[VSA] Volume Spread Analysis Part I

[WHY? 16]

For your benefit here is a 30min chart as well, wonder if that provides more context for your decision

 

The 30 minute chart indicates weakness. No demand. Next to last bar.

[WHY? 16]

WHY?

 

Here are 2min charts

Where is the 2 minute chart?

[WHY? 16]

I may be stepping out on a limb here and it might break off and I crash to the ground BUT I'm am willing to say that the next bar will show price will go up, or at worst track sideways. My reasoning. It tested the gap to the left. then closed in middle all on relative high volume. The first part of the session no doubt brought selling on but by the close demand came in. That is why the close was off the low. Is this good VSA principles or have I missed the boat altogether???? Comments please. Thanks!

 

I made the above quote. Here on this chart is what happened. How does the market appear now after this last bar. What is it telling us for the next session?

 

This last bar is an up bar, closed high, below average range, low to average volume. What does that mean? Be glad for some input. It doesn't matter of we are wrong or right lets just try to figure it out. What is the market saying to us?

[Tasuki 10]

Well, the last time I tried this approach I got some very savvy responses, so let me try ringing the same bell. I've been stuggling with VSA for a while now, and I seem to find lots of exceptions to the rules, places where VSA doesn't seem to work. Usually, it's my lack of understanding that's to blame, but I keep probing until I really understand how to apply VSA.

 

Attached is a daily chart of the Dow. The first thing you'll notice is that I've gone back to candlesticks, abandoning 'traditional' (ala Tom Williams) HLC bars. I do agree with previous posters (esp. PP) that the candlesticks provide another level of information that is valuable for VSA.

 

The text in the chart gives the layout of my dilemna. After reading a series of posts a few pages back on this thread, I've been hunting for high volume + small range days as well as high range + low volume days, and the chart shows one of the former type.

 

On the surface, it appears to be a perfect example of the professionals selling to the giddy public, but here's the fly in the ointment---it doesn't meet ALL of Tom's requirements for market top. Quoting from p. 76 of Master the Markets, "So, the essential ingredients for this bearish indication are: an up-day on high volume with a narrow spread, into new high ground." Each element is essential for an accurate signal."

 

So, the fly is the 'new high ground'. On p. 75, Tom says that you can have "nothing higher on your chart to the left". As you can see from the chart, there IS something slightly higher to the left, from about July 16-23, or thereabouts. So, the question I'm asking myself (and all of you) is--why don't the higher prices in July act as resistance, and why doesn't the distribution that comes after them provide even more fuel for the bearish case at the bar in question? As most of you know, Tom's book, and Todd Krueger's work, are chock full of examples of the vital importance of looking at the "playing field" and if you see distribution to the left, then you've got a more bearish picture when you come back up to that resistance zone.

 

If you add up all the VSA signals, it looks to me as if this should have been a pretty clear bearish signal. Did VSA just fail us, or am I missing something crucial?

[WHY? 16]

Attached is a daily chart of the Dow. The first thing you'll notice is that I've gone back to candlesticks, abandoning 'traditional' (ala Tom Williams) HLC bars. I do agree with previous posters (esp. PP) that the candlesticks provide another level of information that is valuable for VSA.

 

Could you post the same chart with bar charts. Thanks.

 

Also whichbar is your note refering to that indicated bearish? I didnt see an arrow to any particular bar.

[RAVIN 10]

Where is the 2 minute chart?

 

Guess it did not upload , will try again. I prefer to micromanage the trade on smaller time frames.

It is find on Hind Sight analysis to come to general conclusions regarding buying and selling pressure and possible entries, exits etc, but realtime the decision has to be made on single trigger bars after the signal which defines your particular setup and is consistent with your tactics to implement a particular strategy. Otherwise all we end up is endless discussion on WRB, doji, dragonfly, small range bars, price, vol, professionals, smart money etc. You have 100 of pages in threads on other websites, hardly any realtime trades

[RAVIN 10]

I made the above quote. Here on this chart is what happened. How does the market appear now after this last bar. What is it telling us for the next session?

 

This last bar is an up bar, closed high, below average range, low to average volume. What does that mean? Be glad for some input. It doesn't matter of we are wrong or right lets just try to figure it out. What is the market saying to us?

 

Best to drop the idea of being right or wrong? It gets linked up with forecasting and ego which has absolutely no place in realtime trading.

