[VSA] Volume Spread Analysis Part I

[ranj 10]

JJ,

 

One more thing. I like to look for price structure (VSA sequence of bars) in relationship to some reference, trendline, fibs, prior support or resistance, previous WRBs or Long shadows (thanks pivot). Not sure where this trade occured.

[Primavera 10]

Well, actually, they can't if you use my up-inside-down volume indicator (or any indicator system that shows both up and down volume). The belief that volume could be hidden (selling on up bars, buying on down bars) originated decades ago, before the advent of the internet and our incredibly sophisticated charting platforms. If you watch both up and down volume progressing on a single bar, you can plainly see when there's "hidden" buying or selling.

 

Needless to say, the problem with hidden volume still applies to those charts where you can't parse out the types of volume. On Tradestation, daily, weekly, and monthly charts won't allow you to insert up and down volume indicators (maybe other charting platforms are different, I'm not sure), but for intraday trading, hidden volume is a thing of the past.

 

Tom Williams has correctly pointed out that the exchanges have intentionally dragged their feet on providing accurate volume information for a very good reason--the folks that rule the market don't want you to know what they're doing. As Tom points out, there is no damn good reason why we can't get intraday volume on indexes such as the $SPX in this day of supercomputers, and don't get me started on FOREX. Still, for those of us who wisely trade contracts where you can get intraday volume, the separation of up vs down volume is an added level of information that can unmask the hidden buyers and sellers.

 

The last time I presented this idea, many pages ago on this thread, my idea received a lukewarm reception to say the least. Before you all go jump down my throat, PLEASE do yourselves a favor and watch the up/down volume for a week or so and see what you think.

Tasuki

 

May I ask who your data provider is ? Mine is currently IB and I don't know if they provide this kind of breakdown in their API. I have seen it on T&S but wasn't aware that this kind of data could be exported.

 

Primavera

[jjthetrader 10]

 

The last time I presented this idea, many pages ago on this thread, my idea received a lukewarm reception to say the least. Before you all go jump down my throat, PLEASE do yourselves a favor and watch the up/down volume for a week or so and see what you think.

 

Do you have a link to the TS indicator you're speaking about? I'd like to check it out.

[tawe trader 10]

I have been busy the last couple of days due to family commitments and I shouldn't have traded but I wanted to show you a MEGA 5 min UPTHRUST and a silly trade I did last Thursday which will hopefully be a lesson to myself and perhaps others can learn something from my mistakes.

 

The first chart I have attached is a 60min chart of the FTSE Future. It has had a storming rally - up over 500 pts in 7-odd trading days due to strong US mkts and Bank of England (BoE) rate cut rumors, so the mkt is due a retracement.

 

The next chart is a 5 min chart of the mkt last Thursday. I went short (in the FTSE cash mkt) at 11.55am, at the bar above the pink arrow 5 mins BEFORE the BoE interest rate announcement. I placed a very wide 30 pt stop-loss.

 

There was a massive upthrust bar at 12pm which took out my stop by 0.5 of a pt - gutted.

 

I believe the lesson here is PATIENCE - if I had waited, another 10 mins, then gone short on the break of the upthrust's low I could have banked with a trailing stop, a possible 100 pts from the low of the upthrust dotted line down to the lower dotted line.

 

 

C'est la vie...............Darren

FTSE Fut_60min Dec.doc

FTSE Fut_Thurs 6th Dec - Mega Upthrust.doc

[Blu-Ray 10]

Do you have a link to the TS indicator you're speaking about? I'd like to check it out.

 

Here you go JJ:

 

http://www.traderslaboratory.com/forums/f46/volume-delta-indicator-1153.html

 

Cheers

 

Blu-Ray

[jjthetrader 10]

JJ,

 

One more thing. I like to look for price structure (VSA sequence of bars) in relationship to some reference, trendline, fibs, prior support or resistance, previous WRBs or Long shadows (thanks pivot). Not sure where this trade occured.

