[VSA] Volume Spread Analysis Part I

[Anonymous 11]

  mroalan said:

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?

 

EXACTLY !!!!!!!!!!!!!!

 

Narrow range bars on high volume are key. The herd thinks they are getting a good fill as the range is kept narrow. But why is the range narrow? It is because the MM, who can see both sides of the market and know who the orders are coming from, see that the Smart Money is taking a position on one side or the other. For example, if prices are rising than you see a narrow range doji with Ultra High volume, The MM are keeping the range low because they are turning bearish. Bearish because there is an abundance of supply entering the market. If they were bullish, they would INCREASE the range.

As the herd rushes in, it is easy to match their buy orders with an opposite sell order. On a bar like this, the question is who is on the other side of the trade.

 

A wide spread bar on low volume basically shows no real conviction or resistance at that time. Little volume is needed to move price. But if price is being moved on little volume, than the Smart Money is not doing the moving. It doesn't matter why. What matters that without Smart Money support the price move can not continue for long, generally speaking.

 

Now think about the first thing I said about the MM and range. If they are widening the range, they must either be bullish/bearish depending on up candle or down candle respectively. Or they simply do not see large blocks of Smart Money orders on one side of the market. Which is why the lack of volume, should be viewed as more important than the size of the range.

 

Market makers still exist but they are on the decline. You can replace the MM with other elements of the Smart Money. Thus you have elements of the Smart Money crowd watching other elements of the Smart Money crowd.

[MC 10]

  PivotProfiler said:

EXACTLY !!!!!!!!!!!!!!

 

Narrow range bars on high volume are key. The herd thinks they are getting a good fill as the range is kept narrow. But why is the range narrow? It is because the MM, who can see both sides of the market and know who the orders are coming from, see that the Smart Money is taking a position on one side or the other. For example, if prices are rising than you see a narrow range doji with Ultra High volume, The MM are keeping the range low because they are turning bearish. Bearish because there is an abundance of supply entering the market. If they were bullish, they would INCREASE the range.

As the herd rushes in, it is easy to match their buy orders with an opposite sell order. On a bar like this, the question is who is on the other side of the trade.

 

A wide spread bar on low volume basically shows no real conviction or resistance at that time. Little volume is needed to move price. But if price is being moved on little volume, than the Smart Money is not doing the moving. It doesn't matter why. What matters that without Smart Money support the price move can not continue for long, generally speaking.

 

Now think about the first thing I said about the MM and range. If they are widening the range, they must either be bullish/bearish depending on up candle or down candle respectively. Or they simply do not see large blocks of Smart Money orders on one side of the market. Which is why the lack of volume, should be viewed as more important than the size of the range.

 

Market makers still exist but they are on the decline. You can replace the MM with other elements of the Smart Money. Thus you have elements of the Smart Money crowd watching other elements of the Smart Money crowd.

 

Nice, very helpful and clear.

Thanks

[mroalan 10]

yes thanks,i,ll come back later and see if i can post a chart,image shack allows me post charts everywhere else but not on to this site,ideas please.

[brownsfan019 17]

  mroalan said:

yes thanks,i,ll come back later and see if i can post a chart,image shack allows me post charts everywhere else but not on to this site,ideas please.

 

http://www.traderslaboratory.com/forums/f30/how-to-post-a-chart-properly-805.html

[WHY? 16]

PivotProfiler

 

Would be so kind as to look at the attached chart?

 

Would the second to the last bar be a test? And if it is why didnt price go up on the last bar (next bar)?

 

Finally, what do you see happening on the bar yet to come??

 

Trying to get grip on the VSA stuff.

 

Thanks!

 

WHY?

[ranj 10]

Hi Why?,

 

I'll take a crack at it

The 2nd to last bar does not appear as a test bar. A test bar should close off the lows. Also the test bar should test something. Lastly according to Master the Market, a test needs a confirmation on the next bar to be a true test. If I was looking to trade this chart. I would wait for the test of the gap area or the Wide Range Body from the 5th.

