[VSA] Volume Spread Analysis Part I

[monad 10]

I think you can increase your odds by trading with the trend.

 

nic

 

In which case 90% of VSA can be ignored, only focus on No demand in a downtrend and no supply in an uptrend, but first we need to define a trend, again easy in hindsight. as after a significant price move, an area of congestion looks nice and compressed, whilst you are in that area in realtime it looks a whole lot different, does it not, there is a breakout, can't tell it is real or not, before you know market moves further in that direction, again a huge vol bar, you now have signs of reversal,

behold, the market marches on , I think you get the picture;)

[ranj 10]

Can anyone shine some light onto why I might have misread (VSA wise) this trade I took yesterday?

 

We had a nice run up (this in on the ES), got an ultra High Volume Up bar followed by an upthrust on huge volume as well.

We broke the low of the upthrust so I started watching for a short entry. Once I saw that no demand I took it.

The next bar moved up against me on increasing volume to close near the top so I put in a break even order and got out on the bar following that.

 

In hindsight you could say I was clearly wrong but in real-time it looked so right. Any ideas about what I may have missed? Was it the no Supply bar 5 bars back from the no demad that signaled higher prices?

 

Thanks

JJ,

 

When I am looking at trend reversals. I like to see a break of the trendline, in your case, up trendline and then a low vol signal in the area of previous weakness.

 

When you have a break of the trendline, you can either fall off with a sign of weakness, WRB down on solid volume and then wait for a low vol rally into the weakness. Or you can see a solid move up to test recent high, and then the sequence of upthrust followed by no demand should work out if it occurs.

[jjthetrader 10]

JJ,

 

When I am looking at trend reversals. I like to see a break of the trendline, in your case, up trendline and then a low vol signal in the area of previous weakness.

 

When you have a break of the trendline, you can either fall off with a sign of weakness, WRB down on solid volume and then wait for a low vol rally into the weakness. Or you can see a solid move up to test recent high, and then the sequence of upthrust followed by no demand should work out if it occurs.

 

Good tip ranj, thank you. Being the time of day it was I was expecting profit taking after such a large rally and I thought the upthrust marked the start of it.

 

Monad, you're right. Ravin talked about being at the whim of higher timeframe traders. Thank you for your comments as well.

[BlowFish 10]

Can anyone shine some light onto why I might have misread (VSA wise) this trade I took yesterday?

 

We had a nice run up (this in on the ES), got an ultra High Volume Up bar followed by an upthrust on huge volume as well.

We broke the low of the upthrust so I started watching for a short entry. Once I saw that no demand I took it.

The next bar moved up against me on increasing volume to close near the top so I put in a break even order and got out on the bar following that.

 

In hindsight you could say I was clearly wrong but in real-time it looked so right. Any ideas about what I may have missed? Was it the no Supply bar 5 bars back from the no demad that signaled higher prices?

 

Thanks

 

This is a scenario to be very careful of. I have posted in the past about it - clearly there where sellers stepping in but there was still demand. I would say the upthrust showed there was still demand (very high volume). It was kind of a continuation of the other bar. For an upthrust or test I like price to fall off first. I also tend to anticipate (in a trend at least) that these types of set up are going to be pauses unless there is very clear evidence its over.

 

VSA is a great tool but its not a magic bullet. I have said in the past that its nice to see some 'failures' or supply shift to demand shift to supply again senarios. This ebb and flow happens all the time at the hard right edge. Sometimes supply enters heavy but the bulls pick up the pace to overcome it. Sometimes they withdraw but re enter at a lower level. there's all sorts of players with many agendas.

 

Thanks for sharing the chart hopefully we can all learn from it. Was it yesterdays ES?

 

Cheers

[jjthetrader 10]

Yes, yesterdays ES.

[Tasuki 10]

To everyone on this (and all TL) threads:

It would be REALLY helpful if your charts would include:

1) the contract name (or ticker symbol if it's a stock)

2) the timeframe (or tick-frame if it's a tick chart)

3) the X and Y axes of the chart

 

Many times I want to try to reproduce the charts you post to see what else I can see, but it's really difficult when I have to guess about the essential information about the charts. Why do you not include these details? Most of the people who post on TL are guilty of this, and it reduces the value of the site. Kindly give my suggestion some consideration, and help out your fellow traders. It really would help.

[Tasuki 10]

jj,

I've managed, I think, to reproduce your chart from permalink #973. It's a five minute chart, right?