 

Keep it simple, get away from all this talk about professional and smart money as if they were a single entity. These folks operate on all different time frames with their own agenda just like you have natinal , regional, city, area wholesalers and various levels of retailers on our streets.. Trying to figure out what each of these groups is up to will drive one round the bend.

 

1. When the market is rising and there is sudden invrease in vol. it indicates resistance to higher prices. There is nothing like selling vol or buying vol. in a single bar. Vol is number of contracts exchanges, ie. buyers = sellers. Better to think in terms of demand/supply or buying and selling pressure. If sellers are falling over each other to hit the bids rather than sit on their offers, this suggests selling pressure and resistance and vice versa(buyers are meeting the offers rather than lowering their bids providing support). Now whether or not this selling pressure is enough to keep driving the prices down will depend upon potential buyers, which effectively is an unknown , until they play their hands.

 

2. Tom williams keeps emphasizing this, that there is nothing written in concrete when you read VSA principles in live market, a sign of weakness or strength can be immediately negated and one has to remain totally flexible.

 

3. Now coming back to your chart, If I was trading this instrument intraday, I would have the floor pivots market out of that narrow range inside day.

Watch where the price opens near the high, moves to the pivot and rejects that, the most likely outcome is the break to the upside. Can observe the price action at the pivot and take a trade expecting resistance around 118.

That will be the target.

4. Now time to observe what happens there, if it forms a sideways range, mark the high/low of that and take the breakout from there. If price drops back towards the High of the inside day with vol, it will go to the pivot and to the low of that day.

5. ofcourse if the price opens below the pivot, you can play it in the opposite way, expecting support around 105 and so on.

 

So effectively intraday you have a choice of quite a few ways to take advantage of various strategies, ie. breakout, reversals.

 

Anyway this is how I would do it, and it is time tested methodology.

[Tasuki 10]

Hello "Why", sorry for the confusion---the bar with the vertical line through it us the one in question.

 

Also, I put the chart in bars, as requested. See attachment.

[RAVIN 10]

Well, the last time I tried this approach I got some very savvy responses, so let me try ringing the same bell. I've been stuggling with VSA for a while now, and I seem to find lots of exceptions to the rules, places where VSA doesn't seem to work. Usually, it's my lack of understanding that's to blame, but I keep probing until I really understand how to apply VSA.

 

If you add up all the VSA signals, it looks to me as if this should have been a pretty clear bearish signal. Did VSA just fail us, or am I missing something crucial?

 

Hi, Tasuki,

I can under your frustration, having gone through it myself, and then you come up against some smart a... responses. until I met a floor trader who made it simple for me. I have stated some of it in the post to WHY? above.

 

First of all get rid of all this stuff about professional money etc. and why if there was supply /distribution etc to the left and still price did not go down and so on. VSA and Wyckoff's principles are not about that at all, it is about gauging buying and selling pressures within the background context to the left.

1. Back to your chart and the narrow bar on high vol. Obviously lots of buyers and equal number of sellers, the narrow range suggests sellers were keen to hit the bids rather than sit on their offers or to raise them. If you were trading this intraday there was enough movement for the next 2 days to generate substantial profit. Now at that point a bullish dragon fly is generated indicating demand/buying pressure. Buyers be it professionals or otherwise percieve value and expect higher prices, simply flow with that.

 

2. However you can inject some logic here, 3 bars back, you have a wide range up bar following congestion on high vol, indicating effor to rise which then runs into supply emerging from congestion during 16-23rd July, then you have your narrow range bar again on high vol. As I said you could have easily profited from this info. but unfortunately when we first get into this VSA/Wyckoff, we get tied up with expectations and a subsconcious demand on the market to meet those expectations i.e in this case to demonstrate a significant downside, why?

 

3. The fact that the market did not further than it did simply means there were buyers on the sidelines with different agenda on a higher time frame. They were willing to absorb all that selling and support the market, ie. meeting the offers rather than lowering their bids. period.

 

As WHY? when a sign of weakness in negated, you are now armed with invaluable information on the strength of the market. There is no question of VSA working or not working. Those terms are more applicable to buy and sells signals generated from a set of maths based indicators where the logic is more skewed.

As Todd puts it "you are using variable A (price) and slicing and dicing it to predict variable A (price"

 

Having said that there are many who just employ that, have rules sets and having tested them throughly apply them with discipline and consistency.

check out a consummate trader Arthur Ullrich at http://www.tradetutor.com. This is not a recommendation to use his strategies.

 

Only to point out that with VSA analysis, it still is upto the trader to come up with set strategies and tactics and rulesets , test them and apply them consistently remaining flexible at all times, this is the key.

