[VSA] Volume Spread Analysis Part I

[Anonymous 11]

See attached 15 minute ES chart. I'm not sure what the proper definition of "upthrust" is, but I show [at vertical dotted magenta lines] what I consder to be two types of upthrusts--one that ends on the high, and one that ends on the low. In both cases, the highs of the bar were the highs of that pivot cycle, and prices dropped significantly afterwards. In both cases, the highs of the bar pierced the resistance formed by the previous bars. In both cases, the volume was higher than previous bars, but still below the average volume (represented by the yellow line of the 50 period moving average of volume). My thinking is that the volume is just enough to get the retail traders excited, and sucker them into going long at just exactly the wrong time, but not so high that the pros are throwing alot of money at this game of deception.

 

Comments welcome.

 

As an added attraction, I'm sure you'll notice some beauiful "No Demand" bars on either side of these Upthrusts.

 

As it has already been said, the first bar is not an Upthrust. In my way of thinking, it most likely an Effort to Rise bar. As I do not know where the open is I can not be sure. Your comment about No Demand on either side makes it more possible, however.

 

If this is Effort, then we have No Result from an Effort to Rise/Negative Action. Simply, we see weakness here...... One could short the no demand bar two bars later. (Low volume signal in the range of a High(er) volume bar.

[Anonymous 11]

The story continues........

 

Here is more on the underlying story. I have noticed that very often after a No Demand/No Supply (or low volume in general), 1-3 bars later we see an Effort bar.

 

Let's examine the story.

 

No Demand means there is little to no activity by the Professional Money. For practical purposes, we will define Professional Money as those traders who trade with enough size to actual effect market change by creating imbalances in supply and demand.

 

Now if the Professional Money is not buying as prices rise, then the must expect that prices are poised to fall.

 

If they expect price to fall, one should not be surprised to see a bar in the down direction where volume picks ups as they try (effort) to take price in their desired ( or expected) direction. This is shows up as an Effort to Fall bar.

 

Individually, neither bar is defined by the other. That is to say, they are independently defined. Hence their propensity to occur around each other gives more insight into the validity of the story they purport to tell.

 

Note that the chart also tells the opposite and as telling situation: a No Demand in the range of an Effort to Rise bar. As there was an effort to take price higher, price moved down. It begins to move back up. However, there is no longer any interest in higher prices. Since we are in the range or area where Bulls rushed in, we would expect more bulls to rush in. Or at least the same bulls to exert more force (effort). By NOT seeing this, we can see underlying weakness in the market.

 

Story is the "why". Story coupled with repetition allows us to see things as being more than mere coincidence. Story gets us thru the down draws. All those traders looking for the "Grail" , might first start out by finding a story they can believe in. It wont take away the losses, but it makes them more palatable.

Edited March 28, 2008 by mister ed
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[Anonymous 11]

......... What I am suggesting is that it is valuable to free your eyes from the "tyranny of the timeframe" and look at the "ebb and flow" of the market. Good call, you guys.

 

Nice.

 

Here is an great example of seeing strength in a market thru the "ebb and flow".

 

While this is a hindsight example, one can ask him or her self, "what would I do on the last bar of the chart?"

 

Take a look at what we have here. The first thing to note is that we have two Effort to Fall bars with no results. In fact, price never trades lower than the low of either effort bar. This is negative action. Negative action is basically the opposite of what we would expect to see happen. In other words, after a sign of weakness, we expect lower prices. Negatively, we see higher prices.

 

In this case negative action means strength.

 

We also see a Test and multiple No Supply bars. As the market unfolds, the ebb and flow shows a market that wants to go up. AT NO TIME IS THERE A REASON TO BE A SELLER.

 

To the question: While there does appear to be a little volume/price divergence, VSA is telling us the market is strong and the path of least resistance at this point, remains up. Therefore, we may not be buyers here, but we are certainly not sellers...........