 

Hope that helps

Rajiv

[Anonymous 11]

  WHY? said:

Would the second to the last bar be a test? And if it is why didn’t price go up on the last bar (next bar)?

 

No. Test bars close in the middle or upper portion of the bar. Ideally they close on the high, with the next bar closing with a higher close and not a lower low.

 

With volume less than the two previous bars, we do have a "no supply" bar. Personally, I do not consider it as such because the next bar trades lower.

 

That really doesn't matter. What is important is to see that this down bar during an up trend comes on little volume. That is enough to tell you that at least at that point, the market doesn't really want to go down.

 

The next bar, btw, does look as if it would be a test but it would need to be confirmed on the bar after that.

 

  WHY? said:

Finally, what do you see happening on the bar yet to come??

 

I have no idea. The future is unknown and unknowable.

 

I surrender to the market and try to trade the IS, not the SHOULD BE.

 

 

******Let's back up and look at the last four(4) bars.:

1. we have a gap up than a WRB on Ultra High volume. As there is a small top to the left, this could be absorption volume/pushing thru supply. Or the Ultra High volume could be mean supply is swamping demand. We need to look at the next bar.

 

2. This bar has a narrower range, close up, and volume is less than the previous two bars. This is No Demand. While the bar is up, the fact that the bar narrows and the volume drops off, tells us that there must of been some Supply in that fist bar.

 

3. This bar closes down on low volume (volume less than the previous two bars). So it now appears that there the Smart money is not interested in lower prices despite the supply that entered on the first bar. This bar is bullish in that it shows no Professional intent to push prices down and may signal that the supply that entered was swamped by greater demand.

 

4. If this bar is a confirmed test, then price should head up. This would indeed tell us that the supply that entered on the WRB was swamped by demand.

 

Where does that leave us? Like the man said, I would wait to see something happen within the body of the WRB (like No Supply or Test). Or I would like to see the Gap tested and act as support.*************

[WHY? 16]

  ranj said:

Hi Why?,

 

I'll take a crack at it

The 2nd to last bar does not appear as a test bar. A test bar should close off the lows. Also the test bar should test something. Lastly according to Master the Market, a test needs a confirmation on the next bar to be a true test. If I was looking to trade this chart. I would wait for the test of the gap area or the Wide Range Body from the 5th.

 

Hope that helps

Rajiv

 

Thanks Rajiv for your comments. I thought it might be testing to see if there is any supply but you say it needs to close off the low? I wonder why it must close up? What would the close signify?

 

You mean you would wait until a bar went down into that gap created on the 5th? Why? Not sure I understand how that would prove or confirm the second to the last bar in the chart???

 

I dont use candlesticks. They are confusing to me so if you could explain with just regular bar charts. I have Tom Williams book but I still don't understand all he talks about. Frankly it gets a bit confusing to me. I want to learn this way of looking at the markets but see I have a long way to go.

 

Any help or comments will be appreciated!

 

WHY?

[WHY? 16]

  PivotProfiler said:

 

 

 

I have no idea. The future is unknown and unknowable.

 

I surrender to the market and try to trade the IS, not the SHOULD BE.

***********

 

I am not sure how to take this statement??? What is the use of VSA if it can't help me place a trade? Why would I place a trade if I have no idea what can happen to it?

[WHY? 16]

  Quote

No. Test bars close in the middle or upper portion of the bar. Ideally they close on the high, with the next bar closing with a higher close and not a lower low.

 

What does closing in the middle or higher signify when a test is being made?

 

 

  Quote

That really doesn't matter. What is important is to see that this down bar during an up trend comes on little volume. That is enough to tell you that at least at that point, the market doesn't really want to go down.

 

Would that then mean no supply or smart money is supporting it to keep price from falling? But if they were, wouldn't it have more volume??

 

  Quote

The next bar, btw, does look as if it would be a test but it would need to be confirmed on the bar after that.

