[VSA] Volume Spread Analysis Part I

[jjthetrader 10]

Thought I'd share this chart.

Trade the Markets is suggesting shorting MSFT.

Take a look at the chart. Professionals are selling into this upthrust. The next bar was down, closing on the low with high volume.

I think the jump was on the facebook deal, a perfect opportunity for the market makers to mark prices up and sell into.

[MC 10]

  jjthetrader said:

Thought I'd share this chart.

Trade the Markets is suggesting shorting MSFT.

Take a look at the chart. Professionals are selling into this upthrust. The next bar was down, closing on the low with high volume.

I think the jump was on the facebook deal, a perfect opportunity for the market makers to mark prices up and sell into.

 

I'm glad I'm getting the hang of this...that was exactly what I thought on MSFT the day of the gap up when it closed weak on HUGE volume and the 2nd bar as confirmation.

 

VSA on stocks I think I'm ok with, how do you guys use VSA on things that don't have fixed floats like futures. I've tried early in the day on the YM to apply VSA and got raped because there is no set float. New market participants can enter at any time throwing off the balance. Later near EOD I can do a bit better cause I have a more clear volume for the day gauged.

 

Thanks

[TinGull 10]

 

Here you can see a base that's been forming over the past number of weeks and you can also see a number of "no demand" bars (noted by the low volume "dragonfly doji" type bars on low volume) that were quickly followed by selling, but not enough to break that previous low notated by the price level in red.

 

Yesterday was one of the first days that there was some strength coming in on this whole base. Should be interesting to follow along. Plus...it's in the solar complex and I love solar energy.

[jjthetrader 10]

I trade the ES and it's the same as trading stocks as far as VSA is concerned. Look for weakness or strength and try to take trades around support/resistance areas.

Check out my chart from Friday. See the gap up in the morning with weakness appearing first thing. As soon as it broke R1 I took a short at the 10:40 bar ( I wait for a red diamond in TradeGuider).

After the initial weakness and the drop below R1 it then retested R1 on reducing volume and R1 didn't hold, the path of least resistance is down at that point.

I had a profit target of 2 points and got it long before the ride down was over.

Same principles, shorter timeframe.

[jjthetrader 10]

This one's for mcichocki.

VSA & the YM - 5 min.

[MC 10]

  jjthetrader said:

This one's for mcichocki.

VSA & the YM - 5 min.

 

Awesome...I appreciate the screen shot.

And nice trade BTW.

[tawe trader 10]

Hello all,

 

I have just stumbled across this forum this afternoon, this is a great thread and I have read through most of the posts this afternoon. I have been a trading for a few years and a member of the T2W forum but nobody there seems to follow VSA.

 

I was shown VSA back in August (by a complete stranger) and he was also running Tradeguider software. I didn't fancy the software but I bought Tom Williams book and read it from cover to cover.

 

Since August I have had live FTSE Future and Mini-Dow (YM) charts running and I have been watching these mkts all day and everyday since. Watching price and volume throughout the day and how it reacts around pivot points and S/R. VSA is not the holy grail but I couldn't trade without it now.

 

I also believe you don't need to have the Tradeguider software to successfully trade as you can teach yourself the main signals. I still have a lot to learn but hopefully I can contribute something to this thread.

[TinGull 10]

Welcome to the boards tawe trader. Great to hear you're enjoying VSA and learning all about it. I agree that you may not need the software to trade with VSA, but in learning what VSA is and the signals that are generated...the software certainly can help push that learning phase along.

[jjthetrader 10]

  mcichocki_ said:

Awesome...I appreciate the screen shot.

And nice trade BTW.

 

No problem. Let me know if you want anymore. I usually capture my trades for future reference.

[jjthetrader 10]

  TinGull said:

Welcome to the boards tawe trader. Great to hear you're enjoying VSA and learning all about it. I agree that you may not need the software to trade with VSA, but in learning what VSA is and the signals that are generated...the software certainly can help push that learning phase along.

 

Couldn't agree more.

[bertg 10]

  jjthetrader said:

If you use TradeStation I'd recommend Soul Traders Pivots and watch the VSA action around these points for setups.

 

Thanks, JJ.

 

Folks, I looked for forum rules, but didn't find much. If this kind of question is not ok, moderator, please delete.

 

I am trying to decide on a broker. I know TS has lots of indicators, great charting, etc. But I also know that VSA looks at volume and price mainly. Is there a free pivot indicator for IB Trader Workstation? I am leaning towards IB. Would IB be a good platform choice for trading based on VSA?

 

Thanks a lot,

Bert

[jjthetrader 10]

Look no further than the sponsor of this page. Infinityfutures for futures. They also have an FX platform.

I personally like TradeStation and Infinity.

[bertg 10]

Thanks, JJ.

 

I did look at Infinity, but I'm not crazy about the Sierra Charts. So I assume you watch TS charts and trade on the InifinityAT platform (I tested on it, I love it).

 

I know I can set pivot points manually, but I thought I'd ask if there was something for IB TW, since pivots are so important in VSA trading, and eminis is what I would be trading.

 

Regards,

Bert

[ranj 10]

  bertg said:

Thanks, JJ.

 

I did look at Infinity, but I'm not crazy about the Sierra Charts. So I assume you watch TS charts and trade on the InifinityAT platform (I tested on it, I love it).

 

I know I can set pivot points manually, but I thought I'd ask if there was something for IB TW, since pivots are so important in VSA trading, and eminis is what I would be trading.