Hope this helps and does not sound too savvy,

VSA/Wyckoff is a great tool, keep at it, like a piano, it is not going to play by itself, your skills will develop in time, persistance and patience.

[RAVIN 10]

Tasuki,

When I put up charts latter regards to post 503, you will get more insight into what I am talking about regarding the need to be flexible and the sound logic behind VSA

[ranj 10]

I made the above quote. Here on this chart is what happened. How does the market appear now after this last bar. What is it telling us for the next session?

 

This last bar is an up bar, closed high, below average range, low to average volume. What does that mean? Be glad for some input. It doesn't matter of we are wrong or right lets just try to figure it out. What is the market saying to us?

Hi Why?

 

This bar does not tell me much in terms of is it time to take action. When I see a bar like this in relation to the prior day's action, I just wait for more bars to paint.

 

Rajiv

[RAVIN 10]

TASUKI,

Check out soultrader's video:

http://www.traderslaboratory.com/forums/f10/simple-price-action-with-supply-and-1278.html

 

You had that invaluable info. on weakness on that NR bar with high vol, armed with that you could adopt similar trading as illustrated in the video and profit from it.

Now yes there was considerable weakness, selling pressure but two bars later, demand has emerged which is able to meet all that selling. Once again you have gleaned more info. on the market , this time showing signs of strength, with significant upside. Flexibility, not to get tied up with all this pros. and smart a.... activities.

[TinGull 10]

Just a chart I happened across.... Big volume coming in on an uptrend line with a gap down closing near the highs...

 

 

I'd be watching for a gap up on Monday with this one for another leg up.

[TinGull 10]

HA! OOPS! Forgot to update my data....

 

[WHY? 16]

Best to drop the idea of being right or wrong? It gets linked up with forecasting and ego which has absolutely no place in realtime trading.

 

Keep it simple, get away from all this talk about professional and smart money as if they were a single entity. These folks operate on all different time frames with their own agenda just like you have natinal , regional, city, area wholesalers and various levels of retailers on our streets.. Trying to figure out what each of these groups is up to will drive one round the bend.

I couldnt agree more. Except that anticipating correctly does matter to the pocket book! But for our purpose here right or wrong doesn't matter at all. We are learning. The term smart money gets tossed around alot. Like you say it is impossible to know who they all are. They only leave signs they been there.

 

1. When the market is rising and there is sudden invrease in vol. it indicates resistance to higher prices. There is nothing like selling vol or buying vol. in a single bar. Vol is number of contracts exchanges, ie. buyers = sellers. Better to think in terms of demand/supply or buying and selling pressure. If sellers are falling over each other to hit the bids rather than sit on their offers, this suggests selling pressure and resistance and vice versa(buyers are meeting the offers rather than lowering their bids providing support). Now whether or not this selling pressure is enough to keep driving the prices down will depend upon potential buyers, which effectively is an unknown , until they play their hands.

Ravin I think you hit the nail on the head. Buying and selling pressures are what we need to be thinking about. However, I thought that is what VSA did or helps us do???? It helps us to spot the signs of buying selling/pressure. Am I wrong there? we don't have the benefit of seeing all the orders come in. Nor do we know where all the stops are at. A specialist on a stock "sees" much more than we are priviledged to see. He may see a large buy order sitting on the books. However, that order is getting executed in small sizes to keep the price down. He has the benefit of seeing where the buying pressure is and can position himself accordingly to trade himself. On the other hand we are trying to discover where the buying/selling pressures are. VSA is one tool in our toolbox to help us accomplish that task.

 

2. Tom williams keeps emphasizing this, that there is nothing written in concrete when you read VSA principles in live market, a sign of weakness or strength can be immediately negated and one has to remain totally flexible.

I suppose that is why he says if a market appears to be strong but doesn't act strong then it is really weak.

 

Thanks for the analysis of the chart. I will have to think through what you are saying.

[RAVIN 10]

The 30 minute chart indicates weakness. No demand. Next to last bar.

Thanks WHY?, Ranj,Tingull. It was a lesson in flexibility rather than being right or wrong on my decision to go short or whether VSA readings are right or wrong.

 

1. This is one of my setups and when I see all elements coming together, I have to take action , when the trade pans out, it generates more profit than when it does not pan out. However even the latter case it leaves you armed with knowledge of probable market direction in the opposite way.

