[VSA] Volume Spread Analysis Part I

[TinGull 10]

PP...beautiful stuff as always. Thanks again for opening my eyes up to VSA

[jjthetrader 10]

I found this trade today on the DOW mini. It's a TTM setup but look how VSA is incorporated in it to confirm it.

Notice how the 50% FIB retracement line matches up to S1. Now look at the bar approaching that line. LOW volume. That would have been a sweet short scalp.

[Anonymous 11]

JJ

 

Note the area in the ellipse. The first bar is down on Ultra high volume and closes off its lows. BUT the next bar is up. How can this bar be up if all the volume as downside (selling) volume? It could not be. Hence there most of been some buying in that volume. What we have hear is No Result from high volume.

 

Notice that since that bar price has drifted sideways. This further confirms that demand must of entered within all that volume. Said demand is not pushing prices higher, but it is keeping them from falling at this point.

 

With all that red on the chart, I would not be quick to jump in on the long side just because of the Ultra high volume bar. Especially since this is only one timeframe.

Edited March 29, 2008 by mister ed
Add back chart

[jjthetrader 10]

Distinction noted, there was no "next bar up" on my potential hidden buying.

This forum is great. All these little things you've got to look out for slip your mind when VSA is new for you.

Thank you.

[mister ed 10]

Its really a way of continuously monitoring the market from the point of view of continuation or change. Those are the only two choices. This is opposed to looking for 'setups' to occur. Exactly how you react depends on your focus (what exactly you are trying to capture). Its a more 'going with the flow' style of trading rather than an 'entry - stop or exit' approach. As an example steadily increasing price and volume would support continuation of the price in that direction. That is until you detected change (e.g supply swamping demand, demand drying up whatever). I have to say that I am looking at things slightly less from a VSA point of view (at the moment at least) and more from a Whycoff point of view.

 

Thanks BlowFish, appreciate it, thats good food for thought. Agree with you on the Wyckoff, VSA is just a subset of his whole analysis approach. It is not easy finding Wyckoff info - there are Hank Pruden articles here and there.

[RAVIN 10]

As an example steadily increasing price and volume would support continuation of the price in that direction. That is until you detected change (e.g supply swamping demand, demand drying up whatever). I have to say that I am looking at things slightly less from a VSA point of view (at the moment at least) and more from a Whycoff point of view.

 

1) Tom William learnt the art of reading the market via Wyckoff and then created his own way of looking at price spread and vol,(no demand, no supply etc) in that respect I would have thought both are two sides of the same coin and complementary.

 

2) Would appreciate if you would elucidate further as to how a change would be detected , what on the charts would indicate supply swamping demand, or demand drying up, demand overcoming supply etc.

I know terms like jumping the creek and breaking the ice or something similar are the terms used in wyckoff.

[BlowFish 10]

JJ

 

Note the area in the ellipse. The first bar is down on Ultra high volume and closes off its lows. BUT the next bar is up. How can this bar be up if all the volume as downside (selling) volume? It could not be. Hence there most of been some buying in that volume. What we have hear is No Result from high volume.

 

This is a 'pattern' I have trouble with. It also occurs at each resting point when price 'stair steps' down too. The difficulty is knowing whether it is simply a pause (stair step) or the end. Is it possible to tell whether the market will continue on down after a few bars rest - or whether it marks the end of the down move? I mean from these two bars and the background only? I can post lots of examples where it goes either way. Actually from looking at a helluva lot of charts I would say that you get continuation (just a pause) more often than a bottom. I think this is why most VSAers like to wait for the test before considering a long.

[tawe trader 10]

There are some excellent and very relevant observations currently coming through on this thread. I am learning something new every time I visit here.

 

Please keep up the stunning work. To be able to 'read' a chart with just price bars and volume is priceless........it's exactly like reverting back to the old times of Livermore and Wyckoff and trading as a craftsman, chart reading is a art and it's not something you can learn over a weekend.

