[VSA] Volume Spread Analysis Part I

[jjthetrader 10]

Was just re-reading the section in MTMarkets about Trendline clusters. Than, searched on ‘VSA’ ‘trend clusters’ on the TL forum and jjthetrader’s post rating them highly from 10/27/07 was one of only two that came up.

Does anyone know how they are actually calculated?

What kind of constraints / qualifications are placed on historical trendlines etc in order for them to be used in the clusters?

Such as - must a trendline that is used be part of a historical parallel trendline channel or could a standalone trendline just from a set of tops (or bottoms) qualify, etc.? Thanks

 

Hey zdo, although not technically vsa I'll shed what light I can on clusters. They show up where multiple trend lines intersect. This will include trend lines from as far back as you have chart data.

This does also include highs and lows. I find them very effective and you can indeed watch price change it's behavior in them. If you would like to start another thread about this we could since we want to keep it strictly VSA here for the boys + girls who don't like Tguider.

[jjthetrader 10]

This adds to the discussion from yesterday about VSA and actual trading.

 

Monad, you'll see that it's quite easy to identify the strength I have pointed out on the attached chart. That's what I mean about the easy part. Now that we identify strength, where would we enter. If we entered long after that first sign of strength and place out stop under the low then we would have got stopped out.

 

But if we get in quick and get out quick then we could trade each one of these signs of strength. So for me deciding how to trade VSA is the more difficult part of the equation.

 

This is where people's real-time trades come in handy, you see how they're actually applying it. I was hoping Sebastian might post trade entries and exits based on his VSA reading.

 

Entries might be too personal for people and they may want to keep it secret to. That's understandable, its their right. But even the guys at tguider after they promise you they'll teach you how to trade don't actually tell you when to get in. They teach you VSA and barely do a good job of that.

[monad 10]

This adds to the discussion from yesterday about VSA and actual trading.

 

Monad, you'll see that it's quite easy to identify the strength I have pointed out on the attached chart. That's what I mean about the easy part. Now that we identify strength, where would we enter. If we entered long after that first sign of strength and place out stop under the low then we would have got stopped out.

 

But if we get in quick and get out quick then we could trade each one of these signs of strength. So for me deciding how to trade VSA is the more difficult part of the equation.

 

This is where people's real-time trades come in handy, you see how they're actually applying it. I was hoping Sebastian might post trade entries and exits based on his VSA reading.

 

Entries might be too personal for people and they may want to keep it secret to. That's understandable, its their right. But even the guys at tguider after they promise you they'll teach you how to trade don't actually tell you when to get in. They teach you VSA and barely do a good job of that.

 

What you have just illustrated so graphically is I believe the first Post in any forums on the Internet regarding reading VSA and Trade Execution problem.:thumbs up:

As for TG , having seen countless seminars I wonder if any of them are able to trade consistently with this , for if trade execution etc was easy why would they bother to market it at all.

 

Think that is where those who actually trade on their VSA readings were to post the trades which worked and which were not productive, infact those which are not productive would be even more educational.

 

Great Job JJ and tawe:applaud:

[Anonymous 11]

JJ;

 

You chart tells me you have a grasp of some of the VSA concepts but lack a trading plan. That is not VSA's fault but yours.

 

You could only take signs of strength or weakness around certain Market Profile areas. You could take signs that occur on one timeframe and are simultaneously occurring on a higher timeframe. You could take signs that happen in conjunction with moving average crossovers.

 

In the book, Master the Markets, Tom Williams does give some ideas for entries. He talks about waiting for a down bar after a sign of strength. I would point out that after the first Sign of Strength, I would at least like to see either a Test or No Supply to use as entry. Ideally the test would be on a down bar, which would be consistent with Tom's view of entering long on down bars. (although I would wait for the confirmation which would be up). As the father of VSA, he doesn't need to wait for confirmation.

 

The question thus comes down to, Why would you enter after the first sign of strength?

 

Posting real-time charts without first having a trading plan wont answer that.

[Anonymous 11]

What you have just illustrated so graphically is I believe the first Post in any forums on the Internet regarding reading VSA and Trade Execution problem.:thumbs up:

 

What has been illustrated is a lack of a trading plan. Nothing more.

 

Suppose somebody here had said once you see a wide spread bar on ultra high volume that closes down, you have demand entering the market. Then you should look for a Test of supply, which is a low volume sign, within the range of that high volume bar. Now you have an entry signal......