Many pages ago on this thread, I recommended an enhancement to VSA in which volume would be broken down into volume up vs volume down. The "experts" on the thread didn't like my idea, but here's an example where it is valuable (in fact, invaluable). See attached chart. On your putative upthrust, the total volume is too high, but just as importantly, the upvolume nearly matches the downvolume (upvolume is seen as a green line inside the wider red line which is downvolume). This clearly shows that there was significant buying on this bar, hence it was not an upthrust. The total volume itself would have been a clue, but the picture is clearer if you separate the up from the down.

[MC 10]

jj,

I've managed, I think, to reproduce your chart from permalink #973. It's a five minute chart, right?

Many pages ago on this thread, I recommended an enhancement to VSA in which volume would be broken down into volume up vs volume down. The "experts" on the thread didn't like my idea, but here's an example where it is valuable (in fact, invaluable). See attached chart. On your putative upthrust, the total volume is too high, but just as importantly, the upvolume nearly matches the downvolume (upvolume is seen as a green line inside the wider red line which is downvolume). This clearly shows that there was significant buying on this bar, hence it was not an upthrust. The total volume itself would have been a clue, but the picture is clearer if you separate the up from the down.

 

Please correct me if I'm wrong, isn't the volume shown there just at bid or ask? Red if at bid or green if at ask? And if that's correct how reliable do you think it is to expect that an order at bid was a sale and at ask was a buy?

 

Thanks

[monad 10]

jj,

I've managed, I think, to reproduce your chart from permalink #973. It's a five minute chart, right?

Many pages ago on this thread, I recommended an enhancement to VSA in which volume would be broken down into volume up vs volume down. The "experts" on the thread didn't like my idea, but here's an example where it is valuable (in fact, invaluable). See attached chart. On your putative upthrust, the total volume is too high, but just as importantly, the upvolume nearly matches the downvolume (upvolume is seen as a green line inside the wider red line which is downvolume). This clearly shows that there was significant buying on this bar, hence it was not an upthrust. The total volume itself would have been a clue, but the picture is clearer if you separate the up from the down.

 

Interesting concept Tasuki, have a question though

 

On any bar the volume represents contracts buyers = sellers, so how can buying vol be different from selling vol.

[MC 10]

Interesting concept Tasuki, have a question though

 

On any bar the volume represents contracts buyers = sellers, so how can buying vol be different from selling vol.

 

At bid or At ask volume.

My question though is how reliable is it to expect at bid means it was a sale and ask means it was a buy.

 

It seems highly probably that that tick delta works well, but I'm curious to hear from those that trade on the delta info.

 

Thanks guys.

[jjthetrader 10]

jj,

I've managed, I think, to reproduce your chart from permalink #973. It's a five minute chart, right?

Many pages ago on this thread, I recommended an enhancement to VSA in which volume would be broken down into volume up vs volume down. The "experts" on the thread didn't like my idea, but here's an example where it is valuable (in fact, invaluable). See attached chart. On your putative upthrust, the total volume is too high, but just as importantly, the upvolume nearly matches the downvolume (upvolume is seen as a green line inside the wider red line which is downvolume). This clearly shows that there was significant buying on this bar, hence it was not an upthrust. The total volume itself would have been a clue, but the picture is clearer if you separate the up from the down.

 

Thank you for your input. I also was considering that volume may have been too high and that at that level the bar should have pushed down more if it where more selling. So the spread was wrong, in hindsight.

Everytime I make a trade that ends up going the other way I try to see why and hopefully not have it happen again.

 

Yes it was a 5min chart of the ES. I will post more info on the next chart I post.

[Anonymous 11]

Let us be clear: Up onto a few days ago when Sebastian made his first post, there were no Volume Spread Analysis experts posting here. Only students on a journey like everyone else.

[marketguy 11]

I really love this thread, guys. Thanks everyone. By the way, does anyone have the Boot Camp CD's and, if so, are they worth the $? Does it offer much beyond the book?

[Anonymous 11]

Can anyone shine some light onto why I might have misread (VSA wise) this trade I took yesterday?

 

We had a nice run up (this in on the ES), got an ultra High Volume Up bar followed by an upthrust on huge volume as well.

We broke the low of the upthrust so I started watching for a short entry. Once I saw that no demand I took it.

The next bar moved up against me on increasing volume to close near the top so I put in a break even order and got out on the bar following that.

 

In hindsight you could say I was clearly wrong but in real-time it looked so right. Any ideas about what I may have missed? Was it the no Supply bar 5 bars back from the no demad that signaled higher prices?

 

Thanks

 

Obviously this is after the fact. However what I will say can be seen in more than one post in this thread-at the very least it is consistent.

 

1. Ultra High volume on the up bar. Markets do not like Ultra High volume up bars because they can hide selling within them.

 

2. The next bar is down, confirming that there was some supply entering on the previous bar. This bar also happens to be an Upthrust. Another sign of weakness.