Edited March 28, 2008 by mister ed
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[habi 10]

Hi PP

 

Why you don't mention the candle after the squat as an effort to rise? The close was outside of the WRB's s/r zone with higher volume then the previous four bars. In addition, the boddy of this candle acted then itself as s/r zone, followed by another effort to rise bar after the second "no result from an effort to fall". In an overall view, after the first effort to fall candle, I see more effort to rise then effort to fall.

[insideday 10]

Hi PivotProfile,

 

interesting read. I am not familiar with metastock, so i have a question. Does C>ref(C,+1) look one bar in the future?

 

If yes then your

 

NoDemand:=If(H>ref(H,-1) and L>=ref(L,-1) and (H-L)<=ref((H-L),-1) and V<ref(V,-1) and V<ref(V,-2) and C>ref(C,+1) and H>=ref(H,+1),1,0);

 

should look in tradestation like

 

condition1= H[1]>H[2] and L[1]>=L[2] and Range[1]<= Range[2] and V[1]<V[2] and V[2]<V[3] and C[1]>C and H[1]>=H;

if condition1 then

plot1(1);

[Anonymous 11]

Hi PP

 

Why you don't mention the candle after the squat as an effort to rise? The close was outside of the WRB's s/r zone with higher volume then the previous four bars. In addition, the boddy of this candle acted then itself as s/r zone, followed by another effort to rise bar after the second "no result from an effort to fall". In an overall view, after the first effort to fall candle, I see more effort to rise then effort to fall.

 

Your definition of an "effort" bar differs from mine. I do believe we come to the same conclusion: more strength than weakness. Remember, No result from effort to fall/Negative Action can be as strong a sign of strength as an effort to rise bar with good rusults.

 

Hi PivotProfile,

 

interesting read. I am not familiar with metastock, so i have a question. Does C>ref(C,+1) look one bar in the future?

 

If yes then your

 

NoDemand:=If(H>ref(H,-1) and L>=ref(L,-1) and (H-L)<=ref((H-L),-1) and V<ref(V,-1) and V<ref(V,-2) and C>ref(C,+1) and H>=ref(H,+1),1,0);

 

should look in tradestation like

 

condition1= H[1]>H[2] and L[1]>=L[2] and Range[1]<= Range[2] and V[1]<V[2] and V[2]<V[3] and C[1]>C and H[1]>=H;

if condition1 then

plot1(1);

 

Yes it does look one bar into the future. See next post..........

[Anonymous 11]

ANOTOMY OF A TRADE SET-UP :

 

Let's take a look at a nice trade set-up here. Actual profit was around 20 pips, but that is really not the issue. THE ISSUE IS HOW WE VIEW SUPPLY/DEMAND DYNAMICS IN REALTIME & HOW WE TRADE WITH "SIGNS" THAT USE FUTURE BARS (CONFIRMATION BARS).

 

First turn your attention to the chart on the left. This is a 15 min chart. The first thing to note is an area that is not labeled. In the Middle of the chart is an Effort to rise bar. However, price does not make a higher high and in fact trades lower: No result from an effort to rise/Negative action. This is the first clue of a change in the market.

 

To be sure, momentum does take the market higher.

 

Now let's jump over to the right hand chart, the 5 min. #1 is a Wide Spread bar up bar with ultra high volume that closes off its high and the next bar is down. Supply entered the market here.

 

Note also that this is a WRB and creates a Support/Resistance zone. This is key. We now have a High volume bar that is a WRB. We would love to see a low volume sign within the body of this bar. (we don't get it).

 

Price does indeed begin to fall from this point as Supply entered the market.

 

#1a. After the initial down fall we see an Effort to Rise. Please note that effort bars do not need confirmation. Thus at 2:55 at the close of the bar we know we have just seen an effort to rise bar. No reason to get long. Nothing on the 15 would merit it. The next bar(s) do not make a higher high. We are thus starting to see No Result on the very Next bar as it does not make a higher high.

