[VSA] Volume Spread Analysis Part I

[torero 10]

I thought that might be affected but had to ask. I'm still learning trying to learn VSA little by little. I think I have a pretty good idea but need more real time observation to get things rolling. Very excited to see how this fits into what I have already learned and use!

[Soultrader 12]

Hope you don't mind, TinGull but used your chat to show something. Just a couple of things to look for.

 

One note on stopping volume. Tom Williams, the father of VSA, would enter on the close of that bar. TG, however would not place a sign of strength until the next bar closes and is an up close. (2 bar pattern).

 

Getting in at the very bottom or top is not the most important thing. Here the best entry is after the test. Why? Because we have seen the strength come in on the stopping volume. Then we see a No Supply indication followed by a test for supply.

 

The Smart Money wants to make sure that there are no sellers out there to impede the mark up phase. That is why they test the market. Of course, the mark aggressive you are as a trader the earlier you would enter. But you should be looking for the bar after the volume spike (stopping volume) to confirm before entry.

 

Hi PivotProfiler,

 

Thank you for your inputs. Very much appreciated. Regarding the chart you posted,

 

 

One thing I have trouble understanding is the no buying pressure bars. I totally understand the climatic sell bar.. I was able to determine that because of the lack of supply at the next bar and less volume at the new lows on the 30min timeframe. Also the markets were one-timing down until after that climatic sell bar in which price was able to overtake the high of the previous 30min bar.

 

Now, after the stopping volume we encounter a few narrow range bars. I was trying to determine the direction of the market. Because I felt the market has found support my bias was to the upside. However, when analyzying price bar and volume (VSA) I had trouble deciding which direction. Volume was drying up clearly and the long candle wicks indicated supply. From the chart above, you indicated a up bar with no buying pressure then an immediate narrow range bar with no supply. So basically within two bars market action has gone from negative to positive? I find this behavior extremely tricky as it forces us to change our bias immediately. How did you interpret the third narrow range bar as test for supply? Thank you.

[Anonymous 11]

Pivot, thanks for contributing to this thread, I find this method extremely useful and fascinating. I've been trying to learn the relationship between the price and volume in groups but never seen a bar by bar analysis until now.

 

One question about your analysis from the previous chart, I noticed that there was a stopping volume brown bar before the true bottom. Can you tell me why this was a false bottom or at least explain action between the previous pivot low to the bottom bar.

 

I wanted to ask you if using tick charts work in VSA or not. Thanks.

 

Good eye. As you know there is a thing called momentum. Sometimes price continues moving the way it was despite the force in the opposite direction.

 

After seeing a wide range bar with ultra high volume, you want to start looking for No Demand, No Supply , Tests, and Up Thrusts.

[Anonymous 11]

Soultrader,

 

The No Buying pressure is a bar that closes up from the previous bar and closes on its high but has volume less than the previous two bars (and ideally volume less than average).

 

Although price is moving up, the Smart Money is not involved in the push. Remember, 85% of the volume histogram represents Professional Money. So no buying pressure is coming form the pros.

 

The next bar is down. But here too we see a lack of Smart Money activity. Thus when we say, No Supply, we mean no supply (selling) from the Professional Money.

 

What is happening is this: the market is moving up, but the Pros are not yet fully interested. Why? After such a move down they want to make sure there are no more sellers left in the way of an up move. As they wait to see what happens the market moves up but then stops. The next bar is down on even less volume. The Pros did not step in and start selling (no supply).

 

Just to be sure there are no sellers, the Smart Money now Tests the market on the next bar. They take it even lower and find no sellers (volume is low) and thus take price back up to close on or near the high.

 

Once we see the Stopping Volume we should begin to look for a No Supply or Test bar. When we see the No Demand, we do not automatically look to go short. So our bias isn't changed. We see strength in the form of the Stopping volume and are looking to go long. The No Demand helps set up the subsequent No Supply and test formation.

[Soultrader 12]

Thank you for clearing it up. My understanding of professional operators with deep pockets is becomng alot better now. I feel like stops do not exist for them which has recently changed my trading style in using wider stops for larger profits using a slightly higher timeframe. It's a complete seesaw game for these operators and a fascinating game they play.

[TinGull 10]

Perfect today. Note the HUGE action happening here in the circled bar right at VAH...you can also see a diverging delta, showing selling waning, and then BAM!!! You could also notice the increasing volume coming into that VAH. While this may lead some to think that we will go lower...VSA makes you wait for confirmation

 

Good thing...that abnormally large volume spike with closing price in the middle of the bar is showing you right there that professional activity has come into the market.

