negated during these period and those who rely heavily on them without considering what the next bars are telling them really get hammered.

 

However they are certainly useful tools.

 

Previously I have experimented with this lot, the first 30 or 60min ranges etc have been well documented by Jake Bernstein, George Angell etc but ended up with charts with far too many horizontal lines, so much so that I used to sit there hoping for reversals at these levels and not looking at the price action.

As the Buddhist states " To see the mirror one has to stop looking at the relflection"

[RAVIN 10]

Here are charts from Tradeguider with the VSA signals

 

Dax 5min with classic No Demand, mind you it shows after the second bar

Also note the reactions at the normal Floor Pivots, 8022 is S1 plus Yesterdays low and where support was observed yesterday as well plus weekly POC if you want to throw that in.

 

However it is also the area where on Dax 1min chart a Basic Test Signal appears. For those interested the chart also shows an Upthrust to go short.

 

I normally do not switch on these VSA indicators

[RAVIN 10]

In the first couple of hours Dax can be traded via 5min and 1min charts with pretty good signals, once the US opens it can become difficult.

 

Dax 5min: a Trap upmove signal shows up with an appropriate explanation, this is right at the floor Pivot, POC, previous No demand followed by Bozo etc, exactly the location expected.

 

Dax 1min: this shows the classic upthrust at that point.

 

Also of interest to note the first 30min range in blue on Dax 5min, Note the test over the High after breakout, another point for a long entry.

Good trading

[RAVIN 10]

Just knocked up a quick indicator for Tradestation that follows the rules set by PivotProfiler for the pivots.

 

 

Hope this helps

 

Blu-Ray

 

Hi Blu-Ray,

Wonder if you can help.

Have been trying to understand the concept and logic behind Mark Fisher POC etc.

1. The H/L/C values on Dax for Monday were 8081, 8022 and 8056 respectively.

2. The POC works out to be 8053 , with PP modified 8054 , with the value areas (reaction) 8049-58 , Deviation 8052-56, all rounded off numbers.

Have plotted the POC(black) and the Reaction values(pink) on Dax 15min here,

 

3. Now as far as I can understand Mark and his followers claim that this range mirror the traditional Market Profile i.e 70% of price/volume

 

Viewing the chart find it kind of difficult to figure that out. perhaps I am doing this all wrong. I have been operating with something solidly logical like VSA for sometime now and have got into the habit of thinking that way i.e seeking logic. Perhpas you can enlighten

[Blu-Ray 10]

Hi RAVIN

 

To be honest, I just popped onto this thread yesterday and couldn't resist making up the indicator, however I also trade the Dax but I use MP levels.

 

Looking on reflection of it, when you said Mark and his followers claim it mirrors MP levels, this does not seem to be true.

 

In the chart below, the blue lines are the Pivots and the yellow/lightgray lines are MP levels.

 

 

 

Hope this helps

 

Blu-Ray

 

ps. now that I've seen this thread and see your trading the dax, I like your analysis.

[RAVIN 10]

Thanks Blu-Ray

 

Mind you I could be reading this all wrong, however I checked the veracity of the calculations from the Mark Fisher's book "The Logical Trader" on the following link:

http://books.google.com/books?id=4xFo6Pnb6JsC&pg=PP4&lpg=PP4&dq=mark+fisher+acd+method&source=web&ots=qwf5nU_nzz&sig=JU5N3-BHk0tnamUjGT0BkXFHs4U

 

Anyway glad to hear from somebody who trades Dax, how do you generate Market Profile for that market, and have you found it useful in your trading. I know there is a lot written about it on Enthios website, Dalton's Mind over markets etc Infact the chap who runs http://www.learningtotrade.com/

started off with this single concept of the important of price level at which maximum number of trades and maximum volume occurred, created zones around that where when price enters it, there is a high probability of it going to the other end and so on, now he has his own software with triangles, floating zones and what not.

[Blu-Ray 10]

Hi RAVIN

 

I calculate the MP levels using excel, it's availble to download here

 

http://www.traderslaboratory.com/forums/6/mp-on-excel-1306-2.html#post7227

 

Just input the 30 min data and it will then draw the days Market Profile.

 

 

I do find these levels very useful as you can see where the market is heading to.

 

 

Cheers

 

Blu-Ray

[mroalan 10]

tell me this chaps,trade the ft indice on a 15min chart,have noticed you can get some wide candles that have no volume,and also a tiny doji that has loads of volume,is this just the M.M.,s or is there another reason?

[ranj 10]

tell me this chaps,trade the ft indice on a 15min chart,have noticed you can get some wide candles that have no volume,and also a tiny doji that has loads of volume,is this just the M.M.,s or is there another reason?

Mroalan,

 

If you can show a chart that would be helpful. High Volume (strong effort), doji (no result) implies that buying is being sold into. If it was at a new high, it may be the "End of a Rising Market".

 

Tape Reading and Market Tactics by Humphrey Bancroft Neill, has a good description of price action and high and low vol at turning points.

 

Rajiv

[mroalan 10]

Rajiv,thanks for the reply,heres two charts from today that i trade daily,the first is NXT and the second is the ft100 indice both 15min charts.<a href="http://img214.imageshack.us/my.php?image=scr260af9bzj0.png'>http://img214.imageshack.us/my.php?image=scr260af9bzj0.png" target="_blank"><img src="http://img214.imageshack.us/img214/9138/scr260af9bzj0.th.png" alt="Free Image Hosting at www.ImageShack.us" border="0"/></a><a href="http://img214.imageshack.us/my.php?image=scr260af9bzj0.png" target="_blank"><img src="http://img214.imageshack.us/img214/9138/scr260af9bzj0.th.png" alt="Free Image Hosting at www.ImageShack.us" border="0"/></a>