 

So, are you saying that I should wait to see if the next bar confirms that the last bar is a test before I do anything? Ok, lets say it does confirm. Would I then be right in saying the market is strong, and take a long position?? I am not trading this stock so don't worry about giving me bad advice..etc:) Just trying to understand "when" i would take a position in it hypothetically, so i can begin to see how VSA works.

 

 

 

 

  Quote

Let's back up and look at the last four(4) bars.:

1. we have a gap up than a WRB on Ultra High volume. As there is a small top to the left, this could be absorption volume/pushing thru supply. Or the Ultra High volume could be mean supply is swamping demand. We need to look at the next bar.

 

I looked back 3 years there was no top to the left of the WRB. Does that mean the WRB would not be absorption volume, pushing thru supply? I am right on that? Would that just mean it was demand?

 

  Quote

2. This bar has a narrower range, close up, and volume is less than the previous two bars. This is No Demand. While the bar is up, the fact that the bar narrows and the volume drops off, tells us that there must of been some Supply in that fist bar.

 

That makes sense to me except why would there be some supply in the WRB?? That part I don't get. Couldn't it be pure demand?

 

  Quote

3. This bar closes down on low volume (volume less than the previous two bars). So it now appears that there the Smart money is not interested in lower prices despite the supply that entered on the first bar. This bar is bullish in that it shows no Professional intent to push prices down and may signal that the supply that entered was swamped by greater demand.

 

Would I then be correct in saying that IF smart money were interested in pushing the price down that the range on the bar after the WRB not only would have closed low, but would have also been a WRB itself??

 

  Quote

4. If this bar is a confirmed test, then price should head up. This would indeed tell us that the supply that entered on the WRB was swamped by demand.

 

And that it would be an opportunity to take a long position?? When would I take that position? When a new bar completes and proves that the last bar in the chart is a valid test?? These are daily bars so would that mean I wouldnt take a long position until 2 trading sessions from the end of the last bar?.

[Anonymous 11]

  WHY? said:

I am not sure how to take this statement??? What is the use of VSA if it can't help me place a trade?

 

It can, but If you're looking for a crystal ball, you need something more than Volume Spread Analysis (or any method/indicator) can give you. Learn to trade the NOW, the future will take care of itself.

 

 

  WHY? said:

Why would I place a trade if I have no idea what can happen to it?

 

You do: Profit , Loss, or Break even

[BlowFish 10]

  WHY? said:

I am not sure how to take this statement??? What is the use of VSA if it can't help me place a trade? Why would I place a trade if I have no idea what can happen to it?

 

Trying to 'predict' the market leads to a whole load of problems (not least of which are psychological ones). Sadly I speak form experience here:crap:. By all means anticipate a direction to enter, use a squiggly line, discretion, VSA, or even a coin if you prefer, it really doesn't matter so much. This is absolutely the least important part of the equation. Why do people (me included) spend a disproportionately large amount of effort on it. better exits will almost certainly improve your trading more than better entries!

 

One thing that is key however is monitoring what is happening now and determining whether what you anticipated is actually occurring. Of course then you need to attend to business needs based on your observations of now, do you close, reverse or let it ride? VSA is a pretty decent monitoring tool. Actually It would be interesting to see if any one makes extensive use of VSA to exit? I have to say there is nothing so satisfying as covering a short into a selling climax with the rest and even reversing long. Of course not so fun when you then see signs of no demand and price takes another leg down :-)

 

Cheers.

[Turning Point 10]

Hi, I am new to VSA and the forum. I have a question. I would like to buy the Boot Camp CD of VSA. I do have the book master the market. I would like to know is it necessary to buy the cd or will the book be enough. Can any one with VSA knowledge advise.Thanks.

[TinGull 10]

Per what Pivot has told me, BootCamp is definitely worth the money.

 

Now...here's a stock I picked up on while learning this new scanning software I'm testing out.

 

PCU

 

It's a copper mining company, and copper's been on a tear. This was some GREAT VSA stuff here. Gap down into the 200ma which was bought as evident by the hammer. The stock still closed below the close of the prior bar, so still looked "bad" at the end of the day ticker. Looking closer we see...