 

#2 1/2 we jump back over to the 15 min char. We get an up bar with a narrow range an volume less than the previous two bars.THIS IS THE BASE DEFINITION OF NO DEMAND. This bar closes at 3:00. Now, for confirmation, we will need to wait until the close of the 3:15 bar.

 

My software will place the sign on the bar at the close of its period and keep it there as long as the criteria remain met. Thus at the close at 3:00 a red dot actually appears. It would disappear if the next bar makes a higher high and not return. It would also disappear if the current price is equal to or greater than the close of the previous bar. But if the current price changes, the dot would come back.

 

But let's assume the dot does not show up in the first place. We know we have just seen the base definition of No Demand.

 

At 3:05, we see a bar that closes equal to the Effort to Rise bar. This is NO RESULT FROM AN EFFORT TO RISE/NEGATIVE ACTION. We would actually like to see this price lower than the low, but the bar prior does trade lower than the effort bar. Simply, we are not seeing support at the low of the effort bar.

 

In sum:

 

We have a base definition of No Demand on the 15. We have seen supply enter on a wide spread bar with ultra high volume and we now have no result from an effort to rise: GET SHORT on 5 min.

 

#5 This bar confirms the No Demand bar. At its close the x appears and the dot is there for good. So, if we assume only appears at the end of the next bar, then it would appear now at the same time the x appears. BUT WE ARE ALREADY SHORT BECAUSE WE KNOW THE BAR TO BE NO DEMAND.

 

Yes the "sign" may come "after the fact" as the detractors say, but since we know how to read the chart, we are already in the trade.

 

EDIT: almost forgot to mention that the effort to rise bar was within the body of the WRB (hmmm, have I mentioned that before?).

Edited March 28, 2008 by mister ed
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[Tasuki 10]

Brilliant analysis, PP. Sorry to backtrack a few posts, but in your post on p. 28 (permalink #278), you show a chart with the words "Squat (test)". What the heck is a "Squat"? Is it the the same as a "test", or is Squat a subset of tests, or are tests a subset of Squats or what? Thanks, Taz

[Anonymous 11]

Brilliant analysis, PP. Sorry to backtrack a few posts, but in your post on p. 28 (permalink #278), you show a chart with the words "Squat (test)". What the heck is a "Squat"? Is it the the same as a "test", or is Squat a subset of tests, or are tests a subset of Squats or what? Thanks, Taz

 

ON SQUATS:

 

"A squat is the strongest potential money maker of the four Profitunity windows. Virtually all moves end with a squat as the high/low bar plus or minus one bar of the same time period........

 

The squat is the last battle of the bears and the bulls, with lots of buying and selling but little price movement (NARROW RANGE). There is almost an equal division between the number and enthusiasm of both bear and bulls. A real war is taking place and the equivalent of hand to hand combat is going on in the pits..............", Bill Williams, TRADING CHAOS, p.93.

 

Bill Williams' technical definition of a squat bar is a bar with greater volume than the previous bar and decreasing MFI (Market Facilitation Index). The short hand definition is, volume greater than the previous bar and a SMALL range than previous bar. As I do not use mathematical formulas, it is the short-hand definition that I look at.

 

Tom Williams says that the range of a bar tells us the sentiment of the market makers, the ones who can see both sides of the market.

 

For Volume Spread Analysis the story above is off while the bar itself is of note. VSA would say that the volume is the retail trader rushing into the market. The spread is narrow because as the retail rushes in to buy, for example, there is a substantial amount of Supply from the professional to a meet that demand. Because the market makers see resting orders to sell from the smart money, they have a different perceived value of the stock/index/currency. This perception of value is such that they are willing to keep the spread narrow as they see expect prices to fall. If they, the market makers, were in fact bullish, they would increase the spread, not let retail traders come in and get "good fills".