 

Oh, I think somebody has said that a time or two.

[jjthetrader 10]

What has been illustrated is a lack of a trading plan. Nothing more.

 

Suppose somebody here had said once you see a wide spread bar on ultra high volume that closes down, you have demand entering the market. Then you should look for a Test of supply, which is a low volume sign, within the range of that high volume bar. Now you have an entry signal......

 

Oh, I think somebody has said that a time or two.

 

I totally agree, I have no trading plan regarding VSA. That's why I ask for real-time trades, to see what others are doing so I can form a plan and see how it's done. I'm looking for help setting up a plan and developing trading strategies around VSA principles.

 

But I like your ideas PP about mixing VSA up with TA to find entries.

[Anonymous 11]

Here you go. Right edge stuff.

Edited March 29, 2008 by mister ed
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[Anonymous 11]

Update of chart:

Edited March 29, 2008 by mister ed
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[Anonymous 11]

Not the best trade, but I hope you got what you wanted to see.

 

Some thoughts

 

* as previously stated, not the best time of day to trade. Forget 24 hr market sells picth about forex, trade during the London and New York sessions.

 

* While I don't use profit targets, initial price target was 1.4339. This would fill the gap created by the WRB.

 

* entry 1.4321 exit 1.4328 7pips 7*$10.00=$70.00 per contract

 

* price when as high as 1.4336. As I write this, however, price is at 1.4344.

Edited March 29, 2008 by mister ed
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[Anonymous 11]

Last pic.

 

This just shows the how the move ended up as we appear to have hit a resistance level.

 

Better trade mgmt by me could of resulted in much more profit. (note to self: don't play that game.)

 

Again, I doubt anything was learned from this exercise. If so, let me know. As far as I am concerned, I could of just shown this chart and pointed out the entry and possible price target and the same ammount of information could of been passed on.

Edited March 29, 2008 by mister ed
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[Anonymous 11]

.............But I like your ideas PP about mixing VSA up with TA to find entries.

 

No! LOL.

 

Look into using Market Profile levels or some form of "pivot" levels. Even fib levels will work. Then simply pay attention to the signs at these levels. The Smart money may or may not be using RSI or ADX, but they certainly know where the key price levels are based on High, Low, Pivot, POC, VAH,VAL and other price levels where volume was extreme.

[Anonymous 11]

Okay, I lied. This is the last pic.

 

Note that there was another entry/add on as we got a WRB and then a Test within the body. This Test is a Test in a Rising Market a true sign of strength.

 

The real lesson here is: Being right and sitting tight, that's where the money is.

Edited March 29, 2008 by mister ed
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[MC 10]

PP I am using floor pivots, MP pivots and a few other things as key levels for VSA setups. Could you elaborate on fibs and what level you look at if any one area. I'm familiar with the retrace/ambush fib trades which seem to have lots of eyes on the 50/62 fib area, is that a spot you might focus on?

 

Thanks for all your insight in this thread.

[gassah 10]

Sorry for the off-topic post but I would like to correct a prior statement regarding the Best of Wyckoff conference in San Francisco next Fall that we are trying to get Williams to attend; Krueger WILL be speaking. Thanks.

 

nic

[Anonymous 11]

mcichocki;

 

While I do believe in the "universality" of Fibs I do not use them. One main reason is that I do not know when to apply them. But I use the basic ones like: .320, .500, .620 and .780

 

I prefer the Market Profile "pivots".

 

The key is to focus on PRICE ACTION around the line. Here is where you want to see Tests, No Demands, No Supply, Stopping Volume, bottom reversals et all. And of course, WRBs.

[jjthetrader 10]

Last pic.

 

This just shows the how the move ended up as we appear to have hit a resistance level.

 

Better trade mgmt by me could of resulted in much more profit. (note to self: don't play that game.)

 

Again, I doubt anything was learned from this exercise. If so, let me know. As far as I am concerned, I could of just shown this chart and pointed out the entry and possible price target and the same ammount of information could of been passed on.

 

PP, that was very helpful, thankyou. What timeframe do you use?

 

You're right, the right edge doesn't need to be caputred as it happened, just an explanation after the fact about what you did in real-time.

 

I or we weren't refering to you about hindsight analysis. I was just requesting to see actual trades people took on a chart and not trades that people would have taken looking back.