 

3. The very next bar is the key. It is a narrow range bar on volume less than the previous two bars. It closes lower than the previous bar and the bar that follows it closes up and does not make a lower low. Simply, it is No Supply and is not confirmed until the bar after it closes.

 

Take a look at what you have as No Demand. Notice that the bar after it is up and makes a higher high. This negates the bar as being No Demand. While the base definition of No Demand would be a narrow range up bar with volume less than the previous two bars (a 1 bar signal), one really needs to wait for confirmation by the following bar. This is how TG works.

 

Back to the No Supply. This is a repeating pattern that is a good sign of strength. A No Supply bar immediately after the Upthrust that followed an influx of supply.

 

Since I filter this through my own perspective, I would add that it appears that the No Supply bar would be with in the range of a WRB (the up bar on Ultra High volume if in fact that is a WRB). More reason to be looking to go long not short.

 

**edit***

 

Just wanted to add this. There is a sign of supply coming into the market that only moves prices sideways (a sign of overall strength). This is where the triangle on the chart is. Now if you look at the Up bar in question, it is more likely Absorption volume and therefore a sign of stregnth not weakness in and of itself.

[jjthetrader 10]

I did not wait for the bar following the no demand to confirm it. I just jumped on in. But it is the reason I moved my exit to break even. At least I knew enough to get out in real-time.

Thanks to everybody. It makes me a better trader to see what I may have missed.

[Tasuki 10]

Please correct me if I'm wrong, isn't the volume shown there just at bid or ask? Red if at bid or green if at ask? And if that's correct how reliable do you think it is to expect that an order at bid was a sale and at ask was a buy?

 

OK, MC, I'll be happy to correct you. No, this is not bid/ask volume. Rather, these bars are created from the Time and Sales data, which just represents actual sales, not bids and offers. In a standard T&S window, there are two colors, red and green. The bars in my upvolume indicator simply tally up the number of contracts in each sale that's green on the T&S, and the bars in my downvolume indicator simply tally up the number of contracts in each sale that's red on the T&S. The only novel thing I've done is to arrange my Tradestation indicators so that the upvolume appears inside the downvolume on the same bar--it just gives you a handy way to look at the difference between buying and selling, or to be more accurate, selling on the offer and selling on the bid.

 

The green represents selling at the offer price, i.e. selling as price is going up, which means that the buyer is buying when the price is going up, which means that the buyer is "paying up" because he expects the price to go up even further. In other words, the green represents buying pressure.

 

The red represents selling at the bid price, i.e. selling as the price is going down, which means that the seller is selling at the lower price (the bid price is always lower than the offer price) because the seller expects prices to go down even further.

 

If you look at the up vs down volume for a while, you will convince yourself that this is not "smoke and mirrors" (as bids and offers often are when they don't result in actual trades), and I think you can also convince yourself (as I have) that this information is very valuable.

[tawe trader 10]

JJ, I would most probably have taken the trade in realtime as well. You did well to get out for a breakeven trade.

 

I was wondering though ........... if we follow the futures charts and thus the futures 'smart money' players via VSA then do the 'smart money' sometimes get it wrong, which would lead us to be wrong ?

 

Say in this case (your trade) the 5min futures 'smart money' were selling (and/or going short) but the larger timeframe cash mkt still had plans to keep trending up, this would have resulted in the 5 min boys being on the wrong side of the mkt.

Or am I completely on the wrong track here ?

 

I now know after PP's explanation that it looks like you mis-read the chart and there were sign's of strength not weakness.

 

What I didn't like about the chart was the upthrust bar had the same size volume as the previous up-bar. I was thinking that maybe there was a sudden change in the mkt and there was some hidden buying in the upthrust.

[Primavera 10]

Yeah the typos actually helped. You thought hang on that's not right and would actually think about it then correct in the margin. A hidden test.

 

Actually it was only a couple of charts with a letter missing and I think there where also a the odd instance of accumulation switched with distribution.

 

Cheers.

 

BlowFish (I also address this to Sebastian)

 

I have the Undeclared Secrets version of the book and have also noticed some errors. I certainly agree that it can be helpful to confront these errors to aid one's learning. I have not formally documented these and have put in an order for the TG version of the book.

 

May I ask some questions:

(a) does the TG version of the book include in its entirety the orignal version of the book with all errors corrected ? I am aware that it contains some additonal aspects

(b) would any of you guys who have documented the errors be prepared to share them - not breaching copyright, but merely to say on page 20 chart 1 should read bar A type of thing. I would be prepared to do this myself but it would require a complete re-reading because I have not documented the typos when I found them, so if someone has already done it then it would help. However if the TG version has done it all then, personally, there is no point in me doing this

© On another forum we have the start of rumblings of, shall we say "new ventures". Would it be wise to hang fire before purchasing boot-camp discs etc. to see further developments

 

Primavera

[jjthetrader 10]

JJ, I would most probably have taken the trade in realtime as well. You did well to get out for a breakeven trade.

