[VSA] Volume Spread Analysis Part I

[ranj 10]

It looks like today is going a no demand bar. I would sell on the break of today's low on monday. Also yesterdays bar did not have volume lower than it's prior two bars. Lastly today is going to be an inside day, one of my favorite set ups.

[jjthetrader 10]

Here's a 5 min chart for you Tin. There's not much activity today. Lots of selling going on the last few days though.

[jjthetrader 10]

Tin, one more thing when looking at your stock. It's in a nice uptrend and at the bottom of it's "playing Field"

[TinGull 10]

Nice...thanks guys. Thanks for that chart JJ...I appreciate it.

 

ranj, I'm already short this in 2 ways, basically hedged in volatility. Currently sitting on a small loss, but am pretty confident after seeing the close today and the complete lack of volume today.

[TinGull 10]

Yea...I see what you're saying on that jj...but the "playing field" is showing a much longer term uptrend than the length of time I intend to hold. I'm much more interested in gap break from the trading range.

[jjthetrader 10]

I figured as much but just in case...

[TinGull 10]

appreciate it

[Guest sleepy]

Hi all,

 

Im new to VSA and are trying to get my head around all the new terminology and concepts. Earlier in the year PivotProfiler mentioned that "the most cost effective way to learn is:

 

1. The Book ($100.00)

2. The bootcamp ($500.00)

3. Screen time

4. Webinars (free)- every now and then Gavin does provide useful pieces of information.

5. Screen time

6. Repeat"

 

... which to me makes a lot of sense.

 

Just wondering ...

 

1. ... if anyone would recommend getting Tom Williams CD ROM "How to pick Stocks that are Ready to Move" in addition to the Boot Camp which Ive yet to order. Or is the material duplicated.

 

2. ... if anyone has put together cheatsheets for individual bars

e.g.,

-- up bars with excessive volume = weakness

-- down bars with excessive volume = strength

-- up bar with low volume means mark-down can begin (time to short)

-- down bar with low volume means mark-up can begin (go long)

-- down bars, narrow spread (diff between H & L), low vol = bullish

-- up bars, low vol, near resistance = bearish

-- wide spread, high vol, near trend line = expect trend line break

-- small spread, small vol, near trend line = expect trend line bounce

 

... in order to make it easier to know what to look for on a chart. Or is all this also covered in the BootCamp recording.

 

Cheers,

sleepy

[Soultrader 12]

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.

 

Thank you for the reply Pivotprofiler,

 

Yes, I have made the ultimate mistake of ignoring the value area rule on that particular setup. The Nikkei has alot of false breakouts from the initial balance so I tend to like fading the breakouts up/down. However, alot of internals were showing weakness in the background.

 

Do you have a rule of thumb where when a market makes a new low, you prefer to wait for a potential test in the next x bars? Like sometimes a test will come on the second bar after the new low or 3-5 bars afterwards by making a new low by 1-3 ticks before reversing.

 

Although most traders do not want to catch tops or bottoms, a good entry is absolutely key with the Nikkei due to the large tick size. Do VSA traders here wait until price breaks the high of the test bar?

[mister ed 10]

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

 

I agree with your points here RAVIN, especially regarding time pressure in real-time trading, and not having the luxury to go into detailed analysis. Which is why threads like this are so important - use this time while the market is closed (or at least RTH is closed) to really learn this stuff, or as much of it as you find valuable. If recognizing the signs can become second-nature then using this process in real time is much easier.

 

Your second point regarding probabilities - spot on.

[mister ed 10]

... if anyone has put together cheatsheets ...

 

 

Great idea - I have a list of 14 important points that i got for somewhere that I can't remember, it may even be from earlier in this thread!(EDIT: It is from a post by Tasuki, thanks Tasuki!). It is certainly not my original work and I would love to give credit where it is due but I didn't note down where I got it.