 

How cool.

[Anonymous 11]

Perfect today. Note the HUGE action happening here in the circled bar right at VAH...you can also see a diverging delta, showing selling waning, and then BAM!!! You could also notice the increasing volume coming into that VAH. While this may lead some to think that we will go lower...VSA makes you wait for confirmation

 

Good thing...that abnormally large volume spike with closing price in the middle of the bar is showing you right there that professional activity has come into the market.

 

How cool.

 

Nice observations.

 

A wide spread down bar (close lower then previous bar) that has ultra high volume and closes in the middle of its range is a telltale sign of a transfer of ownership.

 

The fact that this is happening at the VAH is of no real surprise either. These areas tend to be where Professional Money will show itself. That is why Gavin talked about the importance of (1) volume (2) support/resistance.

 

For me, what is more important than how one arrives at the support/resistance area, is that one PAYS ATTENTION TO PRICE at these areas. That is, going long as price trades down to these levels makes little sense no matter how "proven" the support area may be. Paying closer attention to what price is doing at this time, however, does make sense.

 

Support/Resistance areas can not always hold. Otherwise there would be no such thing as a trend. Hence what we really want is to force the Professional Money to show itself in these "expected" areas. Their intentions-to go thru or to respect the area(s) can be seen on the chart.

[Vercingetorix 10]

Excellent thread, very interesting. I recently read Tom Williams' book (the older edition not master the markets).

 

I was wondering what you thought about the stock indexes. Looking at the dow I would think that there is background strength, but still a lot of supply. Now bear with me, the concepts of VSA are new to me so this might be totally off, but here is what I see:

 

1st arrow) We had that down day on a wide spread and high volume the day before. This bar is an up bar on even higher volume. Does this indicate 'hidden' buying on the wide spread down day?

 

2nd arrow) We make new lows but close near the highs. Is this a stop bar or a test bar? The volume is still high so if it is a test bar does this indicate there is still supply?

 

3rd arrow and 4rth arrows) These bars look like no demand which would make sense if professionals want more stock at lower prices.

 

5th arrow) Is this a stop bar, test bar, or down thrust bar? either way I take it to be bullish since we closed on the highs (and found support @ 200 ema). Since we took out the lows from the previous move down it looks like a giant stop run on the daily time frame.

 

I'm probably off on my analysis, but it looks like all the market needs is a shakeout move and then it should rally. I would be very interested in your guys comments.

 

[Anonymous 11]

If you go to Tradeguider.com and view the most recent chart of the week............... you will find Todd is in complete agreement with you. He too sees all the supply in the market and says price needs to come back down and test the lows. Very Nice analysis.

 

I also see a valid bullish white hammer pattern currently. The key will be once price reaches the mid-point of that WRB (ultra wide spread candle with ultra high volume).

[newsfx 10]

It is amazing that somebody can read the charts like Todd Krueger. I have read Master the Markets but the information there is very limited. I would like to expand my knowledge about VSA.

 

Can you guys recommend anything regarding VSA? There is a Boot Camp on tradeguider.com but I am looking for something less expensive. Unless this CD`s are really worth its price. Did anybody purchased them and would like to share some opinions?

 

This thread and others regarding volume are great. Please post charts and explanation. I would love to do this but my knowledge about VSA is still very limited. I hope that after a while I will be able to share my view on the market.

 

Greetings

[BlowFish 10]

I just got master the markets and read it this weekend. I have the original Williams 'paper' book too and prefer the new version. Clearer and less errata, the original had several charts mis labeled and 'supply' where it should have read 'demand' etc. In some ways that was good as it really made you study the charts to see what on earth he was talking about.

 

I think there is maybe too much information rather than not enough! In odd places things can become a wee bit confused.

 

I would look at the main principles and then study hundreds (actually probably thousands) of charts until you really 'get it'. Most of what you need in MM.

 

Another thing, it helped me to think less about predicting what was going to happen and just concentrate on what was happening now. For example you may get a down move ending in a high volume wide(ish) bar that closes high. Price should go up right? Actually all we can say is they have stopped going down (for now). Often it'll drift sideways to up and then crash on down with a wider higher volume bar. A classic 'stair' down. By focusing on the now you can get better at identifying a small correction over a bounce over entering congestion (accumulation/distribution).