 

2. WHY? was spot on regarding Tom's comments. I have placed a 5min chart with VSA indicators. Immediately following the sign of weakness, we had sign of strength. Normally I do not switch on these VSA signals. Notice also that the prices were able to crawl up on relatively low vol. one could look at this as no desire to sell rather than no demand.

 

3. The 30min chart WHY? actually tells a slightly different story of an Effort to rise , and absorption of supply from a push through the tops on the left rather than a buying climax and this info. would provide you more confidence to taking a long trade immediately after you have gone short.

 

4. Next day we had a similar setup which indeed was productive in the right direction. There was a range formation at R1 (5min chart), breakdownof that range, target was bottom of the white bozo to the left, and a further opportunity to enter on demand .

 

Anyway enough of all this for now, have to prepare for tomorrow for more realtime effort.

[RAVIN 10]

Next Day Trades, it is all about playing probabities

[WHY? 16]

Would I be a real pain to this thread to ask that when you post a chart you also post the same chart as a simple bar chart with open, high, low, close and volume?? That is what I use and candlesticks make it confusing to me. If this could be done without being too big of a hinderance I would greatly appreciate it.

 

Thanks!

[smoothdrive 10]

Hello,

 

I recently found some postings from a KPCURRENCY at elitetrader relative to the VSA methods as created from a Mr. Tom Williams, who expanded on the Wyckoff methods.

 

Well, it caught my attention because I’m currently following some of the teachings of a Mr. John F. Hill, of Futures Truth, in his book “The Ultimate Trading Guideâ€Â. Mr. Hill is a big follower of Wyckoff and has created a number of mecanical rules of the Wyckoff methods.

 

So, if I may I’ll hurry along with a little background and ask a question or two in the hope that someone or perhaps numerous folks will respond.

 

I’m a long time user of point and figure charts for my retirement accounts. P&F has served me well and I will continue to use it for my longer term investing. However, P&F is not too good for trading in the shorter time frame from say 1 to 30 plus days.

 

I am now studying end of day charts via TC2000 and doing my backtesting with TC Companion. The process is very enjoyable and I have not yet made a single trade (haven’t found anything that great yet). For backtesting, I’m following the methods of Chuck Le Beau via his book and DVD titled Trading Systems.

 

Questions:

 

1. Does VSA provide you with an edge, you wound not otherwise have?

2. Have you found some of the VSA rules to be true more than 55% of time?

3. Are any of you system traders, and do you include the VSA methods in your methods with success?

4. Or, anything else you might want to add.

 

I work full time and must do my analysis in the evenings and weekends. Honestly, I don’t want to pay the dues to learn something that really is no better than a coin flip. Also, there is very little discussion about VSA in the trading world, and that gives my pause to ask questions before doing the necessary homework.

 

Thanks in advance for any input.

 

Gary Fox

[TinGull 10]

Hi Gary,

 

Some good points you bring up to be concerned with regarding any "indicator". To me, VSA has given me a depth of knowledge I never had before. I can see better what is happening inside a bar and knowing that I must wait for confirmation of what I'm seeing is good for me, since I used to just jump in real quick without thinking much.

 

Is it better than 55% of the time? If applied correctly I think it is. I've learned that VSA theories shouldn't be applied just any old time, but at times where price needs to make a decision. If you're trending and all of the sudden see a high volume up bar that closes near the lows should you short immediately? If there's no overhead resistance right there, I wouldn't. If its trending up and all of the sudden you see that same signal at a known resistance point, then it's a much higher odds opportunity to try and catch that top.

 

I'm no system trader, so I can't answer that one.

 

Best of luck, and give this thread a read through. You'll probably find that you've been seeing many of the same things that VSA gives you, but VSA can put it into a more concrete foundation for great trading.

[ranj 10]

Hello,

 

I recently found some postings from a KPCURRENCY at elitetrader relative to the VSA methods as created from a Mr. Tom Williams, who expanded on the Wyckoff methods.

 

Well, it caught my attention because I’m currently following some of the teachings of a Mr. John F. Hill, of Futures Truth, in his book “The Ultimate Trading Guideâ€Â. Mr. Hill is a big follower of Wyckoff and has created a number of mecanical rules of the Wyckoff methods.

 

So, if I may I’ll hurry along with a little background and ask a question or two in the hope that someone or perhaps numerous folks will respond.

 

I’m a long time user of point and figure charts for my retirement accounts. P&F has served me well and I will continue to use it for my longer term investing. However, P&F is not too good for trading in the shorter time frame from say 1 to 30 plus days.

