[VSA] Volume Spread Analysis Part I

[TinGull 10]

Wide Range Body (candlestick)

[ranj 10]

What is a WRB?

Wide Range Body.

 

Pivot's concept of WRB and long tails, really put all the pieces together for me when applying VSA. It took me one step further than the bootcamp CD did in solidifying the concepts VSA to develope a trading approach.

[TinGull 10]

ding ding ding! Real time post here.... I have an idea of what I think will happen...what do ya'll think?

 

[Tasuki 10]

You'll usually see a test break into new low ground to "test" an area underneath the previous low. A No Supply bar will usually not break new ground lower than the previous bar.

 

Actually, TG, if look at the last chart PP posted (permalink #670) you'll see that there are 4 "No Supply" bars listed, and all four of them close below the previous bar.

 

So, here's my comparison of Test and No Supply:

1) both close lower than the previous bar

2) both occur on volume that's lower than the previous 2 bars

3) both occur at price lows, after or during a period of consolidation

 

So, the only difference I can see right now between them is that a Test is suppose to close near its highs and a No Supply closes near its lows.

 

One question I have is how important it is for a Test to dip below support to "Test" new lows. That would seem to make sense, but some examples I've seen here (e.g. permalink #630, a Tradeguider example; permalinks #106 + #166 both from PP) do not stick their noses into new lows, and they still get called Tests. So, maybe the main criteria for a Test are its location (price lows, consolidation) as well as its high close and low volume, with an added benefit being a long shadow dipping below support. Well, that's my best shot at it anyway.

[TinGull 10]

True...I may be totally wrong...it's happened before. To me, tho, that's what my feeble brain would be looking at for a test vs no supply. Test's I dont think should close lower than the previous bar, though they certainly could close a little lower depending on where the close sits in the range. Tests *should* probe a low into new ground and get bought back up. Just a rejection of lows.

 

I think a no supply shouldn't close below the low of the previous bar...but that's just me. If I saw a lower volume bar close below the low of the previous bar, even if it's on lighter volume, I still wouldn't be a buyer.

[Tasuki 10]

Yes, TG, I like your more conservative approach. I keep wondering what I can get away with to call something a Test or a No Supply bar. I think my attitude needs changing--I should be more stringent in viewing the rules. I'm still not using VSA to make trades, so I have the luxury of being wrong without losing my shirt. Eventually, I want to get good enough to place real money on VSA setups, and when I do, I think your conservative approach would serve me well.

[TinGull 10]

Here's what I would call a test...

 

 

We had the big spread bar with huge volume, then a couple of consolidation bars and that bar thats marked probed a low beneath the lows of those consolidation bars, INTO the wick of the wide spread candle.

 

That, to me, is a test. Now, if there are up bars on lower volume, that's saying that if you did get long that test bar, you better think about getting out because there's obviously no demand after the test bar.

[tech/a 10]

Firstly("JJ") why wouldn't the trade be managed using VSA rather than a trailing stop (It may not have been you that mentioned this).

 

Tin.

Yes correct and as you have said the bar after the initial sell of bar shows new buying.

Something to remember and may help is that exhaustion bars whether of buying OR selling need something to exhaust.

Either a prolonged bullish or bearish move. This can eliminate guessing for some who could initially mistake the 3rd bar back from the yellow line in your chart as some sort of initial exhaustive move.(Not seeing the whole chart makes this more difficult).

 

Now, if there are up bars on lower volume, that's saying that if you did get long that test bar, you better think about getting out because there's obviously no demand after the test bar.

 

Don't know that I agree with this. Low volume and an increase in price can show lack of supply in fact on all 4 bars after your test bar lack of supply has been confirmed.

(1) Up bars rise on low volume.

(2) The reversal bar has lower volume again and is narrow in body.

It often takes a few bars to be able to decipher what volume and Range are

clearly saying in a chart.

[TinGull 10]

I'd have to disagree with you saying that upbars on low volume are showing a lack of supply. Reading directly from TradeGuider on the indicator information of a "Basic Test" it states:

 

Low volume up bars indicate their withdrawal from the market. The market failing to respond upwards, or even lower prices indicates the unwillingness of the marketmakers and main platers to participate in the market despite the indication of strength.

 

Maybe it's just me, but seeing lower volume upbars doesn't show a lack of supply, but a lack of demand.

[tech/a 10]

TG

 

Yes this is very difficult to get your head around.

It flies at 180 degrees with that which we are all educated on.

IE Volume = strength/weakness when in actual fact very high volume on very wide range bars means the exact opposite.

 

Bar 8 is a perfect example of no demand. As is the bar 4th from the left.

By low volume in the case of the chart being discussed I mean lower than the exhaustion bar as opposed to almost no volume.Note the volume is increasing but not massively,if it did then that would indicate supply coming in a sign of weakness.If we see low volume bars failing to make new highs from here this will also indicate weakness in no demand.