 

Thanks ranj. This was all recent new ground with old trading way off to the left on a daily chart. And on that daily chart we were in an 'ambush' zone.

[jjthetrader 10]

Here you go JJ:

 

http://www.traderslaboratory.com/forums/f46/volume-delta-indicator-1153.html

 

Cheers

 

Blu-Ray

 

Thanks Blu-Ray, sorry to keep you so busy on the weekends:)

[Blu-Ray 10]

Well, actually, they can't if you use my up-inside-down volume indicator (or any indicator system that shows both up and down volume). The belief that volume could be hidden (selling on up bars, buying on down bars) originated decades ago, before the advent of the internet and our incredibly sophisticated charting platforms. If you watch both up and down volume progressing on a single bar, you can plainly see when there's "hidden" buying or selling.

 

Needless to say, the problem with hidden volume still applies to those charts where you can't parse out the types of volume. On Tradestation, daily, weekly, and monthly charts won't allow you to insert up and down volume indicators (maybe other charting platforms are different, I'm not sure), but for intraday trading, hidden volume is a thing of the past.

 

Tom Williams has correctly pointed out that the exchanges have intentionally dragged their feet on providing accurate volume information for a very good reason--the folks that rule the market don't want you to know what they're doing. As Tom points out, there is no damn good reason why we can't get intraday volume on indexes such as the $SPX in this day of supercomputers, and don't get me started on FOREX. Still, for those of us who wisely trade contracts where you can get intraday volume, the separation of up vs down volume is an added level of information that can unmask the hidden buyers and sellers.

 

The last time I presented this idea, many pages ago on this thread, my idea received a lukewarm reception to say the least. Before you all go jump down my throat, PLEASE do yourselves a favor and watch the up/down volume for a week or so and see what you think.

 

Tasuki

 

I'm actually going to disagree here, I use the tick delta indicator and have done since it's introduction to this site. I do find it very useful, but it can contain hidden volume as you describe, for example:

 

In an upbar where there were more buyers than seller's per the tick delta indicator, what's not to say the smart money were just loading up the ask with limit orders and the " late to the party" traders were snapping them up at market. Thus giving an impression that there was more buyers than sellers.

 

Cheers

 

Blu-Ray

 

ps. if you change your chart to a 1440 min you will get the tick delta to work on the equivelant to a daily chart.

[jjthetrader 10]

 

 

The next chart is a 5 min chart of the mkt last Thursday. I went short (in the FTSE cash mkt) at 11.55am, at the bar above the pink arrow 5 mins BEFORE the BoE interest rate announcement. I placed a very wide 30 pt stop-loss.

 

There was a massive upthrust bar at 12pm which took out my stop by 0.5 of a pt - gutted.

 

C'est la vie...............Darren

 

Tawe, thanks for sharing. I don't beleive you did anything technically wrong. You've always got to be careful of the big moves around anouncements. They're stop catchers to say the least.

Sorry about the loss. Did you jump back in or did the loss keep you out?

cheers mate

[jjthetrader 10]

Tasuki

 

I'm actually going to disagree here, I use the tick delta indicator and have done since it's introduction to this site. I do find it very useful, but it can contain hidden volume as you describe, for example:

 

In an upbar where there were more buyers than seller's per the tick delta indicator, what's not to say the smart money were just loading up the ask with limit orders and the " late to the party" traders were snapping them up at market. Thus giving an impression that there was more buyers than sellers.

 

Cheers

 

Blu-Ray

 

ps. if you change your chart to a 1440 min you will get the tick delta to work on the equivelant to a daily chart.

 

I was just thinking the same thing when I looked at it. There may be a boat load of buying but the indicator doesn't tell you if it's the weak holders buying or the smart money.

[jjthetrader 10]

Primavera, if you want the bootcamp I'd say go for it now. Rumors about company polotics don't mean much as far as the boot camp goes. Todd wants to release a different program called the foundations course and I'm sure all the polotics will hold that up for some time.