 

Simply put, as volume increases the range of the bar should increase as well. If the range is decreasing, something most be going on underneath. What is going on underneath is either Supply swamping Demand or Demand swamping Supply. This often happens at Market tops or bottoms (like Bill said).

 

We are yet again at situation where we see two different methods coming to the same conclusion. Tom never mentions squat bars, but he talks about narrow spread bars on high volume (p.77 for one-when discussing market tops.)

 

A squat and a test are not related, but could be the same bar. A test that has a narrower range than the previous bar and has higher volume is by the short hand definition a squat. An UpThrust might also be a squat. Note that at potential turning points as defined by VSA: Tests, UpThrusts, we have the potential for a squat. Which as stated above often come at plus or minus one bar from said turn.

 

To be sure, not all squats are turning points and not all turning points have a squat. Generally speaking, the higher the volume the more likely the squat will be a market turning point.

[Tasuki 10]

PP,

Thanks for the info on squats--enlightening!

Taz

[shreem 10]

Hello To All, this thread is really great. PivotProfiler posts are very enlightening. Also, thank to thos posts of all others.

 

I think that using VSA concepts coupled with WRB and long shadow analysis is really a great combination.

 

If some people wants to see more about VSA, go and look at a thread at http://www.moneytec.com/forums/f46/learning-speak-language-market-volume-price-21166/ by KPcurrency on VSA which started "Learning to speak the language of ...

 

It surprise me that no one is posting anymore on this thread.

 

Are there people here on this forum still using VSA in their analysis?

 

A great trading day to all

 

Sincerly

 

Shreem:)

[Tasuki 10]

shreem, Thanks for the link to MoneyTec. Funny how it looks like a clone of Traders Lab. It also looks as if KP on MoneyTec is our old friend PP on TradersLab. Also seems like some of the other posters are the same between boards. Not sure why they'd do that--create two nearly identical bulletin boards. Have you found any advantages or disadvantages between them? In any event, to answer your question, yes there certainly are folks on this forum (and that one too, I'm sure) who use VSA in their analyses. We seem to go thru "spurts" of posting, and then folks get tired and take a break.

[shreem 10]

Hello Tasuki, thank for the reply. Yes, you are right, KPcurency and PivotProfiler are the same person. He first started his thread on VSA on moneytec and as there was not too much interaction there and he discovered the quality of trader over here, his has began posting here on VSA.

 

As for me, I have found that VSA and WRB and long shadow analysis are so great that I have read both thread here and moneytec 2 times in full lenght and I have put on a word document all the important concepts of VSA and WRB that PivotProfiler (KPcurrency) has written.

 

I really find that his analysis coupled with his charts are simply brillant and extremely useful in my learning curve on these great concepts. Coupling that with my learning of MP, these are certainely a good mix to succeed in this business.

 

Eventhough, some posts overlap on both forums, I suggest you or anybody interested to also take the time to read through his thread on Moneytec on VSA as there is really a "pot of Gold" for understanding VSA at works

 

So, Dear Tasuki, a very good read according to me

 

BTW, PivotProfiler, if you are reading this, thank you very much again for your great posts on VSA and thank for all others contributing:bow down:

 

Wishing all a great journey of numerous pips or ticks

 

Shreem:)

[Anonymous 11]

........ In any event, to answer your question, yes there certainly are folks on this forum (and that one too, I'm sure) who use VSA in their analyses. We seem to go thru "spurts" of posting, and then folks get tired and take a break.

 

 

For me, there have been two main reasons for not posting:

 

1. Up until the last few days, I could not consistantly get onto (find) the site. I was routinely told the site could not be found. This problem does appear to be taken care of. Thanks SoulTrader.

 

2. As I am not the tread starter, I feel no need to keep the thread going. I do not want to be the only person posting. The more interaction among the community the more willingness I have to post.

 

I am willing to share my ideas, but they may not always be correct. So I too relish the opportunity to see another trader's point of view on a subject near and dear to my heart.

