[VSA] Volume Spread Analysis Part I

[tech/a 10]

!. Background Weakness, up bars on Low vol - No demand

(After a very high volume wide range bar)

Up bars on low volume---No demand

 

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

(Altered to--Background strength---up bars on low volume AFTER a very high volume wide range down bar,no supply)

 

Subtle but in context.

[Anonymous 11]

Nice. Thank you very much.

 

Note that we do see an up bar on low volume that is a test.

[TinGull 10]

Ok...awesome. Thanks tech/a. Now, let's get back to what started this entire new discussion...

 

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.

 

Indeed, with the chart you posted of a low volume up bar after a test I would tighten up my stop. That, to me, is starting to show weakness and I wouldn't want to get caught on the wrong side, so tightening up the stop would be warranted. You stated that you disagreed with me about that statement I made, and I just wanted to clarify that I'm not incorrect in making that assessment.

 

In the commentary on your screenshot it states, just as I stated, that low volume up bars indicate withdrawal from the market at higher prices. Again, just want to go back to your original disagreement to make it clear about what I had said just in case there were any discrepancies regarding my statement.

 

Maybe my view of VSA is looser than some, for me, it works. That first chart I posted did, in fact, show a low volume UP bar and per my statement I would've tightened up my stop to the low of the previous bar, and then in fact the market turned back over for much more downside attack.

[tawe trader 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).

 

I'd like to say that recently I've had more success using VSA to get me out of a trade than using a trailing stop.

 

i.e. If I take a LONG entry on 5 min charts and the mkt goes up, I drop down to a 3 min chart and look out for a wide spread up-bar on VERY high volume during a rally. If after seeing this, I wait for the next 3 min bar to form and if it is of smaller range and on less volume than the previous bar - I get out of the trade and bank my gains.

 

Over the last couple of months I have found this way of exiting a trade has given me more pts than using a trailing stop.

 

I did go through a period of getting out too quickly, I was wary of seeing any up-bar on increasing volume, but know I know this is still demand coming in. It's the ULTRA high (relative) volume you need to look out for.

 

Regards Darren

[tech/a 10]

Darren.

I'm sure you'll agree that its extremes which create opportunity.

While the crowd is madly buying on what "appears" to be massive strength

(Wide range enormous volume) we are preparing for opportunity.

 

VSA throws conventional Strength and Weakness theory on its head.

 

The market will be the ultimate judge of our analysis.

Our application and management of that analysis will be the ultimate judge of our profitability.

[Anonymous 11]

Quick post.

 

For those interested, I just received and viewed Gavin's Chart of the Week. He said the price on all CD programs (BOOT CAMP) are going up $100.00 in two days (November 10,2007). While the boot camp would still be worth the price, if you are thinking about it, maybe you should act now.

 

The software is going up too, but we know that it is not necessary.

[Anonymous 11]

DON'T GET CAUGHT IN THE FOLLY

 

We can spend much time trying to figure out what a particular bar is or is not. There is a reason to do so and it is important. However, when we look at the chart, we need to understand what has come before. I have shown a duel screen method and talked about "looking left to trade right", this concept remains even when looking at a single chart. We want to look left. That is, what is in the background?

 

Check out the chart below.

 

There is a logical progression on this chart that I would like to point out. First we see a High volume down bar that closes in the middle to upper portion of its range with the next bar up. Clearly, there is Demand on this bar. If the high volume represented selling, then the next bar should not be up. This up bar turns out to be a WRB.

 

We know that WRBs mean possible changes/shifts in the supply and demand dynamic. Something is changing here.

 

Now price starts to rise and we see a No Demand. No demand means that there is no Professional interest in higher prices at the time. But why? If they are not interested in higher prices, must price be going lower? Well, price does fall a bit. Now the LOGICAL thing to do is to test for supply under the market. If there was supply this would confirm the reason for the No Demand we saw earlier. THIS IS KEY: A REPEATABLE PATTERN MAY BE HERE-NO DEMAND FOLLOWED CLOSELY BY A VALID TEST. THIS WOULD MEAN STRENGTH. We do indeed see this pattern. With the strength we have seen in the background and now a valid Test following a No Demand bar, we have some assurance that the path of least resistance is up.