 

Regards,

Bert

Hi Bert,

 

IB charts have pivot points. Pivot points are not important to VSA. But having an area that one expects to act as resistance or support and see how the volume and price react in those area is important.

[ranj 10]

Bert,

 

Take a look at Dr. Brett he has some nice posts about pivot points, especially recently.

http://www.traderfeed.blogspot.com/

[bertg 10]

  PivotProfiler said:

Remember, high volume on up bars in not bullish in and of itself. This, however, is an assumption most volume indicators make. VSA starts from the opposite view: Weakness (bearishness) enters on up bars with high volume.

 

PP,

 

You would make a great teacher. Well, you ARE my VSA teacher, you and TG and others in this thread. The reason I am learning so much from this thread (and I'm only on post 414) is because you repeat the big issues over and over. And I LOVE that. Post 414 and its chart lesson made me write this.

 

Thank you very much,

Bert

[jjthetrader 10]

  bertg said:

Thanks, JJ.

 

I did look at Infinity, but I'm not crazy about the Sierra Charts. So I assume you watch TS charts and trade on the InifinityAT platform (I tested on it, I love it).

 

Regards,

Bert

 

I do use TradeStation and TradeGuider for charting and Pivots. TradeGuider has nice auto pivots.

 

Pivots are not part of VSA but are very important for trading and a good location to spot VSA setups rather than just dangling in the middle of nowhere. Pivots are a must have.

[TinGull 10]

I had gotten a couple questions recently regarding "tests" and I wanted to post up a couple charts that have nice examples of what a "test" looks like on a chart.

 

For me, I want to see something that has come out of a base and is starting to initiate it's uptrend. Here, in PBW, you can see that after there is some climactic action, there is then a "test" (first black line). Wonderful example there. Plan would be to get long at the close of that bar.

 

 

The second "test" comes along later and happens near the highs...this one I'd be more reluctant to take, but when you see the next bar is UP and closing on the highs with increased volume, you have a good idea that professional interest is wanting to take it higher. Price then consolidates ABOVE the highs (very bullish) and then heads higher. PBW is currently in a consolidation above those new highs and we'll see where it takes us from here.

[jjthetrader 10]

Hey TinGull, I think your first test closes a bit too far from the high to be a test but it is a sign of strength because it's a down bar closing in the middle.

Your second test is indeed a test with a close just off the high. And you'll notice the bar following that is up closing on it's high which makes that 2 bar combination a shake-out.

At what point would you take a position?

[TinGull 10]

I would still consider that to be a "test" simply because the length of that bottom wick relative to the top. I have a hard time taking hard and fast rules about lots of things because things need to be given some wiggle room. The most important thing in that first test was the real lack of volume.

 

My entry would've been at the close of that first test.

[BlowFish 10]

I have to say I'm pretty sloppy on nomenclature. The sentiment behind the pattern is what's important (as I am sure we'd all agree). EDIT: Having said that common terms of reference are important for discussion purpases.

 

Actually I have a 'rigid' definition but frequently use a lose definition. The second marked candle would be the one most likely to fail my more rigid definition. Reason being a test has to test something. Its when price moves into an area of previous strong supply/deamand and gets rejected preferably with much lighter volume i.e. that supply/demand no longer exists at that level. Looking closely at the second candle it is quite interesting it appears to be testing the gap from a couple of days before.

 

Another random thought - actually programming a set of VSA indicators forces the mind to make rigid (and arbitrary decisions) I think with tests I went close top 1/3 of the bar...too lazy to look. It may have been open and close above 1/2.

 

Last random thought (for now) At is most general it boils down to trying to track supply & demand using volume (or lack of it) and price movement (or lack of it). Effort vs Result.

 

Cheers.

[jjthetrader 10]

  TinGull said:

I would still consider that to be a "test" simply because the length of that bottom wick relative to the top. I have a hard time taking hard and fast rules about lots of things because things need to be given some wiggle room. The most important thing in that first test was the real lack of volume.

 

My entry would've been at the close of that first test.

 

 

That's a good point you make. Wether it's called this or that doesn't matter, what matters is the strength seen in the bar.

Good post.

[ranj 10]

  BlowFish said:

Reason being a test has to test something. Its when price moves into an area of previous strong supply/deamand and gets rejected preferably with much lighter volume i.e. that supply/demand no longer exists at that level. Looking closely at the second candle it is quite interesting it appears to be testing the gap from a couple of days before.

 

Cheers.

 

agreed it is "testing" the gap.

 

It is testing if the rapid shift in supply and demand (defined by the gap) is still present. Conceptually very similar to the MP concept of rapid price rejection in the area of single prints or invisible prints (gaps).

[Anonymous 11]

  jjthetrader said:

Hey TinGull, I think your first test closes a bit too far from the high to be a test but it is a sign of strength because it's a down bar closing in the middle.

Your second test is indeed a test with a close just off the high. And you'll notice the bar following that is up closing on it's high which makes that 2 bar combination a shake-out.

At what point would you take a position?

 

While there is no point in getting bogged down in nomenclature, JJ is correct.

 

Ideal Test: closes down from previous bar, closes on its high and has volume less then the previous two bars. The low of this bar, should ideally be into previous High volume territory.

 

I would simply call the first one No Supply and the second one a test as price is just off the high. But what is of most import is that both candles show strength (lack of weakness) in the market.

[TinGull 10]

Welcome back PP