 

I have enjoyed the charts from Tasuki and look forward to seeing more.

 

Shreem, if you post it....... they will come. :o

[shreem 10]

Hello PivotProfiler, very much happy to see you back. I will certainely post some charts in the future as my understanding and practice of VSA application increase. I am new to it but really found this concept very very interesting and going well with my mentality.

 

Have also put a reply to Tasuki on your thead on Moneytec on VSA.

 

For the time being, as I am new to it, I am doing a lot of screen timing to see how the chart unfold in the eye of VSA analysis with the pivot Profile and what I see so far is really incredible how it is accurate if one is patient to wait for the proper setup.

 

Plan on making my firs live trade with VSA next week or so and will post my thinking on this thread when I will do it.

 

Wishing a great day to all

 

Sincerly

 

Shreem:)

[Tasuki 10]

OK, folks I'm back. Not sure if I should post here or that other forum. I'll start here. I like the name "Traders Lab" better.

See attached chart. I see this type of bar all the time and it doesn't seem to fit any of the standard VSA definitions of weakness because it isn't, after all, a weak-looking bar--spread's not too wide, volume's not too high or low, doesn't close on its lows. It's the PERFECT fake-out bar. The one constant is that the bar pretty much always (well, usually, well, frequently) appears as price is nudging up against some sort of resistance, and the bar is designed to suck in the gullible. There probably is what VSA folks would call "weakness in the background" but I'm not clear on how you determine that (maybe a topic for another post).

So my question is, whaddya call this bar? Is there a name for it in traditional VSA?

[Tasuki 10]

Here's another example, this time from a weakly (sic) chart. You see, this pattern is no respecter of timeframes--you find it all over the place.

 

So, two questions:

1) Like last post, is there a name for this thieving deceiver in VSA?

2) See attachment--how do you determine what "weakness in the background is?" Would the price action in June constitute such weakness?

[Anonymous 11]

Nice posts with some good insights. I believe that TG would call these bars (1) Hidden UpThrusts or (2) UpThrusts over two bars.

 

You are correct about the intent of the bar: trick the herd into a long position just as the market is about to head down.

 

I hope we can get a response from someone that knows for sure. Something of note: in both cases, when you look at the close of the next bar, it is in the middle of the range of the first bar. Which is why I think it may be a two-bar type sign of weakness.

 

Background strength/weakness is nothing more than that: what has already occurred up to that point. Supply that enters on a wide spread up bar on ultra high volume does not "disappear" in just three bars. The supply remains a factor for some time to come. Obviously, the more supply, the longer it would effect future prices. Or, the more demand needed in a shorter timeframe.

 

In essence, just as we are products of choices made yesterday, five months ago, 10 years ago, the market today is the product of both prior Smart Money action as well as present Smart Money action.

[shreem 10]

Nice Post PivotProfiler! Looking at both charts of Tasuki, it have pick my curiosity and I remembered something looking like this in one of their explicative chart in the book.

 

They call this kind of bar a "No Progress on High Volume" and they were saying this kind of remark:

 

"If a market is moving upwards on wide spreads, accompagnied with high volume and no progress is seen on the next day, this shows the volume contains more selling than buying" (Master the Market, P. 154).

 

So, if I see it correctly, this kind of bar which is a wide spread bar closing on its higher portion with high volume but not ultra high and no follow through with the next bar going down with a close lower than the previous bar, it looks definitely bearish and could be implying that there was selling involved in this bar.

 

As the bar close near its high, I do certainely agree with you Tasuki and PivotProfiler that this bar is an intent by the "smart money" to catch late long as they want to find buyers to unload part of their position.

 

So, dear Tasuki and Dear PivotProfiler, nice finding and nice explanation.

 

P.S. With this kind of bar and especially if the next bar is down, we can conclude that the "smart money" knows already in advance that they are not any more interested for the time being in higher price but want to find a way to unload part of their position.