 

VSA combined with self-discipline with give you an amazing edge in todays Financial mkts. Price + volume hasn't changed over the years and can't be hid.

 

In today's world of supercomputers, PhD Quants and complex indicators I believe VSA is the route to take, even if it takes a very long time to master.

 

I like to thank all who contribute to this thread, combined with T.W.'s book it is very, very educational - cheers Darren

[jjthetrader 10]

For Tin and PP, and anyone else interesed I suppose, here's an example I found that is almost the exact scenario as I posted regarding hidden POTENTIAL buying.

Would you mind having a look at it and see if I'm getting it now.

Thanks

[jjthetrader 10]

And if that 75 Point move wasn't enough for you then look what POTENTIAL buying after that move produced around the same price level. The amount of volume at these potential levels seemed to determine the size of the move.

I find that Posting these examples helps me learn so I hope it's helping others as well.

[MrPaul 10]

And if that 75 Point move wasn't enough for you then look what POTENTIAL buying after that move produced around the same price level. The amount of volume at these potential levels seemed to determine the size of the move.

I find that Posting these examples helps me learn so I hope it's helping others as well.

 

You got it. In my experience it's the amount of relative volume. And also how many times higher relative volume appears during a move down with price bars showing signs of strength. The more times accumulation "hidden buying" takes place during the down move the more supply is absorbed and the farther prices can go.

 

Here's a chart to look at:

 

3min ES from yesterday

[TinGull 10]

JJ, your second post there with the 75 and 120 point...I would never have gotten long that first 75 point move (not without seeing more of the chart) but the second move is a nice one as price plowed into that support showing bigger volume than the last time it was at that price and then we get the next bar as UP!! After seeing that, I'd be looking for a test, which happened the 2nd bar after the big range big volume bar and then a long overnight was very nice.

[jjthetrader 10]

JJ, your second post there with the 75 and 120 point...I would never have gotten long that first 75 point move .

 

No? Not even for a small ride?

[jjthetrader 10]

MrPaul, is the attached chart what you were pointing at with yours?

[MrPaul 10]

MrPaul, is the attached chart what you were pointing at with yours?

 

Yes but not all the arrows, in my analysis I consider the first 2 arrows to the left to be premature short covering or just enough demand to attract more supply. The middle arrow to be the beginnings of more accumulation demand, but still at that stage just an oversold condition bounce.

 

The last two arrows with the high volume I would consider longer term short covering mid-term accumulation.

 

I should stress here that I look at patterns MUCH more than individual bars. Really the only time Im looking at individual bars closely is for an entry based on a much larger price and volume formation.

[jjthetrader 10]

I've reattached the same chart but with pivot points and this gives us another clue as to why price action is taking place in that particular range.

 

Thanks Mr.Paul

[TinGull 10]

JJ...no, not even for a small ride. I'm more of a conservative trader who needs some confirmation of a move instead of being the first on the train.

[jjthetrader 10]

Is this considered a test in the attached chart even though the Volume is high? The next bar is up so it's hard to say. It's something but is it a test. I suppose it could be a shake out.

[MrPaul 10]

Is this considered a test in the attached chart even though the Volume is high? The next bar is up so it's hard to say. It's something but is it a test. I suppose it could be a shake out.

 

JJ,

I do not believe that is a test. It is just a point in which demand overcame supply.

 

Although I am not thoroughly educated in VSA nomenclature I believe a test is more typically seen after an area of accumulation.

 

 

P.S Also keep in my that when you do see a test it can be on high volume in a non cash market.

[ranj 10]

Is this considered a test in the attached chart even though the Volume is high? The next bar is up so it's hard to say. It's something but is it a test. I suppose it could be a shake out.

It looks like Demand overcoming supply.

Go down to a lower time frame and see what that shows you.

[jjthetrader 10]

Thanks for the input. Here's why I asked, look how price just goes straight up after it. I was wondering what it was so I can look out for this in the future.