[MC 10]

Tasuki

ps. if you change your chart to a 1440 min you will get the tick delta to work on the equivelant to a daily chart.

 

Interesting tip...never though of it that way.

Thanks

 

Edit----

ZOMG...I just did this trick and WOW, that's freekin awesome.

You're a HUGE asset to this site bud.

[Primavera 10]

jjthetrader

 

Thanks for the advice about the bootcamp

 

Primavera

[mister ed 10]

The next chart is a 5 min chart of the mkt last Thursday. I went short (in the FTSE cash mkt) at 11.55am, at the bar above the pink arrow 5 mins BEFORE the BoE interest rate announcement. I placed a very wide 30 pt stop-loss.

 

Tawe, thank-you very much for sharing, its much easier to post the winning the trades than the losing trades.

 

Ahhhhh, central bank announcements - short of a war there is no surer way of rapidly shifting the demand and supply curves.

[gassah 10]

Primavera,

 

I found the BootCamp CD very useful. It isn't just a rehash of Tom's book. It really helps define the background and when to use each of the bar setups.

 

nic

[tawe trader 10]

Tawe, thanks for sharing. I don't beleive you did anything technically wrong. You've always got to be careful of the big moves around anouncements. They're stop catchers to say the least.

Sorry about the loss. Did you jump back in or did the loss keep you out?

cheers mate

 

No, I didn't jump back in, the old "anger/frustration/feeling of being unlucky" emotions had kicked in due to the fact of having my stop caught only by 1/2 pt.

Tawe, thank-you very much for sharing, its much easier to post the winning the trades than the losing trades.

 

Yes I didn't want you all to think I was some super-duper trader with a 100% win ratio !!

[BlowFish 10]

BlowFish (I also address this to Sebastian)

 

I have the Undeclared Secrets version of the book and have also noticed some errors. I certainly agree that it can be helpful to confront these errors to aid one's learning. I have not formally documented these and have put in an order for the TG version of the book.

 

May I ask some questions:

(a) does the TG version of the book include in its entirety the orignal version of the book with all errors corrected ? I am aware that it contains some additonal aspects

(b) would any of you guys who have documented the errors be prepared to share them - not breaching copyright, but merely to say on page 20 chart 1 should read bar A type of thing. I would be prepared to do this myself but it would require a complete re-reading because I have not documented the typos when I found them, so if someone has already done it then it would help. However if the TG version has done it all then, personally, there is no point in me doing this

© On another forum we have the start of rumblings of, shall we say "new ventures". Would it be wise to hang fire before purchasing boot-camp discs etc. to see further developments

 

Primavera

 

(b) Sure, Im in London currently but the book currently lives in Somerset. Should be spending Xmas there if you hit me with a PM round that time I'l have a flick through. Not really qualified to answer the other two questions.

 

Cheers.

[BlowFish 10]

 

The last time I presented this idea, many pages ago on this thread, my idea received a lukewarm reception to say the least. Before you all go jump down my throat, PLEASE do yourselves a favor and watch the up/down volume for a week or so and see what you think.

 

Hi Tasuki, Friendly debate rather than throat jumping from here! If I understand correctly what you are looking at is volume @ bid and volume @ ask. Red prints vs green prints from the tape. I looked at this extensively a while back along with market delta and footprint charts. I have just started experimenting with a constant range chart 1 tick wide with a volume @bid/ask histogram to see 'walls' build at different levels. Trevor published some of my observations on the old markedelta website so maybe it had some value. Probably still buried in the blog area.

 

Heres the thing, while delta & volume@bid/ask are useful tools I think there are lots of mis-apprehensions about them. (volume on upticks vs downticks gives very similar results to volume@bid/ask too).

 

Let me just throw out some ideas.