 

 

Cheers.

[Anonymous 11]

Excellent thread, very interesting. I recently read Tom Williams' book (the older edition not master the markets).

 

I was wondering what you thought about the stock indexes. Looking at the dow I would think that there is background strength, but still a lot of supply. Now bear with me, the concepts of VSA are new to me so this might be totally off, but here is what I see:

 

1st arrow) We had that down day on a wide spread and high volume the day before. This bar is an up bar on even higher volume. Does this indicate 'hidden' buying on the wide spread down day?

 

2nd arrow) We make new lows but close near the highs. Is this a stop bar or a test bar? The volume is still high so if it is a test bar does this indicate there is still supply?

 

3rd arrow and 4rth arrows) These bars look like no demand which would make sense if professionals want more stock at lower prices.

 

5th arrow) Is this a stop bar, test bar, or down thrust bar? either way I take it to be bullish since we closed on the highs (and found support @ 200 ema). Since we took out the lows from the previous move down it looks like a giant stop run on the daily time frame.

 

I'm probably off on my analysis, but it looks like all the market needs is a shakeout move and then it should rally. I would be very interested in your guys comments.

 

 

I wanted to redress this nice post. I have taken another screen shot that is more up to date. Admittedly, this is after the fact as well as hard right edge analysis.

 

First, Todd Kreuger still sees weakness in the market and is calling for prices to fall this week. Note that the last black double arrow points to Friday’s action. This bar is a NO DEMAND bar: it closes up from previous bar, closes in its middle and has volume less than the previous two bars.

 

I will begin at the beginning.

 

The first thing we see is a wide spread down bar on ultra high volume. This bar is also a WRB. WRB analysis tells us that changes/shifts in supply/demand occur in bars such as these. From a VSA perspective, we have a large range bar that closes down from the previous bar, but closes off its low with ultra high volume. THERE MUST BE DEMAND (BUYING) IN THIS BAR. If this bar was weak, then the close should be on the low.

 

The next bar is key. This bar closes up. Truly if the previous bar was selling, then this bar should NOT be up. However, we need to take a look at this up bar. Note that the volume is even higher than the previous bar, but the range is narrow. Something is keeping the range down: Supply (Selling Pressure).

 

The next bar is a High Volume Test. It closes on or near its high, makes a lower low and closes below the previous bar. Again the volume here is high for a test. Which is why the next bar is down and what we actually have is a FAILED TEST.

 

Now jump to the next bar with the double arrow. This bar closes lower than the previous bar, closes on or near its lows and has volume less than the previous two bars. THIS IS NO SUPPLY.

 

We do indeed move up a bit from this point. Price moves up and then comes back down. At this point, our secondary method (Japanese Candlestick patterns) is traversing into a valid bullish white hammer pattern.

 

Note the Hammer. THIS IS ANOTHER TEST. The bar makes a lower low, closes on or near its high and closes up with high volume. If the volume was ultra high, we might call this a SHAKE OUT and see strength, but as a high volume test we see weakness. The Professional Money is testing for sellers and they are finding some. In other words, there is supply underneath this market. Still, price moves up.

 

We do expect a move back into the WRB support/resistance zone. The reason is beyond the scope of this thread.

 

Which brings up back to the NO DEMAND sign on Friday. If you use the WRB's as profit target signals there was two so far. It may be time to move the stop just below the last WRB.

 

Edited March 26, 2008 by mister ed
add back deleted chart

[newsfx 10]

Disregard first arrow. Is the second arrow on daily chart a test bar?

What is the main factor that you can consider particular bar a test bar?

 

On the 30 min chart this long bar looks to me like a pushing through supply. Am i correct?

 

Please share your view.

 

Greetings

[BlowFish 10]

Great analysis PP looks right on the money to me. Failed tests are interesting, I personally dont find them too reliable.

 

Thurs and Fri are interesting narrowing range and somewhat reduced volume. (daily indexes and there futures seem to not have the huge volume swings that you see intraday and on stocks). Looks like the bulls are losing interest (no demand). Europe has just opened more or less at the same level. It will be interesting to see where she goes from here. Of course we may test supply higher or they may re establish control or or or but what is going on now is pretty clear to me (PP has hit the nail on the head).

 

Oh btw PP you mentioned one more 'clue' that was not in your post, mind if I ask what? You aren't a closet indicator user

 

Have a great week every one.