 

Let's think about the WRB for one second again. By definition a WRB represents a possible change/shift in the supply and demand dynamic. Logically, therefore, a valid Test should appear within this range. So too would the significant No Demand or No Supply bar. But again, understanding where we have come from (left) is vital to understanding where we are (now) and to where we may go (right).

 

So the folly: looking at any one bar in isolation. VSA unfolds and flows like a river not a single drop of water.

Edited March 29, 2008 by mister ed
Add back chart

[TinGull 10]

Absolutely...context is everything!

[bertg 10]

Hi, all,

 

I am on page 88 of the e-book, so not quite half way. On this page the below appears:

 

-------------

• High volume shows that selling has swamped any demand and tends to appear at the beginning of any distribution phase.

• Low volume shows that no demand is present, and tends to appear at the end of a distribution phase.

-------------

 

On the second bullet, should that say "at the end of an accumulation phase?"

 

Thanks to all for this thread. I always look forward to new posts and soon I will hopefully be able to contribute or at least interact more.

 

Regards,

Bert

[tech/a 10]

By the look of it its around tea time over there.

Its Friday morning 10.20 at the hub of efficiency---my desk.

 

Bert

• High volume shows that selling has swamped any demand and tends to appear at the beginning of any distribution phase.

• Low volume shows that no demand is present, and tends to appear at the end of a distribution phase.

 

I think the charts I posted shows a great example of this.

The FIRST up bar shown on very high volume and wide range correlates with bullet point one.

The next few bars complete the distribution phase in this timeframe and is typified by the low volume no demand bars.

 

Distribution occurs at the tops of moves and accumulation at the bottoms.

The same applies at this end but should be read as the opposite.

 

EG

.High volume shows that buying has swamped any selling and tends to appear at the beginning of an accumulation phase.

.Low volume shows that there is no selling present and tends to appear at the end of an accumulation phase.

 

Twists the normal mindset doesnt it!

[Anonymous 11]

Interesting chart(s).

 

Again, the logic is simple. When we see a WRB that happens to be an Effort to Fall, we know that there is a change or shift in the supply/demand dynamics. Here we see that we get No result from that Effort to Fall as price never makes a lower low or a lower close. Price moves up then falls back a bit into the S/R zone created by the body of the WRB. Now, logically, if this was an area where supply was being dumped, then a "test" of this area for supply would make sense. This is what we get. Now we have our low volume sign in the area of previously high volume.

 

On the 5 min, we just need to look for a point to get long. The first Test is such a place. We know what the 15 looks like at this point and we now see a valid test on this chart. Note that the second Test comes after we get No Demand (see previous post or book). This second Test also appears just prior to the second Test on the 15. The Test on the 15 shows up at 1815. The Test on the 5 appears at 1810 and confirms at 1815.

Edited March 29, 2008 by mister ed
Add back chart

[Anonymous 11]

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

 

Thank you Nick. Your insights and participation can only make this strong thread even stronger.

[jjthetrader 10]

I have a quick question about volume on a test.

Whcih one would be true:

a) Lower than the high volume area it's testing

b) Lower than the last two bars

c) Just plain low, relatively speaking

 

Also, PP what average do you use on your volume for your charts?

 

Thanks

[tech/a 10]

From the discussion so far I'm interested in how those involved here would read this chart in particular the last 3 bars Realative to the information on the chart.

 

 

(1) Is this a test?

(2) Why?

(3) What do you expect to occur in the future?

(4) What would negate your expectation?

[TinGull 10]

Thats tough for me to say...it certainly looks like a test, but the only prior support this chart had was broken with these three bars. Would I be looking to take a long? No, I wouldn't yet. Would I on a break above the highs of those 3 bars, sure. It's obviously showing that the old support is now resistance, so if there can be a break of that, then I'd be looking long on a test of that broken resistance.

 

[tech/a 10]

Tin

Sorry a bit off topic.

How do I post charts clearly here?

I use photo bucket but when width is important to "See it all" Detail is lost due to re sizing.

Would I be correct in thinking a direct link would serve best?