 

I was wondering though ........... if we follow the futures charts and thus the futures 'smart money' players via VSA then do the 'smart money' sometimes get it wrong, which would lead us to be wrong ?

 

Say in this case (your trade) the 5min futures 'smart money' were selling (and/or going short) but the larger timeframe cash mkt still had plans to keep trending up, this would have resulted in the 5 min boys being on the wrong side of the mkt.

Or am I completely on the wrong track here ?

 

I now know after PP's explanation that it looks like you mis-read the chart and there were sign's of strength not weakness.

 

What I didn't like about the chart was the upthrust bar had the same size volume as the previous up-bar. I was thinking that maybe there was a sudden change in the mkt and there was some hidden buying in the upthrust.

 

Tawe, I knew you'd have probably done the same thing.

 

Some of the "good signals turned bad" I find are ones where the professionals did indeed unload a good deal of contracts but not all. This kind of action can occur at profit target areas and being R3 for the day this might have been one of those cases. In fact my entry price was 1505.75 and it didn't close much higher than that (1507.50) so rather than turn against me it could actually be said to have moved sideways and if held onto would have seen a profit today if I had a 6 point stop (which I wouldn't have had).

 

So that upthrust did take quite a bit of wind out of the rally's sails but today's daily bar for the ES is looking like a no supply so next week may see the next profit target of the professionals.

 

True, professionals get trades wrong to, even Tom Williams.

 

cheers boys!

[jjthetrader 10]

On another forum we have the start of rumblings of, shall we say "new ventures". Would it be wise to hang fire before purchasing boot-camp discs etc. to see further developments

 

Primavera

 

I haven't herd these rumblings. Could you elaborate?

[Primavera 10]

I haven't herd these rumblings. Could you elaborate?

 

 

http://www.trade2win.com/boards/price-volume/27069-s-p-analysis-friday-2nd-oct-2.html#post368722

 

http://www.trade2win.com/boards/price-volume/27069-s-p-analysis-friday-2nd-oct-2.html#post368764

 

http://www.trade2win.com/boards/price-volume/27069-s-p-analysis-friday-2nd-oct-2.html#post369114

[mister ed 10]

Many pages ago on this thread, I recommended an enhancement to VSA in which volume would be broken down into volume up vs volume down. The "experts" on the thread didn't like my idea,

 

Hi Tasuki,

 

I didn't see that post where you recommended breaking down the volume, I sometimes can't keep up with this thread! I am no expert but I agree it is very useful additional information.

[Tasuki 10]

Hi Tasuki,

 

I didn't see that post where you recommended breaking down the volume, I sometimes can't keep up with this thread! I am no expert but I agree it is very useful additional information.

 

Hi Mr. Ed, refer to permalink #982 on p. 99

 

Taz

[mister ed 10]

OK - got it thanks Taz - yep the huge volume at the ask (the buy volume) does show it is unlikely the bar was an upthrust test, adds clarity to the total volume figure on the bar.

[Tasuki 10]

1. Ultra High volume on the up bar. Markets do not like Ultra High volume up bars because they can hide selling within them.

 

Well, actually, they can't if you use my up-inside-down volume indicator (or any indicator system that shows both up and down volume). The belief that volume could be hidden (selling on up bars, buying on down bars) originated decades ago, before the advent of the internet and our incredibly sophisticated charting platforms. If you watch both up and down volume progressing on a single bar, you can plainly see when there's "hidden" buying or selling.

 

Needless to say, the problem with hidden volume still applies to those charts where you can't parse out the types of volume. On Tradestation, daily, weekly, and monthly charts won't allow you to insert up and down volume indicators (maybe other charting platforms are different, I'm not sure), but for intraday trading, hidden volume is a thing of the past.

 

Tom Williams has correctly pointed out that the exchanges have intentionally dragged their feet on providing accurate volume information for a very good reason--the folks that rule the market don't want you to know what they're doing. As Tom points out, there is no damn good reason why we can't get intraday volume on indexes such as the $SPX in this day of supercomputers, and don't get me started on FOREX. Still, for those of us who wisely trade contracts where you can get intraday volume, the separation of up vs down volume is an added level of information that can unmask the hidden buyers and sellers.

 

The last time I presented this idea, many pages ago on this thread, my idea received a lukewarm reception to say the least. Before you all go jump down my throat, PLEASE do yourselves a favor and watch the up/down volume for a week or so and see what you think.