 

Cheers.

[Anonymous 11]

Oh btw PP you mentioned one more 'clue' that was not in your post, mind if I ask what? You aren't a closet indicator user

 

NO WAY. Bite your tongue. The concept is not mine to give. NihabaAshi did hint at it in his post about WRBs:

 

It involves many things that's nothing anybody has heard about but it does make sense of all these things when they work together:

 

* Support/Resistance Zones

* Shifts in Supply/Demand

* Trading GAPs

* Changes in Volatility

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

 

It is also beyond this thread as this thread is more about VSA than WRBs.

[Anonymous 11]

NewsFX,

 

I see you are running the KPcurrency system.

 

What I don't see is the bar you asking about. The bar with the text underneath looks like a SHAKE OUT or a test bar.

 

If you are asking about the bar with the arrow a 3 bars earlier, yes that looks like a test. Tests come in many forms. The Ideal test would have a narrow range, volume less than the previous two bars, close lower than the previous bar and close on its high. So while that bar is not ideal, it is a test nevertheless.

[Soultrader 12]

Here is an interesting chart from todays session. Notice new lows with lower volume. Hopefully some of you YM traders were able to capture the reversal movement.

 

[Anonymous 11]

Gaps are filled.

 

Interesting early morning action in the Euro.

 

Check out the chart below.

 

First we see a dark WRB followed by a GAP in price. Note the first candle with a double arrow. Notice that the volume is ultra high and the bar closes lower than the previous bar and off of its low. VSA teaches that this is a bar that may have buying within it. Now the next bar is key. It turns out to be a WRB, but the fact that the bar is up means the prior bar MUST of had some buying contained within it.

 

Now we move to the white WRB itself. Note that this bar creates a zone or range where we get a change in the supply/demand dynamic. We also know that the market does not like wide spread up bars on ultra high volume because of the possibility of hidden selling. In this case, however, the volume actually fell from the previous bar and is not ultra high.

 

We move to the next candle with a double arrow below. This is a doji that closes equal to the previous bar and in the upper portion of its range. Volume on this bar is Ultra high. There is SUPPLY in the market at this stage. Price moves down from here.

 

Next candle, closes in the upper portion of its range and higher than its open. Volume again is extreme. Here we have Demand showing itself. In other words, Demand is swamping Supply on this bar. SOMETHING HAS CHANGED. Notice that the next bar closes in its middle, has an equal close and volume drops off.

 

The Last bar closes on its high on volume that is less than the previous two bars. Although it does not make a lower low, this is a 'test' bar. The Smart Money is testing for supply and finds none. Now price is poised to go up and fill that gap.

Edited March 26, 2008 by mister ed
Add back deleted chart

[sds 10]

We move to the next candle with a double arrow below. This is a doji that closes equal to the previous bar and in the upper portion of its range. Volume on this bar is Ultra high. There is SUPPLY in the market at this stage. Price moves down from here.

 

Hello PP,

 

Nice post and analysis.

But I did not understand, the statement which I have marked in the Bold.

 

Could you explain, how did you arrive at this point that there is supply in the market?

 

sds.

[sds 10]

Gaps are filled.

 

Interesting early morning action in the Euro.

 

Check out the chart below.

 

First we see a dark WRB followed by a GAP in price. Note the first candle with a double arrow. Notice that the volume is ultra high and the bar closes lower than the previous bar and off of its low. VSA teaches that this is a bar that may have buying within it. Now the next bar is key. It turns out to be a WRB, but the fact that the bar is up means the prior bar MUST of had some buying contained within it.

 

Now we move to the white WRB itself. Note that this bar creates a zone or range where we get a change in the supply/demand dynamic. We also know that the market does not like wide spread up bars on ultra high volume because of the possibility of hidden selling. In this case, however, the volume actually fell from the previous bar and is not ultra high.

 

We move to the next candle with a double arrow below. This is a doji that closes equal to the previous bar and in the upper portion of its range. Volume on this bar is Ultra high. There is SUPPLY in the market at this stage. Price moves down from here.

 

Next candle, closes in the upper portion of its range and higher than its open. Volume again is extreme. Here we have Demand showing itself. In other words, Demand is swamping Supply on this bar. SOMETHING HAS CHANGED. Notice that the next bar closes in its middle, has an equal close and volume drops off.