 

Enormous volume with a hammer closing at the highs. Awesome yet? Well, next day gapped UP and closed the gap only to trade up again and give another hammer! Currently sitting 56% higher from the close of that second hammer. Yesterday had nice increase in volume, nice spread, closed just off the highs breaking a minor resistance. Yum...VSA tastes like cake sometimes

 

[ranj 10]

Turning Point,

 

The book is a great starting point and introduces you to the terms and starts to give you confidence in VSA as a way of looking at the market. I found to bootcamp really put it all together. What the book, does not spell out clearly, is the sequence to events that need to occur for Accum/Distribution to complete. The boot camp fills in that void.

 

Rajiv

[WHY? 16]

Some one want to take a shot at explaining what happened here? From VSA principles that is. I am reposting my previous chart called "test"that I had posted earlier and some comments were made about it. The second chart I am posting is after the next bar formed. Since we are trying to "anticipate" price (not predict...so as to avoid arguments..but really all the same to me) then could someone please tell me what happened here according to VSA principles. I thought that after reading the comments by others on the first chart that the market didnt want to go down. But it did in fact go down and went down a good bit. What is happening here? Boy does this get confusing to me!!

[WHY? 16]

I may be stepping out on a limb here and it might break off and I crash to the ground BUT I'm am willing to say that the next bar will show price will go up, or at worst track sideways. My reasoning. It tested the gap to the left. then closed in middle all on relative high volume. The first part of the session no doubt brought selling on but by the close demand came in. That is why the close was off the low. Is this good VSA principles or have I missed the boat altogether???? Comments please. Thanks!

[TinGull 10]

[TinGull 10]

As for the last post...I would tend to think it's *possible* for this market to go higher, but it seems to be it would want to correct a little more and a better place to look for a test would be at the top of the last swing high.

[WHY? 16]

Thanks TinGull for your comments. I am thinking them over. Would like to hear also from others about what happened on the last bar and if the market is now weak or strong??? Williams says strenght shows up on down bars. We had a big one today!!

[WHY? 16]

Explain last swing high???

[TinGull 10]

the top of the last box I drew in your chart.

[WHY? 16]

ok thanks. You actually see it going down that far? It that using VSA principles or do you think that might happen because of some other reason?? Anyway, I guess it isn't that much further. It almost made it there on the last WRB! So, I guess it is concievable it could head on down. But if it does what VSA principle would you think explain such a bearish action?

[ranj 10]

  WHY? said:

I may be stepping out on a limb here and it might break off and I crash to the ground BUT I'm am willing to say that the next bar will show price will go up, or at worst track sideways. My reasoning. It tested the gap to the left. then closed in middle all on relative high volume. The first part of the session no doubt brought selling on but by the close demand came in. That is why the close was off the low. Is this good VSA principles or have I missed the boat altogether???? Comments please. Thanks!

why?,

 

correct assessment of the bar.

 

Rajiv

[ranj 10]

  WHY? said:

ok thanks. You actually see it going down that far? It that using VSA principles or do you think that might happen because of some other reason?? Anyway, I guess it isn't that much further. It almost made it there on the last WRB! So, I guess it is concievable it could head on down. But if it does what VSA principle would you think explain such a bearish action?

Hi Why?

 

What you want to see is a sequence of events that tell you a move in your intended direction may occur. What I see on you chart is strong attempt to push through supply ( gap, followed by the WRB), then the buying subsiding(slight narrowing of the spread, and low volume on the rally. The price action today is very telling and helps confirm the gap as an area of strength. Today the is high volume, down bar, wide spread, closing off the lows. That bar is not bearish, but bullish. What is also important is that the buying came in an area that we expected the gap. I would look for a test before I entered long. A successful test tells me that the "smart money" is not interested in lower prices, and lets me know that the price with most likely to rise.

 

Now the price may never retrace with a low vol signal in my interest zone , but that is the price I pay for the way I apply VSA.

 

Also take a look at the intraday action on this stock and lets see if you had a intraday selling climax, or bottom reversal followed by a low vol test.

 

Hope that helps

Rajiv