 

It is not a bad starting point if you want to expand briefly on each point and use that as your cheatsheet. I think some of the points are more important than others.

 

--

 

First – what is the background?

 

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

 

--

 

Love the nickname sleepy, might have change mine to Iamsleepy2...

Edited March 29, 2008 by mister ed

[ranj 10]

Sleepy,

 

A cheat sheet is great, but it makes one think VSA is bases on finding these 1 to 2 bar patterns and then execute off of them.

But think about each bar as it completes in terms of relative volume, relative range and, relative closing. Then slowly putting the sequence together to build a solid trading hypthosis. I think Pivot has a great post about how markets turn.

Also VSA should be applied in the correct context, accumulation (early, middle, and end) verse distribution verse trend continuation.

[jjthetrader 10]

Hey all, here's a chart that's got my attention. I don't usually trade EOD so thought I'd post it. Does the most recent bar look like testing?

I know there's no follow through yet to confirm it but it does look like testing with that strength in the background.

[TinGull 10]

I think the bar before it would be a test, and this would be another test on stronger volume showing strength indeed.

[Guest sleepy]

JJ,

 

I cant send PMs yet ... can you please PM me your email addy.

 

Cheers,

sleepy

[habi 10]

Nice chart of the week about tests:

 

http://www.tradeguider.com/cotw/cotw.aspx

[jjthetrader 10]

The news is all over the impending fallout of FedEx Stock. Huge Gap down on Friday with massive volume but look at the close.

It just dropped out of it's trend channel so will that now be resistance for it or is there enough strength in that down bar to "rise" to the occasion?

[ranj 10]

I would redraw a little tighter trend line from the Oct high through the Nov high and fade the fill of the gap on no demand. But only time will tell.

[jjthetrader 10]

Like this then?

[MC 10]

 

What do you VSA guys think of this stock?

We had a big red day with HUGE volume closing well off the low showing value buyers. Then that last HUGE volume spike with a small body shows equal buying and selling somewhat. It closed green that day and then had a down day on very low volume. I think this might be a strong swing play if it can break the triangle.

 

Thoughts?

[ranj 10]

Like this then?

yes, then when the gap and the upper downwards trendline line up you a have a very high prob short.

[bertg 10]

Well, the time has come for me to post a chart and either get corrected or get... corrected. I haven't even scratched the surface of getting to understand VSA. I did complete Williams' ebook and check this thread out everyday.

 

In any case, PP & all, please correct, anotate, etc. PP, you are my VSA teacher, whether you want to be or not. So if my "analysis" is wrong, it's definitely the student's fault.

 

Whether good VSA interpretation or not, this would have been a great trade to take AND let materialize. On market replay I have a profit target, so that's why I got out at the pink. Blue is the entry. By the way, the market went all the way to 1522.25 with all up bars before it started back down...

 

What I saw:

market was in an up-trend.

#1 to me looked like a test, low volume.

#2 no supply

I entered on the next bar (blue ticks)

 

Regards,

Bert

[TinGull 10]

Hey Bert, nice work. What i see here...

 

 

1: Note that level of support. First area of support where the yellow line starts is a WRB support line. The bottom of the WRB often will provide support, and getting a higher volume spinning top right after...good sign it'll go higher. Then...comes the penetration of the low of that WRB on lower volume. Regular spread, lower volume and closing in the upper third. A break of that hammer is reason to get long for sure.

 

2: Another WRB that should provide some sort of S/r, and the next bar closes outside of that zone and then we get signs of excess in the form of long tails penetrating that S/R zone of the WRB....killer play.

[jjthetrader 10]

Nice trade bertg. Any positive trade is a good one.

 

Do you guys think end of the day market action taints VSA. Short covering produces very high volume in a short period of time. Any thoughts?

[TinGull 10]

Someone's gotta be on the other side of that short covering, so there's still activity happening. I wouldn't say it taints VSA. Maybe something to be aware of, yes.