 

1) In futures markets for every print on the tape there is a buyer and a seller. This can be buying/selling to open/close so there are 4 types of participant. I am not aware of how you can differentiate between people opening or closing until we get real time open interest, that would be something! We need to remember at all times there is always a buyer and seller. Always.

 

2) Traders that hit the bid or the ask can be considered 'aggressive' buyers or sellers, those wiling to pay at market if you like. Stops will show up as aggressive as they convert to market orders. What these indicators measure is aggressive (at market) buyers and sellers.

 

3) One of the core premises of VSA is that the smart money/ (for smart read big) sells into rising markets and buy falling markets. This is the only way they can shift the size they need too. Hence weakness showing up on up bars and strength on down bars.

 

I think 1) 2) & 3) are probably 'facts' now a bit of conjecture. If we accept 3 then the smart money has the luxury of selling on the ask in an up move. To stop a move they aren't going to hit the bid again they are going to just keep refreshing the ask until more aggressive sellers show up. This dosen't jive well with the whole market delta volume@ask thing. Well not in the way its often presented i.e red 'selling' green 'buying'. In fact the only time this holds true is when the market is trending in a nice controlled fashion. The Smart money does not often need to buy/sell aggressively except perhaps to kic start a move.

 

Now I'm not saying these tools aren't useful but you have to be careful how you interpret the info. The problem they present for me is that it tends to draw me into the micro fluctuations and I tend to get 'wiggled out' by them. Thats not a problem with the tools but personal discipline!

 

Cheers.

[Primavera 10]

(b) Sure, Im in London currently but the book currently lives in Somerset. Should be spending Xmas there if you hit me with a PM round that time I'l have a flick through. Not really qualified to answer the other two questions.

 

Cheers.

Blowfish

 

Thanks - if I get sufficient time before Christmas I will try to jot down my thoughts on where the typos exist as well to compare notes.

 

BTW: I come from the next county - Glos

 

Primavera

[jperl 11]

I've been sitting on the sidelines watching this discussion about volume. The amount of "Volume" in this thread is a clear indication that there is considerable confusion about how to interpret volume in relation to price movement. I've read "Master the Markets". There is a lot of interesting stuff in there that needs to be better quantified. So far on this thread, I haven't seen much of that.

Perhaps we can begin somewhere by using Blowfish's comments about volume. Let's start here:

 

 

Hi Tasuki, Friendly debate rather than throat jumping from here! If I understand correctly what you are looking at is volume @ bid and volume @ ask. Red prints vs green prints from the tape......(volume on upticks vs downticks gives very similar results to volume@bid/ask too).

 

This is an interesting statement. It is not what Tasuki has said. Volume at the bid/ask is NOT the same as up-tick/down-tick volume. Let's be clear about this. As Tasuki has pointed out volume of any bar on a chart can be divided into two parts, DEMAND or BUYING volume which makes price rise, and SUPPLY or SELLING volume which makes price fall. This would be the same as ask/bid volume traded if it weren't for a small but very important fact. If you've ever watched the tape, you will notice that many trades occur at the same price before there is a new up-tick or down-tick trade. So what are these trades? Are they DEMAND trades or SUPPLY trades. We need a definition. A trade that takes place at the same price as the previous trade is a DEMAND trade if and only if the previous trade was a DEMAND trade. Similarly for a SUPPLY trade. In practice what this means is that you have to look back a sufficient number of trades to determine whether the present trade is to be considered a DEMAND trade or Supply trade. Looking at whether the present trade occurs at the bid or the ask doesn't hack it.

There is then no mystery about HOW MUCH SUPPLY trades there are in a WRB that closes near its high. You don't have to wait for the next bar to figure that out. Just dividing the volume bar up into its DEMAND component and SUPPLY component will tell you immediately.

Until there is some consensus here about how to determine DEMAND/SUPPLY volume, then anything else we have to say about VSA will remain confusing.

 

 

 

 

 

 

1

[MC 10]

Until there is some consensus here about how to determine DEMAND/SUPPLY volume, then anything else we have to say about VSA will remain confusing.