 

On the chart---fair comments---I have more but will let the question run a little longer to hopefully gain more comment.There is a point to it all.

[Anonymous 11]

I have a quick question about volume on a test.

Whcih one would be true:

a) Lower than the high volume area it's testing

b) Lower than the last two bars

c) Just plain low, relatively speaking

 

Also, PP what average do you use on your volume for your charts?

 

Thanks

 

 

ALL OF THE ABOVE.

 

An ideal Test would have volume less than the previous two and be lower than the high volume area it's testing. Some Tests, however, will have higher volume than the previous bar and still be low in relative terms. Read that again. A Test, which is a low volume signal, can have increasing volume.

 

A failed Test will have high volume. That is why it fails. They are looking to see that there are NO SELLERS and are finding sellers, as evidenced by high volume. (we would also consider a Test a failed Test if the market does not make a close higher than the close of the test in on of the next 2 bars)

 

I use a simple 30 moving average of volume. This is what Tom talks about in the book.

[TinGull 10]

I'm not sure I understand your Q about the charts...they all seem to come thru fine here, and if I need to blow it up I just click on it and it brings me to photobucket with the big view. Is it something on photobucket as for the resizing? You can always upload them here on TL by clicking File Upload tab up top of the page:

 

[ranj 10]

I have a quick question about volume on a test.

Whcih one would be true:

a) Lower than the high volume area it's testing

b) Lower than the last two bars

c) Just plain low, relatively speaking

 

Also, PP what average do you use on your volume for your charts?

 

Thanks

B and C yes

A on longer time frames only,ie daily for stocks

Sometimes these higher volume, successful tests, have demand overcomming supply on short timeframes contained within them

[Anonymous 11]

Thats tough for me to say...it certainly looks like a test, but the only prior support this chart had was broken with these three bars. Would I be looking to take a long? No, I wouldn't yet. Would I on a break above the highs of those 3 bars, sure. It's obviously showing that the old support is now resistance, so if there can be a break of that, then I'd be looking long on a test of that broken resistance.

 

 

 

It looks like a Test to me but it is not truely a test until or unless I see a close above the high of this potential Test bar in the next 1 or 2 bars. Simply, this is not a confirmed Test.

 

Based on what TG said, we could see a Test (confirmed) then prices start falling down. Once we would get a close below the low of the test bar, we would have No Result from a Test. This is weakness.

 

The more likely situation, however, is that a confirmed Test would signal a move higher. We do have a Wide spread bar that closed lower and closed off the low with the next bar down. Relatively speaking, this bar had very high volume. This would be Demand entering the market.

[tech/a 10]

PP

Excellent points re Effort/Result and will become important going forward.

 

How does everyone view the Extreme Volume bar back before this 3 bar cluster.

Do you think it has significance and if so how so?

 

So to re cap we would buy on a good breakout above the past 3 bars,with volume---any exceptions to that?

 

This would be Demand entering the market.

 

Even though the buyers couldnt close the bar over 50% of its range?

[Anonymous 11]

Here you go:

 

 

 

Price may move back into the area of this Ultra High Volume and Test or show No Supply.

[Nick Radge 10]

Here is another example. We have an impulse aligning with old support and volume starting to expand. I call these volume 'bubbles' against more formal interpretations but they are essentially stopping volume. I'd be expected a test of that support on low volume to complete wave-v then a 3-wave counter trend advance against the backdrop of this positive volume.

 

[tech/a 10]

OK.

 

The very next bar----WOW!

 

This bar then would confirm the statement made here?

 

Based on what TG said, we could see a Test (confirmed) then prices start falling down. Once we would get a close below the low of the test bar, we would have No Result from a Test. This is weakness.

 

The more likely situation, however, is that a confirmed Test would signal a move higher.

 

So this would be seen as BUYING VOLUME and the test then is confirmed?

 

 

Just to get my head around your thinking/interpretation.

We have a confirmed test and can expect higher prices?

[TinGull 10]

What I would expect now (since I'm not a breakout trader) is to watch for price to test that breakout area. Once I see a test bar at the breakout price, then I'd enter a long at the close of that bar.