 

I am now studying end of day charts via TC2000 and doing my backtesting with TC Companion. The process is very enjoyable and I have not yet made a single trade (haven’t found anything that great yet). For backtesting, I’m following the methods of Chuck Le Beau via his book and DVD titled Trading Systems.

 

Questions:

 

1. Does VSA provide you with an edge, you wound not otherwise have?

2. Have you found some of the VSA rules to be true more than 55% of time?

3. Are any of you system traders, and do you include the VSA methods in your methods with success?

4. Or, anything else you might want to add.

 

I work full time and must do my analysis in the evenings and weekends. Honestly, I don’t want to pay the dues to learn something that really is no better than a coin flip. Also, there is very little discussion about VSA in the trading world, and that gives my pause to ask questions before doing the necessary homework.

 

Thanks in advance for any input.

 

Gary Fox

1) yes

2) Don't know, haven't test them. Wyckoff's methods are a way of understanding the market, not simple buy and sell here based on a single bar.

3) not a system trader

4) I swing trade end of day. I use VSA principles as my rules to enter trades. and I would not trade anyother way. But you have to do what is right for you.

 

Rajiv

 

 

Rajiv

[smoothdrive 10]

Hello TinGull and Rajiv,

 

Thank you very much for your input.

 

As you may know, P&F charts do not consider volume at all in their construction and interpretation, so volume analysis is very new to me -- and very exciting. Additionally, last January when I first decided to study end of day OHLC charts for the purpose of creating shorter term swing trading methodologies, one of the first swing traders I read about was Dave Landry, and he also does not use volume. So, all my studies and back tests to date have been pattern based with no volume analysis. I must admit that I’m excited about the prospect of learning more about the relationship between price and volume. I’m also thankful to KPCURRENCY for referencing VSA at elitetrader. I intend to send him a private message at ET and thank him.

 

Btw, Hill provides a good Wyckoff overview of the overall market. I currently maintain 3 bar pivot based swing charts on all the major indexes, and the swing charts have greatly helped me to see congestion (accumulation or distribution) and run ups and run-downs (trends). These swing charts are constructed using Mr. Hill’s rules of construction.

 

Rajiv, it’s nice to see someone who admits to end of day swing trading. I hope to do that some day and perhaps I can steal a little from you. At the elitetrader site, very few members admit to trading in this manner. Do you trade pullbacks, breakouts, everything? (I must admit that I’m partial to pullbacks at this time, but open to learning anything that works.) I know this is not the proper forum to discuss swing trading, but perhaps you would consider allowing me to converse with you via pm’s or e-mail in the future about EOD swing trading.

 

Lastly men, I just downloaded the e-book (it’s free – why not?). Have any of you (or anyone else) memorialized some of the more important rules. Yes, of course I will read the book – multiple times – but early rules help to see the big picture.

 

Any study suggestions? Additional books or training tapes/dvd’s to get etc?

 

Thanks again,

 

Gary Fox

[habi 10]

Tasuki

 

If you compare the INDU-Chart with a YM or DIA-Chart, you see the volume spike just on the INDU-Chart. In my opinion, a YM or Diamond Chart gives you better volume informations than the Index Chart.

[RAVIN 10]

Would I be a real pain to this thread to ask that when you post a chart you also post the same chart as a simple bar chart with open, high, low, close and volume?? That is what I use and candlesticks make it confusing to me. If this could be done without being too big of a hinderance I would greatly appreciate it.

 

Thanks!

 

Don't you just love it, the market is trying to communicate to you whole day, we have to understand/interpret it, and the best tool so far : VSA

but like any other indicator it is a tool, with hard work, discipline and patience we have to develop the skills to apply it.

Those who find faults and blame the indicators suffer from the classic TMT syndrome (Tradesman blaming their Tools) where as all the while, no attempt has been made to construct , stragtegies, tactics, rules for entry and trademanagement followed up with thorough testing and then consistent and diciplined application of their own strategy.

 

SmoothDrive: There is nothing true or untrue about VSA, it the language of the market. Develop the skill to read it, construct strategies etc. For Tom Williams, it would work over 90% of the time, for others who seek buy and sell signals, probably 5%, I think you get the drift. That applies to any indicator.

 

The setups I have been talking about for the past 4days.

When they pan out, boy do they pan out:

[RAVIN 10]

The principles of VSA is truly the language through which we can understand what the market is trying to communicate.

 

Similar Setup of weakness on YM