[VSA] Volume Spread Analysis Part I

[jjthetrader 10]

I think you're right Tin. It trips me up sometimes because one bar will be hidden potential buying followed by hidden potential selling on the next bar. Best to step aside I suppose or drop down to a smaller timeframe to see what's happening.

[MrPaul 10]

Nice trade bertg. Any positive trade is a good one.

 

Do you guys think end of the day market action taints VSA. Short covering produces very high volume in a short period of time. Any thoughts?

 

Imo...

 

It's still a reflection of supply and demand no matter what the cause. Additionally, short squeezes near the end of the session won't be able to affect the background strength/weakness seen throughout out the day.

 

For me the first 15min of the next day is paramount to the last 15min of the day prior for the very reasons we're discussing.

 

[jjthetrader 10]

Imo...

 

It's still a reflection of supply and demand no matter what the cause. Additionally, short squeezes near the end of the session won't be able to affect the background strength/weakness seen throughout out the day.

 

For me the first 15min of the next day is paramount to the last 15min of the day prior for the very reasons we're discussing.

 

 

I was thinking more along the lines of determining strength or weakness for the following day based on end of day action and wether it gives a good indication.

As for beginning of the day, how do you relate it to what will happen at the end?

thanks

[jjthetrader 10]

Updates on the two stocks I posted on the weekend.

The first was the one I was asking about testing which was confirmed as a test today.

The second is FDX which there was obviously still a lot of weakness.

[Tasuki 10]

jj,

As far as "so much for that being strength"---if the bar had closed WITHIN the playing field I'd say that it meant strength, but as it closed lower, and below the halfway mark of the bar, I'd look at it as weakness. What is this stock?

[jjthetrader 10]

It's Fedex.

[jjthetrader 10]

jj,

As far as "so much for that being strength"---if the bar had closed WITHIN the playing field I'd say that it meant strength, but as it closed lower, and below the halfway mark of the bar, I'd look at it as weakness. What is this stock?

 

When we see ultra high volume down bars closing off the lows then, in what circumstances are we to think bearish?

[sleepy v2 10]

JJ,

 

My analysis may be wrong here as Im still learning VSA ... but the key IMO is the close on the LOW. If the last bar had closed on a HIGH then you could argue there was strength coming in.

 

High volume on a down-day/bar always means selling. However, if the day’s action has closed in the middle or high, then market-makers and other professional money must have attempted to buy into the selling, or absorbed the selling (by buying), which then causes the market to stop going down..... Absorption volume typically marks the end of a downward trend. It is characterised by a very high volume bar that closes below the previous bar, on a wide spread. In normal circumstances, this would be construed as selling, but the defining difference is that the bar closes on the high. If the high volume had represented selling, how can the price action close on the high? Williams P90-91

 

But at the moment the close on the LOW signifys weakness. However, if the next bar is UP then you have buyers coming back in and what yourve just observed is either:

 

Failed Down Move

A rapid price move on wide spreads down, on high volume (especially if closing low), is a sign of weakness (i.e. Effort to go down). However, this type of action causes the market to become rapidly oversold and vulnerable to up-moves. If the next day (or hour) is up, it must show that there was buying as well as selling contained in the high volume down-move (no results from the effort). This shows that the brakes are being applied to the falls at that moment. P.147

 

Selling Climax

After substantial falls have already taken place (bear market), the market may open with wide spreads down, on very high volume. There will be panic amongst the herd! However, the next day (or bar) is up. This action represents a rapid transfer of stock, generated from panic selling to professional money (news will be doom and gloom to help this transfer of stock). This is known as a selling climax. P.161

Selling Pressue

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 was 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. You would now be expecting testing at some time, as a check is made on the level of latent supply. P.166

 

So until theres confirmation (i.e., an UP bar) theres still weakness and it could go even lower. Similar to what occured around September 20.

 

sleepy

[jjthetrader 10]

Thanks bud, that confirmation bar is so important, you're right.

[BlowFish 10]

YW,

 

you will find that with this VSA stuff, it is relatively easy to get into detailed discussions with the benefit of hindsight as to the meaning in each bar and whether one should have gone long or short, but in realtime one does not have this luxury. As with all tools there are no full proof setups, probability always rules, VSA provides that extra edge, however any scenario which works on one occasion can be negated next time depending on selling and buying pressures from folks who operate on higher time frames, and one has to be ready for that rather than get tied up with any forecasts IMO

 

Quoted for truth. Actually it should be quoted twice!

 

As an aside I think an area where VSA shines is monitoring what is going on in the now. My paradigm was always anticipate and then monitor. Is it happening yes/no. VSA is a pretty decent monitoring tool. I have shifted recently to simply looking for continuation/change. Neither of these paradigms rely on prediction.

 

It is easy (especially amongst newer traders) to come away with the idea you can 'predict' and that if you 'read it right' the trade will be right. This can actually lead to a pretty damaging mindset and is patently not true. Its refreshing to see trades that did not work out, I'd like to see lots more to keep a balanced perspective. Besides that there is often much more to be learnt from these scenarios. It is how one reacts to unfolding events that is really key to trading success not the initial 'read'. Monitoring price and volume puts you ahead of those that only watch price.

 

Cheers.

[tawe trader 10]

Where I find VSA very worthwhile is in a situation where a lot of indicators fail, ie an intraday trading range. If the mkt is bouncing around without any major news you can quite successfully pick tops and bottoms.