 

The Last bar closes on its high on volume that is less than the previous two bars. Although it does not make a lower low, this is a 'test' bar. The Smart Money is testing for supply and finds none. Now price is poised to go up and fill that gap.

 

 

Hello PP,

 

As I said earlier, I am quite new and learning price action.

 

Could you commnet on my take on the chart you had posted.

 

Can I say that within the range of white WRB, there is demand and also there is

a selling pressure. If the demand had not there we would have got close at the

lower end of the candle.

 

At the later stage the white candle (which you have marked with double arrow)

might be indicating change in buying/selling pressure.

 

sds.

[Anonymous 11]

Nice Bullish White Hammer pattern.

 

Note that the white hammer line is inside the range of the Ultra Wide Spread Ultra High Volume candle.

 

When we take a look at the WRB, we see a down candle that has an ultra wide spread and closes on its low. There would appear to be heavy selling pressure in this bar. BUT THE NEXT BAR IS UP. If that bar was true selling, then the next bar would not be up.

 

In fact, if one looks at what price did after that bar it moved up. Clearly, the Professional demand created an upward drift in price. Simply, that WRB must of been a shift/change in the Supply/Demand dynamics of the market.

 

Now note the large dark Candle just prior to the shaded area. This candle closes on its low , closes lower than the previous bar and has volume less than the previous two bars. This is No Selling pressure. The close on the low fools the retail trader into seeing weakness. The lack of volume, however, is the real clue.

 

Price does move down a bit and create the bullish hammer pattern. Note that the hammer line itself is a VSA shakeout/test bar.

 

This is the "ideal" set-up. We see strength come in using our primary methods (VSA and WRB) and then we get a buy signal via our secondary method (Japanese candlestick patterns).

Edited March 26, 2008 by mister ed
Add back deleted chart

[Anonymous 11]

Hello PP,

 

Nice post and analysis.

But I did not understand, the statement which I have marked in the Bold.

 

Could you explain, how did you arrive at this point that there is supply in the market?

 

sds.

 

Hi sds.

 

That particular bar is a form of a test. But note the volume. it is very high for a test. If there were no sellers then volume should be lower. Now this is confirmed as price moves down. So we have a failed test, which shows weakness(supply).

[walterw 10]

Hi Pivot : a question about your yellow lines on the volume histogram, are they a simple grid or are they bracketed levels or stand dev of x vol period average etc... ? thanks Walter, by the way, each and other presentation are more clear.... cheers Walter.

[Anonymous 11]

Hi Walterw,

 

No. They are just there for "show". I put them there for a little color. In VSA the actual number is less important than the relative amount.

 

This brings up the color of the bars. Blue means the bar is greater than the previous bar and red means the bar is less than the previous bar.

 

Note this is superior to the traditional red for down close and blue (green) for up close. Why? Well we know that supply comes in on up bars and demand shows up on down bars, but this is the exact opposite of what the traditional color scheme implies.

 

Sometimes you will notice a black ave on the chart. This is a 30 mov ave (simple) of volume.

 

If you wanted to be more like tradeguider, you could place a 3 stand deviations of the moving average on the chart. Any bar that was above that level would be ultra high. However, you will find that over time one can get a feel for the amount of volume just by looking at the bars.

[Tasuki 10]

Interesting discussion, folks. What I'd like to see is a compendium of VSA setups, with a dozen or so examples of each, to show how the same setup might look with different scenarios. I've only been studying VSA for a little while, and Tradeguider says it has over 400 signals, but they seem to come down to a common few, really:

1) tests (successful and unsuccessful)

2) shakeouts

3) no demand

4) stopping volume

5) pushing through supply

6) upthrust

7) selling/buying climax

8) climactic action

9) support/weakness coming in

10) trap up/down move

11) no result after strong effort

12) selling/buying pressure

13) bottom reversal

14) end of a rising market

 

Well, that's all I can find. Probably missed some. The key, IMHO, is to get these patterns in your head, watch them as they unfold in different situations. A few, like stopping volume, are so obvious they reach out of the computer screen and slap you in the face. I'm slowly starting to see a few others, like no demand, upthrusts and shakeouts, but they take time to see them as they unfold. In my experience, Tradeguider (and the rest of you who have posted charts here) are missing half the volume information. For my money, I really need to see upvolume vs downvolume. With Tradestation, you can easily put those two on one subgraph. I've got mine set up with thin green line for upvolume, to which I overlay a big fat red bar for downvolume. The amount of added information you get this way is amazing.