 

It will be the bars immediately following these bars which will complete the picture as will background VSA information not seen on the screen shot.

[TinGull 10]

 

Here's the rest of the chart. Some of what you have said isn't what I've learned about VSA. Note how the next bar after the first chart I posted is a HIGHER close on LOWER volume....that to me is a clear lack of demand, showing that the down move is going to continue. Which it has.

[TinGull 10]

Yes this is very difficult to get your head around.

It flies at 180 degrees with that which we are all educated on.

IE Volume = strength/weakness when in actual fact very high volume on very wide range bars means the exact opposite.

 

What you said here makes PERFECT sense to me via VSA. I have no qualms with saying Ultra high volume on an Ultra wide spread is opposite of what people would think. What I'm saying is that your statement

 

Low volume and an increase in price can show lack of supply in fact on all 4 bars after your test bar lack of supply has been confirmed.

 

makes no sense to me. Low volume on UP bars indicates weakness, I don't in any way see how this can indicate strength to you. If you can post charts with explanations to fix what I'm thinking, then that would be appreciated.

[tech/a 10]

makes no sense to me. Low volume on UP bars indicates weakness, I don't in any way see how this can indicate strength to you. If you can post charts with explanations to fix what I'm thinking, then that would be appreciated.

 

Will do.I'll post some trade guider charts with Basic test commentary (from Tradeguider).

 

This may help.

If the basic test is at the top of a move followed by a low volume up bar then this is a sign of weakness.

If the basic test is at the bottom of a move and the next bar is a low volume UP bar this is a sign of strength.

 

Note how the next bar after the first chart I posted is a HIGHER close on LOWER volume....

 

Yes and the second component in reading VSA is also available in the range.

Clearly the highs could not be held,supportive of your Low volume up bar--indicating an exhaustion of this move in this time frame.

The next 2 bars further support the argument for weakness Wide range high volume down day---predictably followed by a weak up move and again now a wide range high volume---almost perfect double bottom.

The next bars is a very low volume up bar indicating lack of supply.

To early to cal a return to positive trading BUT a low risk entry with a stop below the low if the previous bar makes this a good setup in my view.---worth watching.

[TinGull 10]

Ok...I'd love to see those charts. What I quoted earlier was straight from a TradeGuider commentary regarding low volume UP bars after a test showing weakness.

[Anonymous 11]

Firstly("JJ") why wouldn't the trade be managed using VSA rather than a trailing stop (It may not have been you that mentioned this).

 

It was me. I use a combination of trailing the stop based on the appearance of WRBs and VSA signs. Hence, VSA is used to manage the trade.

 

 

Don't know that I agree with this. Low volume and an increase in price can show lack of supply in fact on all 4 bars after your test bar lack of supply has been confirmed.

(1) Up bars rise on low volume.

(2) The reversal bar has lower volume again and is narrow in body.

It often takes a few bars to be able to decipher what volume and Range are

clearly saying in a chart.

 

This is incorrect. Low volume up bars shows NO DEMAND. Volume is activity and low volume (volume less than the previous two bars) means that the Professional Money is not active. That is, they are not interested in higher prices at that moment.

 

Again, strength comes in on down bars and weakness shows itself on up bars.

[Anonymous 11]

I'd have to disagree with you saying that upbars on low volume are showing a lack of supply. Reading directly from TradeGuider on the indicator information of a "Basic Test" it states:

 

Low volume up bars indicate their withdrawal from the market. The market failing to respond upwards, or even lower prices indicates the unwillingness of the marketmakers and main platers to participate in the market despite the indication of strength.

 

Maybe it's just me, but seeing lower volume upbars doesn't show a lack of supply, but a lack of demand.

 

This would be the exception to the previous post about up bars showning No Demand. It is possible to have a Test that closes higher (up) on low volume (volume less than the previous two bars) and close on the high and trade lower into a previously high volume area. While this would be an up bar, it is not No Demand, but a Test which would indicate no supply below the market.

 

However, this would not be considered the ideal type of Test. We would rather see the test close down. Hence being congruent with the idea that down bars on low volume are signs of strength.

[TinGull 10]

*head spinning*....whenever you have a moment, a chart showing what you said would be absolutely sweet.

 

Thanks!! I'll re-read it later, too, and maybe it'll make more sense to me.

[Anonymous 11]

*head spinning*....whenever you have a moment, a chart showing what you said would be absolutely sweet.

 

Thanks!! I'll re-read it later, too, and maybe it'll make more sense to me.

 

 

Here's an old chart that shows a few different Tests.

 

Note that the Test which is part of the valid doji pattern closes up, but is a sign of no supply. The fact that volume is low as price traders lower (although closing higer) speaks of no willngness by the Smart Money to be sellers.