 

I'd love to have/gain that edge your looking for, to know what the volume truly was comprised of. I'm tuned into this thread anyhow but this discussion just got that much more intriguing.

 

I think the point of VSA though is through the plain jane volume and the candle's spread you can try to gauge effort vs. results. That combined with the concept that swamping volume on any extreme is usually the start of a trend reversal and to watch for the test of extremes with lower interest to confirm. I know I'm barely scratching the surface and want to keep learning more about No supply and No demand bars etc...

 

I'm a rookie and no pro so this is merely my understanding of VSA.

Keep posting the charts guys, I'm learning from you all.

[mister ed 10]

Now I'm not saying these tools aren't useful but you have to be careful how you interpret the info.

Cheers.

 

Great post BlowFish. Now, let’s get some friendly debate going.

 

I would start by suggesting that a discussion about the bid/ask volume (definitions to follow) should be on a new thread. While we are discussing it here in the context of VSA, it is a separate concept – by all means marry the two together, but getting to a point where we can do so, and debating it on this thread, is going to frustrate those that want to concentrate on VSA.

 

Blowfish, if I can refer to your numbered points.

1. No issues here … Real time open interest – yes please!

2. No issues here. Those confused about definitions, BF has defined it perfectly – A trader who hits the bid, that’s an “aggressive†sell, a “seller†if you like, or “sell volumeâ€Â. A trader who hits the ask, that’s an “aggressive†buy, a “buyerâ€Â, or “buy volumeâ€Â.

3. I have an issue with smart = big. Observation of the big-lot trades that go through suggests to me that the big lot traders are not necessarily “smartâ€Â. It is logical that smart = big, but in my experience, not all big = smart. This may be an issue with how the data is presented, and I would love input on this. I am only speaking of the ES, my current understanding is that a 100 lot buy (i.e. a buyer who hits the ask for 100) is reported as a 100 lot buy even if he buys from a split of sellers, say a 5, 10, 15, 10, 30, 20, 10). Another point is the software exists to allow trade size to be split, so instead of executing one lot of 200 near-simultaneous execution of 4 lots of 50 (for arguments sake) can be done instead. My broker even offers a humble trader like me an “iceberg†facility to split up my limit orders.

 

Now, onto your conjecture BF – where you say, and I quote “This doesn’t jive well with the whole market delta volume@ask thing. Well not in the way its often presented i.e red 'selling' green 'buying'.†I fully agree – the marketing of it is far too simplistic, just because there is a truckload of deals at the ask, i.e. lot of aggressive buying, the price may not necessarily rise if the buying is running into a large limit order. This is a “failure†of the marketing of the concept, but is a feature of the information – big aggressive buying that cannot achieve a price advance is good information in itself. Indeed, in VSA a narrow range up bar on very high volume after an up swing in price illustrates this concept perfectly.

 

Also, BF “The Smart money does not often need to buy/sell aggressively except perhaps to kick start a move†– excellent point, and something I watch for.

 

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

 

Jperl – in response to your post. This whole up-tick/down-tic versus volume at bid and volume at offer is not a debate I am fully cognizant with. The definitions I use are above, these are the definitions used in the Market Delta software, and In IR/T. I can’t speak for other packages.

 

To reiterate:

There is a Bid.

There is an Ask.

 

A deal struck at the bid price is an “aggressive†sell. Shorthand – a “sellâ€Â, what you would class as a “SUPPLY†trade.

A deal struck at the ask price is an “aggressive†buy. Shorthand – a “buy†– what you would class as a “DEMAND†trade.

