[VSA] Volume Spread Analysis Part I

[Wookey 10]

Thanks Tin and Wookey,

 

Should squat bars be taken as a reversal bar? Pivot mentioned squat supply bar will cause the market to go sideways. Why is this the case?

 

To indicate reversal a squat bar should be in trend or after a WRB. Bill Williams would regard the squat bar as a reversal signal if it is completely outside his alligator.

 

Wookey

[jjthetrader 10]

Just a quick observation that can be totally off the mark. You have a blue line on your chart. I am assuming that this is a pivot line or Market Profile value area line or Fib retracement line. In other words, the blue line is delineating an area where you should be looking for certain price/volume clues.

 

 

Now look at the portion of the chart in the circle. Note that there was high volume up bar which contained some selling. But a few bars later the Professional Money is Testing for supply right around this line. The point: of all the things you have arrows on, the most important ones come near this "pivot area". That is the reason you have the line on there: to focus you to changes in supply and demand at certain predetermined levels. See my previous post as it also speaks about the circled area on this chart.

 

Also, I would add that if that high volume bar is also a WRB, then I would have the type of set up I like to talk about. While most of the areas you have marked don't actually become trade set ups as I see them.

 

 

Thank you. That makes perfect sense. So that hidden potential selling was answered with a test this basically nullifying it.

I thought tests were only valid with strength in the background though?

[BlowFish 10]

He is right on squats but wrong on concept. The most import group, the Smart money is decidedly bullish or bearish and the little guys are in the opposite camp. The spread is narrow not because the battle is evenly waged. It is narrow because it is not.

 

Just being picky little guy is not equal to dumb money just as smart money is not equal to big players. We are mixing to separate entities. The little guy makes up such a small portion of the overall volume he is hardly worth bothering about. The 'big dogs' are on both sides they represent the dumb money and the smart money. The CoT reports bears this out. Of course we all know which side we want to coat tail which is the important thing

 

Cheers.

[bertg 10]

Thanks ezduzzit.

 

You asked about Joel Pozen....

 

I have taken the free live demo a couple of times. It is clear to me that Joel posses an uncanny ability to "call" market direction based on reading the bars. After attending numerous webinars by Tradeguider, it is refreshing to see someone NOT dependant on "indicators" to read price and volume.

 

Hi,

 

Can anyone point me to Pozen's website?

 

Thanks,

Bert

[MrPaul 10]

Hi,

 

Can anyone point me to Pozen's website?

 

Thanks,

Bert

 

It was http://www.tradingmentor.net

 

Not sure what is going on with it now though

[TinGull 10]

[Wookey 10]

I think yes, it is no demand, not confirmed yet, though.

But you may also notice that it looks like test of demand. Price was marked up but didn't find buyers and fell back. And what is also important price gapped up indicating initial intention to move up. Tom Willams mentioned only testing of supply, but I think the rule can be reversed.

Anyway, I would not rush into short until this signal is confirmed. We have WRB down on Monday, which is effort to fall. High volume up bar on Tuesday stopped the move. Now you see that WRB bar formed support and resistance, which both showed some strength. So I'd wait for confirmation of no demand withing range of WRB or upward breakout out of WRB range tomorrow.

 

Wookey

 

[Soultrader 12]

Below is a snapshot of a losing trade I had today. I had shorted at the upthrust at 15540 just to cover at 15480 and reverse by going long. I ended up liquidating instantly at 15440.

 

From a volume perspective, the chart appeared as if selling has disappeared. However, selling pressure arrived instantly as if the bulls had thrown in the towel and price declined swiftly.

 

Any take on VSA would be appreciated.

 

The long trade is indicated by the up arrow on the chart.

 

[RAVIN 10]

SoulTrader,

 

The setup is fine in Isolation, however the prices have just broken support level marked in red with effort, the risk/reward ratio is not in favor of a long trade against that, if you go down to lower time frame you should observe a no demand to go with the downtrend.

I keep it simple , to trade with the trend.

[Soultrader 12]

SoulTrader,

 

The setup is fine in Isolation, however the prices have just broken support level marked in red with effort, the risk/reward ratio is not in favor of a long trade against that, if you go down to lower time frame you should observe a no demand to go with the downtrend.

I keep it simple , to trade with the trend.

 

Thank you very much for the input Ravin. It was very insightful.

 

I also made the mistake of trying to long once price was pushed back into value. 15520 (yellow line) was the previous day value high. Hence, a push back into value should of sent warning signals for me.

 

Thanks again.

[Wookey 10]

Any take on VSA would be appreciated.

 

The long trade is indicated by the up arrow on the chart.

 

Soultrader,

 

For me it looks more like short signal not long. The bar you marked is a test of supply and despite the volume is lower than previous two bars, it still retaltively high. If you drew a MA over volume (btw, as I understood TG uses 15 MA not 30), you saw that the volume was above it. So, it's a possible failed test, the next bar up on low volume and the volume is less than two previous bars, it's a classic no demand. We have two signal of weakness in bearish move, I'd consider it enough to take short.

 

Wookey

[RAVIN 10]

Thank you very much for the input Ravin. It was very insightful.

 

I also made the mistake of trying to long once price was pushed back into value. 15520 (yellow line) was the previous day value high. Hence, a push back into value should of sent warning signals for me.

 

Thanks again.

 

YW,

 

you will find that with this VSA stuff, it is relatively easy to get into detailed discussions with the benefit of hindsight as to the meaning in each bar and whether one should have gone long or short, but in realtime one does not have this luxury. As with all tools there are no full proof setups, probability always rules, VSA provides that extra edge, however any scenario which works on one occasion can be negated next time depending on selling and buying pressures from folks who operate on higher time frames, and one has to be ready for that rather than get tied up with any forecasts IMO

[RAVIN 10]

Thank you very much for the input Ravin. It was very insightful.