 

Over the last couple of days though, I have found it to be quite unsuccessful trading the long side of any of the major index Futures based on a VSA 'buy' signal. On numerous occasions there has been very high volume coming in on down-bars, but there have only been very small bounces before the mkt turns back down again. The bad news has been over-riding most VSA long set-ups.

 

On the opposite hand if I had only acted on VSA 'sell' signals (ie a no demand up-bar after a small rally) over the last couple of days then my trading would have been a lot more profitable.

 

It has confirmed to me, that I need to have a trend direction tool in the background to help filter my VSA signals. So if I am trading off a 5min timeframe, I really should only take signals in the direction of the 60 min trend or if I do go against the trend, only risk small amounts, use a tight stop-loss and take any quick profits.

 

Darren

[TinGull 10]

Good point Darren. VSA is great when used to take higher odds trades, ie; in the direction of a trend. Tools to use for that....higher highs and higher lows/or opposite.

[jjthetrader 10]

I agree also. Trend is very important for higher probablilty trades. Thanks for reminding us of that important part of VSA/trading.

[sleepy v2 10]

This also highlights the importance of why Williams recommends using multiple timeframes. If you dont occassionally look at the bigger picture you may find yourself "too close to the market" and in effect swimming against the prevailing current (or as in this case ... the trend).

 

Alexander Elder got around this problem by coming up with his "Triple-screen Trading" technique. For example, a long term trader would first look at a monthly chart, then a weekly chart and finally the daily chart before making a trade, and then only if they all lined up.

 

sleepy

 

By the way has anyone found a way in TradeGuider to apply a group of charts (ie. a Monthly, Weekly, Daily chart of a particular stock) to ALL stocks in a folder. As creating a 'Group' for every stock I want to monitor is so time consuming.

[jjthetrader 10]

Well you could try saving your monthly's in one folder and your daily's in another folder. You obviously know about the 'save group' function but you want a timeframe applied to all, correct?

Do you have the RT version or EOD?

[sleepy v2 10]

JJ,

 

I have EOD. Im actually wanting to see M,W,D charts for stock AAA on the screen, then be able to see M,W,D charts for stock AAB, etc

 

... so as I page through EACH stock in a particular folder I have their M,W,D charts appear on screen at the same time.

 

sleepy

[jjthetrader 10]

I'll PM you to get you going

[bertg 10]

Hey Bert, nice work. What i see here...

 

1: Note that level of support. First area of support where the yellow line starts is a WRB support line. The bottom of the WRB often will provide support, and getting a higher volume spinning top right after...good sign it'll go higher. Then...comes the penetration of the low of that WRB on lower volume. Regular spread, lower volume and closing in the upper third. A break of that hammer is reason to get long for sure.

 

2: Another WRB that should provide some sort of S/r, and the next bar closes outside of that zone and then we get signs of excess in the form of long tails penetrating that S/R zone of the WRB....killer play.

 

TG,

 

Thanks for the reply and all of the contributions. To be honest, I'm not sure I understand which WRB support line you are talking about.

 

In any case, I am very excited about learning.

 

I'll post another chart soon that I will appreciate comments on.

 

Regards,

Bert

[TinGull 10]

Bert, if you see where the #2 is and there's a yellow box...that is outlining the support/resistance area of the wide range body candle that I marked out. The tops and bottoms of WRB candles as well as long tails on candles mark imbalance/excess. Hope that helps

[bertg 10]

TG, thanks. yes, i understand the s/r from the WRB, but what is the horizontal line? I assume it's just another support line.

 

Thanks,

Bert

[TinGull 10]

Its a line showing the support of the WRB

[mister ed 10]

As an aside I think an area where VSA shines is monitoring what is going on in the now. My paradigm was always anticipate and then monitor. Is it happening yes/no. VSA is a pretty decent monitoring tool. I have shifted recently to simply looking for continuation/change.

 

BlowFish - if you have time could you elaborate on what you mean by "looking for continuation/change" please? And how VSA is useful for this? Thanks

[jjthetrader 10]

Would you guys mind helping me out on this chart. One thing I'm still getting tripped up on is the background.

Have a look at this chart of the DOW mini (15 min chart), would one of you be able to point out the elusive (to me anyway) background?

I know Ravin's familiar with the YM, any pointers?

Thanks!

[zdo 20]

Just got the new member ‘post or perish’ msg when I came up this time. So, here’s a post - that includes a short self -introduction.

While looking at price and volume threads on T2W, followed a reference to TL Forum and here I am. My user names are ZDO on T2W, obx on TS forum, (and I forgot it on ET) - should you need to check the intention and tone of my legacy posting.

 

Have only found time to look at a few pages but, so far, TL is a breath of fresh air. Going forward, as I plow through all 83 pages on this thread will I find herein any digests of the principles of VSA ? Any special pages on this thread to get the big picture? Also, is the book complete? ie does the Tom Williams book disclose all the patterns used in the software? Many thanks.

 

zdo

[Anonymous 11]

Wow. This thread moves at the speed of light. LOL

 

I love it.

 

ZDO: The book is complete. However, the software has roughly 2oo signs of strength and weakness. Many are slight various of a theme. For example, there may be 10 different No Demand signs. All that really means is there are 10 different dialog boxes associated with the No Demands, yet the definition of No Demand remains constant throughout the 10 different signs.

 

Also Tom and Todd worked on the software together and not the book. Which means Todd added a few ideas to the software that are based on VSA principles but not specifically articulated in the book. (Early on it is rumored that Tom felt that the software had too many "signs").

 

In sum, the book is complete and the foundation from which you should begin your VSA journey.