 

After the Squat there is another Test bar. Again, we close on the highs with volume less than the previous two bars, but we close higher than the previous bar. Were it to close lower than the previous bar it would be the ideal test as it has a narrower range, closes on its high and trades into a previous high volume area.

 

The next Test which comes a few bars later, closes down from the previous bar.

 

The point is that you can have an up bar that singals "No Supply". It comes in the form of a Test. That is what they are testing for: supply/sellers.

Edited March 29, 2008 by mister ed
Add back chart

[TinGull 10]

Gosh, the things that you seem to be differentiating look exactly the same to me. On the doji/test I see a bar that probed the low and closed higher on lower volume. That would be a test to me. Then the next bar has higher volume, showing that the bar was in fact a test and we should start to see higher prices.

 

The squat bar is followed by a down bar on less volume than the squat, showing no selling conviction to me. Then there is the probe below that bar, but closing higher than the previous close...on lower volume. The next bar is a hammer on higher volume in fact showing that the previous bar was a test, which you have marked.

 

The next test I see as a bar on lower volume that closed below the close of the previous bar, but has a candle formation of strength, so I see that, too, as a test with the probe below the lows and closing just off the highs, testing that squat bar's range.

 

So whether or not the "test' bar closes higher or lower than the previous bar, to me isn't as great an issue as to the candle formation that it makes. If I see a bullish formation on low volume that tests an area of prior resistance, I assume that is now support and when I see confirmation from the next bar closing higher on higher volume...I know it's right. If I get in on the test and see the next bar closing higher on LOWER volume, I assume I'm wrong and get out.

[Anonymous 11]

Go back to your original question. Can there be up bars that signal no supply?

 

While a Test bar is not the same as No Supply, it can close up. Now, what is being tested for is Supply or Sellers underneath the market. In other words, an up bar on volume less then previous two does not have to be No Demand. You have pointed out such cases in your posts.

 

In general, however, Up bars would be where we find weakness: Something else you have correctly pointed out.

[Nick Radge 10]

Hi everyone,

I was asked to visit here with some of my Elliott Wave + VSA analysis. Here is a short video from today. Its an Aussie stock, but you can see how I put the two together.

 

VIDEO HERE

 

Regards

Nick

[Nick Radge 10]

Hi everyone,

I was asked by Tech/a to have a visit and show you how I combine VSA with Elliott Wave. This is an Aussie stock from today which has some good characteristics.

 

VIDEO HERE

 

Regards

Nick

[RAVIN 10]

Hi everyone,

I was asked by Tech/a to have a visit and show you how I combine VSA with Elliott Wave. This is an Aussie stock from today which has some good characteristics.

 

VIDEO HERE

 

Regards

Nick

 

 

Good to have you on board Nick, your Elliot Wave/VSA analysis on Dow was excellent. Would certainly like to hear more from you especially on your understanding of VSA concepts. Wonder if you trade major Index futures Intraday.

[RAVIN 10]

UPBARS AND DOWNBARS ON LOW VOL.

 

I like to keep it simple:

 

!. Background Weakness, upbars on Low vol - No demand

2. Background Strength, Downbars on Low Vol - testing for supply

 

However have observed countless times that markets can keep rising on low vol, narrow bars whole day long,(crawl up) simply because there is no supply to the left, or pros are not interested in selling at those prices and waiting to unload at higher levels.

 

Similarly prices can falling on low vol. once again pros. are not interested in stepping in and buy.

 

Have to step out of the idea that in the vol on a single bar there are more or less buyers than sellers and vice versa,

 

IMHO

[tech/a 10]

I'll try to clarify.Some charts to help out below.

 

Any alert given by Tradeguider/VSA analysis is simply an alert.Read in isolation without consideration to the background is folly.

It takes a great deal of effort to terminate a trend in either direction.

Less to begin a trend.The first chart shows a basic test as determined by tradeguider with the accompanying commentary,You'll notice that the stock rises on below or around average volume,the second chart shows more of the past volume.

 

 

The last bar has broken out on the lowest volume of the last 3 bars.If this were to represent then "No Demand" we would expect weakness.

 

 

To chart 2.

Here price continues to rise on average volume,until we get to the last bar in the chart where we have a massive volume spike and a wide range.The high volume is indicating Supply and sellers are happy to take all that buyers want.

This is the FIRST sign of weakness. This price action must be viewed in context.Moves rarely start and finish with "V" tops and bottoms and we must be alert to these changes.

 

 

To chart 3

NOW we look for whats occurring in the next bars.

Price rises but on low volume indicating lack of DEMAND (After a high volume up bar).

Supply continues on the next 2 bars as new highs cannot be held.

Once buyers have been exhausted we see price fall off with little to no demand. A test occurs 6 bars from the end of the chart but the next 2 bars confirm no demand.

 

Hope this is helpful.