 

Anyway, this is just my little interpretation and I am still learning so I can be wrong.

 

Sincerly

 

shreem:)

[JustMega 10]

Before reading PPs post I was thinking somewhat along the same lines, 2 bar weakness. I looked at a 15min chart of the 5min chart from post #291 and it resembles an upthrust(sort of). If you look at previous bars they failed at 1486 closing mid bar. Plus, the overall trend is down and volume had dried up on the reaction(bounce).

 

I'd think that PP would have a more concrete answer but it looks like he is letting others take a poke at it. Thanks by the way. I'm still a beginner at VSA so thanks for allowing me my 2 cents.

[Tasuki 10]

Putative plan of action:

1) you keep the background weakness in mind--I guess we don't know exactly how much supply is present, but we can maybe guess that there is at least some supply left over from previous displays of weakness.

2) when you see a seemingly strong bar showing up at some obvious resistance level, you stick your front paws under your buttocks until you see how the NEXT bar turns out.

Sounds like a plan?

[Anonymous 11]

..................2) when you see a seemingly strong bar showing up at some obvious resistance level, you stick your front paws under your buttocks until you see how the NEXT bar turns out.

Sounds like a plan?

 

Underneath your cynicism is real truth.

 

First, there is no real reason to be looking to go long on the appearance of the bar itself.

 

Second, there are certain things to look for as price moves towards trend lines/resistance and support lines/previous market tops.

 

For example, the spread usually widens and the volume increases PRIOR to reaching the level when the market is going to penetrate that level.

[Anonymous 11]

ON GAPS

 

The old adage is that "Gaps are filled". Here is an example of a Gap play on the open of the day.

 

The market opens up with a gap to the downside. The first bar we see is a dark WRB. (Note: while it is beyond the scope of this post, this dark WRB actually forms another larger "gap" and is thus even more reason to be thinking that price should move higher in order to fill the gap.) Things start to get interesting when we see the first labeled No Supply bar. The appearance of this bar itself is something to note, but there is another No Supply bar a few bars prior, and price continues down.

 

What makes this one of note is that a previously mentioned pattern occurs. That is, one to three bars later, we see an Effort to Rise bar. We have now seen low volume on a down bar followed by an Effort to Rise. Is the path of least resistance changing?

 

The volume on the next bar increases and the range narrows. This is a Squat. Supply is entering the market. Again, we see another pattern show itself as the very next bar after the Squat is a No Supply bar. The low volume tells us that Demand must of been swamping Supply on the previous bar (Squat). Now we have are signal. We have a low volume sign within the range of a high(er) volume bar (the Effort bar), which is also a WRB.

 

Things are fine until we get to the No Demand bar. Note that the market does not completely fill the gap at this point. But now we have something happening within the range of the Support/Resistance Zone created by the Gap. On the next bar we see a No Supply bar. Time to move stop to just below this bar.

 

This is an example of playing the gap to fill. We were always looking to go long. It thus becomes a matter of "how and when do we get long" not "if" we get long. We did not try to get in on the bottom, but top and bottom pickers become cotton pickers.

Edited March 28, 2008 by mister ed
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[Soultrader 12]

Hello Pivot Profiler,

 

I just wanted to say thank you for introducing VSA to the forums. It was a serious eye wakening experience for me, similar to the moment I learned market profile and learned tape reading. It has helped me tremendously in my trading and have been studying volume (per bar volume especially) ever since you recommended Master The Markets.

 

I dont necessarily follow VSA by the book but the method and techniques used to study volume has been a life changing experience for me. :bow down:

[Anonymous 11]

Thank You.

 

Thank You for providing me, and everyone else, a safe place to explore new ideas, share thoughts, and interact with others on the trader's journey. This is truly an community worth belonging to. I feel honored to be a part of it.

 

But enough of this mutual admiration society .......... let's get back to learning to surrender to the market.

 

The market is full of abundance

The market will provide