 

I appreciate your teaching because seeing a trade like this does help to form a trading plan and create VSA setups. Obviously you have a strategy called 'the test' and you're good at executing it. What kind of volume to you like to see on the follow through bar after a test? Or do you just want it to be up?

 

What I like about your example is that you have those huge WRBs down which is basically the end of the push down but then price actually drifts lower than their lows before you find a suitable entry, almost like a false breakout to the downside (an upside down upthrust).

This is what tripped me up in the bootcamp. Tom says "if you see a bar like this get long". Then Todd of course says wait for confirmation. So I'm guessing account size plays a big role in entry.

 

I really have to switch over to candles. They're much more visual for when you're looking left for effort etc.

 

I know SoulTrader swears by MP numbers. Any idea if the MP numbers are correct at mypivots dot com?

[BlowFish 10]

The trouble with levels is there are so many of them! having said that I do look at them sometimes. We have floor pivot (with R1 R2 S1 S2) mid points of those if you wish. MP VAH PoC VAL along with recent few days MP values. Talking of past days there's yesterdays HLC and 3 day HL or weekly HL. Better not forget yesterdays mid point and FIB levels of its range. Of course you could also go exotic and have Ganns square of nine, Murray Math or even Pryapoint or Grid lines using square root of price. Of course if you leave lines on from previous swing highs/lows that generates a whole bunch too. If you add fib levels between those swings it gets ridiculous!

 

Phew there's an awful lot. there's something quite appealing about a plain price and volume chart. There's a real purity and simplicity. Sure the lines will give a heads up where something might happen but the price action with a bit of VSA will tell you what is happening.

 

This is certainly no criticism of key levels, clearly a lot of people watch them, its more to remind myself less is often best. A couple of lines to keep you orientated perhaps but its easy to overdo it.

[zdo 20]

Over last few days quite a few posts have discussed the vagueness of entries when using VSA setups. At essence, I think the most recent posts about pivots, levels, etc. is part of that for most of us. Precision entries may be possible, but the basic premise of VSA (applying my current and limited level of understanding) is to gauge ‘professional’ accumulation (or distribution) and adjust one’s own inventories accordingly. This sort of implies that, like a professional, one would also not take on any inventory one is unable to carry without high levels of stress through short term adversity regardless of the time frame(s) used in the VSA setups. Currently, I’m looking at VSA setups / patterns as one item, then turning to wholly other techniques for entry triggers in (those diabolical) shorter time frames. In my experience, the probabilities of having the various sets of ‘professionals’ concurrently line up VSA setups for me at progressively lower time frames aren’t that great - so currently I am restricting my VSA work to one time frame.

[tawe trader 10]

Yes zdo, it seems that some professionals / 'smart money' have very deep pockets. They accumulate while prices are falling and are then able to stomach prices falling even further without getting out or too worried.

 

They know eventually prices will return back to their entry level and travel beyond to give them their desired profits.

 

Which is the message that PP rightly tries to put across, just because we see wide spread down bars on increasing volume it is not a signal to jump straight into the mkt and go long. There is momentum at play (as we know one of Newton's laws) and it takes a while to stop a falling mkt (in all timeframes) even with large scale buying / demand coming in.

 

Merry xmas everyone and hopefully this excellent VSA thread will continue in the New Year.

 

.

[MC 10]

Over last few days quite a few posts have discussed the vagueness of entries when using VSA setups. At essence, I think the most recent posts about pivots, levels, etc. is part of that for most of us. Precision entries may be possible, but the basic premise of VSA (applying my current and limited level of understanding) is to gauge ‘professional’ accumulation (or distribution) and adjust one’s own inventories accordingly. This sort of implies that, like a professional, one would also not take on any inventory one is unable to carry without high levels of stress through short term adversity regardless of the time frame(s) used in the VSA setups. Currently, I’m looking at VSA setups / patterns as one item, then turning to wholly other techniques for entry triggers in (those diabolical) shorter time frames. In my experience, the probabilities of having the various sets of ‘professionals’ concurrently line up VSA setups for me at progressively lower time frames aren’t that great - so currently I am restricting my VSA work to one time frame.

 

Yes zdo, it seems that some professionals / 'smart money' have very deep pockets. They accumulate while prices are falling and are then able to stomach prices falling even further without getting out or too worried.

 

They know eventually prices will return back to their entry level and travel beyond to give them their desired profits.