 

This was the smaller timeframe ranj. I got the cue on a higher timeframe then zoomed down to this 2 min chart and saw this but thought the volume was too high to be a test. However a downbar closing on the high is usually a bullish sign is it not?

[Primavera 10]

Hello rayl54292,

 

This is my first post on this forum.

I was interested in the chart in your last post [3] and your comment about “input and brutal honestyâ€Â

 

This is my analysis of VSA in terms of looking at Volume and Standard Deviation levels.

 

The use of the Normal Standard Distribution curve can result in Negative Value Levels ( ie. for the Lower Standard Deviation levels ).

 

Volume can only be a Positive Value, hence I use a LOG Normal Distribution of Volume to assess the Standard Deviation levels. This gives levels which are always Positive. The following Amibroker Code shows what I am referring to.

I believe TG uses this approach also. Is this what you do also ?

 

All feedback on this line of thinking is most welcome.

 

Regards,

V

 

LBP = Param("Look Back", 30, 0, 100,1 );

Mean = MA(ln(V),LBP);
StD = StDev(ln(V),LBP);

xp3 = exp(mean + 3*std);
xp2 = exp(mean + 2*std);
xp1 = exp(mean + 1*std);
xm  = exp(mean);
xn1 = exp(mean - 1*std);
xn2 = exp(mean - 2*std);

Plot(xp3,"",  1,1|4096);
Plot(xp2,"",  1,1|4096);
Plot(xp1,"",  1,1|4096);
Plot(xm, "", 29,1|4096);
Plot(xn1,"",  1,1|4096);
Plot(xn2,"",  1,1|4096);

Clr = IIf(V>Ref(V,-1),29,32);
Plot(V,"",Clr,6);

Hi

 

This is my first post on this forum. I found this code useful as I use Amibroker and I have been looking at different ways to classify volume into high, very high etc. I experimented with an MA on volume, with straight percentages above and below. I also experimented with ranking, so I was interesting in seeing this code.

 

Do you also apply similar techniques to classifying spread.

 

I should add that I do not in anyway advocated automated analysis as a replacement for a thorough and deep reading of the charts. I am no indicators myself, but this kind of automated classification can assist in the initial scanning of a chart pior to a deep-read.

 

Primavera

[ranj 10]

Thanks for the input. Here's why I asked, look how price just goes straight up after it. I was wondering what it was so I can look out for this in the future.

 

This was the smaller timeframe ranj. I got the cue on a higher timeframe then zoomed down to this 2 min chart and saw this but thought the volume was too high to be a test. However a downbar closing on the high is usually a bullish sign is it not?

Hey JJ,

 

Yup no test on the 2 min TF. Was looking for the market to make the high vol. signal early in the 2 min time frame and then test to close on the high in the later part of the higher time frame bar. It looks like we got the high volume bar right in the middle.

 

High volume down bar closing on the high is bullish. Look at the price action a few bars later. You have a sign of strength, WR up Bar, followed by a low vol and narrowing spread reaction within the high body. That is the area for the high prob long.

[jjthetrader 10]

Hey JJ,

 

High volume down bar closing on the high is bullish. Look at the price action a few bars later. You have a sign of strength, WR up Bar, followed by a low vol and narrowing spread reaction within the high body. That is the area for the high prob long.

 

Exactly, an immediate test of that high vol bar did signal the long there. It happened to be on a pivot as well.

[jjthetrader 10]

Hi

 

Do you also apply similar techniques to classifying spread.

 

I should add that I do not in anyway advocated automated analysis as a replacement for a thorough and deep reading of the charts. I am no indicators myself, but this kind of automated classification can assist in the initial scanning of a chart pior to a deep-read.

 

Primavera

 

Everything in VSA is relative. Spread is relative. Volume is relative. What looks like low volume at one point in the day will look high at another.

 

A moving average works well to know if you have low, average or high volume. So if Volume > Avg the = high, that type of thing. But like you said this is only a general classification to assist you.

 

Same for spread. If Spread > Avg Spread then = wide spread. Use a short period for spread, a 15 and/or 30 for Volume.