 

I also made the mistake of trying to long once price was pushed back into value. 15520 (yellow line) was the previous day value high. Hence, a push back into value should of sent warning signals for me.

 

Thanks again.

 

 

In fact next time it might do just that, go to that value line and the long would be profitable.

Here is Eurostoxx this morning, similar setup, profitable trade.

One can get into all kinds of explanations here but in realtime it is a different ball game.

[Anonymous 11]

Cool chart.

 

Most of the chart is the same as the others. We get a WRB and the begin to look for a low volume sign with the body of the body of the WRB. Here, we do see a Squat (Up Thrust) just after the WRB which screams that supply is entering the market. The super quick might enter here, but I can wait for the low volume signal within the body of the WRB. Again, if WRBs are indeed changes and shifts in supply a WRB that is an up candle, showing No Demand as price trades back within that range makes logical sense.

 

Something brought buyers in at this price area before, which created the WRB. But this time there is little activity. The bulls from the first time already got out and are not willing to try again. New bulls don't seem interested either.

 

Anyway, what is really interesting happens down the chart where we see a No Supply candle and then a Test candle. Note that the range on the Test is smaller than the range on the No Supply. NOTICE THAT THE VOLUME IS HIGHER ON THE TEST THAN ON THE NO SUPPLY, while still being less than the previous two candles. Also note that this Test closes on the high (ideal) and is indeed confirmed by the next candle which closes higher than the high of the Test candle. In other words, the Test is a good Test. Yet, we get a dark candle that engulf the Test candle and closes lower. This means we are getting No Results from a Test, which is a sign of weakness.

Edited March 29, 2008 by mister ed
Add back chart

[Anonymous 11]

Below is a snapshot of a losing trade I had today. I had shorted at the upthrust at 15540 just to cover at 15480 and reverse by going long. I ended up liquidating instantly at 15440.

 

From a volume perspective, the chart appeared as if selling has disappeared. However, selling pressure arrived instantly as if the bulls had thrown in the towel and price declined swiftly.

 

Any take on VSA would be appreciated.

 

The long trade is indicated by the up arrow on the chart.

 

 

 

Soul, I will let others comment on the VSA, except to say that I do see a good Test. Followed by a dark candle that closes lower and engulfs the Test candle signaling weakness.

 

Because you use MP, I know you know about the Value Area trade. This seems to be a classic example of that trade. Now if you do not take a myopic look: this one timeframe and those two candles, you probably would see weakness. Once the market exits the value area and then closes back within in it (on a 30 min chart) there is an 80% chance price will trade to the other side of the Value Area. Is the market also below the POC? These would be reasons to be bearish from a larger view point.

 

I would also add that a Test is strong (not always right) when you see reasons for the Test. That is, if there had been a large down candle on high volume or a Squat or even a no supply. All these things would be the types of candles the market would want to turn around and check to see if indeed all the sellers are done. Of course, this Test does not come within the body of an WRB...but I said I would leave the VSA to others.

[TinGull 10]

To follow up on the chart from yesterday....bam, nice gap down.

 

[ranj 10]

Tin,

 

Bring up the chart of YG or ZG or GLD.

Sequence of events.

end of rising market 11/6, 11/7, Break of the trend line, WRB down on high volume, "SOW", 11/12, Low Volume Rally into the gap. "no demand in an area of previous supply. Sell stop on the break of yesterday's Low. .

 

http://www3.stockfetcher.com/sfchart/1952378858.png

[TinGull 10]

ranj, very sweet...very very nice.

[jjthetrader 10]

Here's an example of the opposite of "end of a rising market". It's a 5 min chart of the emini S&P.

It resulted in a nice 11 point jump before the end of the day.

[TinGull 10]

Nice chart jj.

 

Here's a nice squat at WRB support....just happened this morning.

 

[TinGull 10]

 

Hmmm....having 2nd thoughts on this trade today going into the weekend. A break of yesterdays highs would certainly get me out of the trade, but it looks like there's no supply right now. There does seem to be weakness in the background tho, so that gets me wondering other things. Gotta love it. What do you all think about this chart?

[jjthetrader 10]

It's always nice to see the bar complete itself before you can make a good call. Do you have access to intra-day data for this chart. Even delayed data will let you see what's been going on.

Speaking of weakness & strength in the background, do we just look to the last Ultra-High Volume down or up bar to find the current background?

It can change so quick.

For example Tin, where's your weakness that you're speaking about?

[TinGull 10]

I see the weakness as inability to follow through on that very first WRB on ultra high volume that started this last range. When price couldn't follow thru and just ranged and then fell thru the bottom of that range, that to me is weakness. Now price has come back to test the bottom of that range and is doing so on low volume.

 

As for intraday access, I do have that. I try not to sit and watch all the time, tho...sometimes I get a little trigger happy and don't let things follow thru.

 

I try and get a little bigger picture than the last UHV bar. For this example, its the range and then break down of that range and testing it on lower volume.

 

[jjthetrader 10]

Thanks for your explanation. I see what you're saying.

Good luck with your trade. I can't add much for ya. As usual I have more questions than answers.

[TinGull 10]

It's all good Love the Q's cause it makes me think. I was talking with another one of the guys on the board earlier and he pointed out, too, that there is TONS of volume sitting right overhead. It's gonna take some intense buying to push things through that.