 

Let’s say there is a sequence thus:

1. Bid = 25

2. Ask = 50

3. Trade at 50 for 75 lots. (This is an aggressive buy – reported as a buy)

4. Bid is now 50

5. Ask = 75

6. Trade at 50 for 30 lots. (This is an aggressive sell – reported as a sell).

 

Now, my understanding of what you are saying jperl is that the second deal you would class as a “buyâ€Â, or a DEMAND trade because the previous deal was at the ask and was a DEMAND trade. I disagree with your definition here, a hit at the ask is a demand trade, a hit at the bid is a supply trade, regardless of what the previous trade was.

 

Happily, my definitions coincide with the definitions used in the software I use (otherwise I wouldn’t use it).

 

 

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

 

If I can go back a little. Tasuki has argued that there is no “hidden†selling or buying using the volume at bid and ask concept. I fully agree – the numbers are there in black and white (or red and green), the volume of aggressive buys, aggressive sells, and by implication the volume of “passive†buys and sells.

 

The motivations of the participants, or whether or not they are "smart money", are/is not laid out by these figures, that is for us to speculate on, but their actions clearly are.

[BlowFish 10]

Quite agree that 'delta' type stuff is probably better in a separate thread to the VSA stuff. Bed time here I'll go through your post a bit more carefully tomorrow.

 

Cheers.

[jperl 11]

Great post BlowFish. Now, let’s get some friendly debate going.

 

I would start by suggesting that a discussion about the bid/ask volume (definitions to follow) should be on a new thread. While we are discussing it here in the context of VSA, it is a separate concept – by all means marry the two together, but getting to a point where we can do so, and debating it on this thread, is going to frustrate those that want to concentrate on VSA.

Yes I agree. I've started a new thread entitled "What is DEMAND/SUPPLY volume"

 

 

Jperl – in response to your post. This whole up-tick/down-tic versus volume at bid and volume at offer is not a debate I am fully cognizant with. The definitions I use are above, these are the definitions used in the Market Delta software, and In IR/T. I can’t speak for other packages.

 

To reiterate:

There is a Bid.

There is an Ask.

 

A deal struck at the bid price is an “aggressive†sell. Shorthand – a “sellâ€Â, what you would class as a “SUPPLY†trade.

A deal struck at the ask price is an “aggressive†buy. Shorthand – a “buy†– what you would class as a “DEMAND†trade.

 

Let’s say there is a sequence thus:

1. Bid = 25

2. Ask = 50

3. Trade at 50 for 75 lots. (This is an aggressive buy – reported as a buy)

4. Bid is now 50

5. Ask = 75

6. Trade at 50 for 30 lots. (This is an aggressive sell – reported as a sell).

 

Now, my understanding of what you are saying jperl is that the second deal you would class as a “buyâ€Â, or a DEMAND trade because the previous deal was at the ask and was a DEMAND trade. I disagree with your definition here, a hit at the ask is a demand trade, a hit at the bid is a supply trade, regardless of what the previous trade was.

 

Well your example is somewhat incomplete. Both Trade 3 and Trade 6 was at 50 (the same price). So in my terms, you would need to know what price the previous trade occurred. If it occurred say at 25, then both trades 3 and 6 would be DEMAND trades whereas if the last trade was at 75, then trades 3 and 6 would be SUPPLY trades. It matters not what the bid/ask prices happen to be, only what the time and sales price/volume shows.

[Tasuki 10]

Tasuki

 

May I ask who your data provider is ? Mine is currently IB and I don't know if they provide this kind of breakdown in their API. I have seen it on T&S but wasn't aware that this kind of data could be exported.

 

Primavera

 

Hi Springtime, I use Tradestation as my data provider. The one big advantage with TS is that you don't have to "export" anything--Tradestation the charting package is also Tradestation the data provider. One of the huge drawbacks of IB is that you have to export data from them to a charting package, and all SORTS of stuff gets lost in the mix. I know lots of people do it, especially with eSignal, but I've found exporting to be a total drag. For example, I recently tried the charting platform Neoticker for a month, and exported data from eSignal. For some of my charts, the exporting process took 45 minutes for the chart to refresh. Yeesh. Gimme Tradestation any day.