 

Which is the message that PP rightly tries to put across, just because we see wide spread down bars on increasing volume it is not a signal to jump straight into the mkt and go long. There is momentum at play (as we know one of Newton's laws) and it takes a while to stop a falling mkt (in all timeframes) even with large scale buying / demand coming in.

 

Merry xmas everyone and hopefully this excellent VSA thread will continue in the New Year.

 

.

 

Great point guys, VSA can be tough to pick bottoms or tops for me.

I'm realizing that it's more about seeing the trend change in it's early stages and if it keeps falling but big money keeps buying you know they are still bullish at the current price levels.

 

If you are big money you probably don't stress much if you know your sucking up the float and will soon be in control, but these things take time, often lots of time it seems.

 

Love this thread...keep teaching me guys.

[That One Guy 10]

Yeah, those points are some of the reasons I am moving towards a bigger time frame and bigger stops/targets with vsa. The higher time frames give me more time to see the bigger picture and also more time to plan the trade out. Watching for VSA in the stock market on 60 min daily and weekly charts, is also showing some great opportunities. Only problem is scanning for good candidates. :crap:

Either way, everyone have a happy holiday and a wonderful new year.

[MC 10]

 

SO some massive volume on the DJI today. Stalled at the trend line which is major resistance and I can sort of see a head n' shoulders maybe forming. Spread wise it seems pretty damn bullish to me though, but I'm curious what you guys see in todays action?

 

Thanks

[mister ed 10]

This question of entry triggers with VSA is very interesting and it is something I believe Tom Williams has touched on. There is a video on the TG website of the first 5 minutes or so of a presentation by Williams, where he speaks about VSA (http://tradeguider.com/ss_tom2.asp)

 

He begins by talking about 2 forms of analysis, TA and FA, and then adds in the study of supply and demand as a 3rd way of analysing markets. He goes on to say, quote

 

"if you have what apparently ... appears to be say a buy signal in your technical analysis studies, if you can read supply and demand and a few bars back there's ... some indication of strength then this will back up your technical analysis as such, and I would have thought you would be almost I would say 100% accurate.. this will give you far more confidence to trade"

 

So it would appear that Williams is saying at this presentation that actual entry signals could be taken from some other method while using VSA to support that entry decision - i.e. take buy signals from technical analysis if there are indications of strength, derived from VSA, in the recent past and present.

 

Any thoughts on this?

[ranj 10]

Hey Pivot,

 

Thanks for the great posts on the Euro. I know how hard it is to trade and document, especially in real time.

[Anonymous 11]

This question of entry triggers with VSA is very interesting and it is something I believe Tom Williams has touched on. There is a video on the TG website of the first 5 minutes or so of a presentation by Williams, where he speaks about VSA (http://tradeguider.com/ss_tom2.asp)

 

He begins by talking about 2 forms of analysis, TA and FA, and then adds in the study of supply and demand as a 3rd way of analysing markets. He goes on to say, quote

 

"if you have what apparently ... appears to be say a buy signal in your technical analysis studies, if you can read supply and demand and a few bars back there's ... some indication of strength then this will back up your technical analysis as such, and I would have thought you would be almost I would say 100% accurate.. this will give you far more confidence to trade"

 

So it would appear that Williams is saying at this presentation that actual entry signals could be taken from some other method while using VSA to support that entry decision - i.e. take buy signals from technical analysis if there are indications of strength, derived from VSA, in the recent past and present...

 

Yes and No.

 

I do not presume to know what is in Tom's mind, but there is a bit of placation going on here. Tom, the father of Volume Spread Analysis, does not like technical indicators. He has the ability to read a chart bar by bar and make uncannily accurate "predictions" of future price moves. As the rumors go, Tom was not very happy with TG when it first came out because; (1) there were too many signs of strength and weakness and (2) there were technical indicators included in the software. But Tom is a realist. He does understand that most traders into this area (trading) thru TA. This is because it is easier than reading a naked chart and more accessible.

 

As far as using them together, I believe, he would say if the TA doesn't match the VSA, always go with the VSA. Think about like this: Instead of going long because macd is diverging and there are signs of strength in the background; one should go long because there are signs of strength in the background and oh by the way macd is diverging. May seem like a subtle difference but they are actually worlds apart.

 

In the end, Tom does not trade your money. You have to do what works for you. It is about making money. If moving averages or CCI help you make money and make your VSA better, then use them.