[VSA] Volume Spread Analysis Part I

[Tasuki 10]

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

 

jj, The indicators I'm using are just "standard issue" volume up and volume down indicators from Tradestation. Absolutely nothing special at all. I presume every charting package has them. You use TG, right? Don't they have volume up and volume down? They HAVE to, they're all about volume, it's their big thing, right?

[Tasuki 10]

Here you go JJ:

 

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

 

Cheers

 

Blu-Ray

 

 

Actually, Blu-Ray, that's not what I was talking about. I did describe in some detail what I do on previous posts--I just take volume up and put it on top of (in the same subgraph with) volume down. The volume down I make fat and red and the volume up I make skinny and green. For my eyes, this combo works MUCH better than volume delta.

[mister ed 10]

jj, The indicators I'm using are just "standard issue" volume up and volume down indicators from Tradestation. Absolutely nothing special at all. I presume every charting package has them. You use TG, right? Don't they have volume up and volume down? They HAVE to, they're all about volume, it's their big thing, right?

 

TradeGuider does not have volume up / volume down.

[Tasuki 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.

 

 

Blu-Ray, as much as I respect your incredible knowledge of the markets, you are mistaken here. As my statistics professor used to say, "There is safety in numbers." Trade volume is an absolute, a hard number. That hard number is reflected in a one-to-one correspondence to the size of the volume bars. There is no room for "giving an impression" with a hard number. The fakeouts you are describing are not reflected in the actual trade volume. Not even the so-called smart money can give the impression that there are more buyers than sellers, at least not if you can separate volume up from volume down...you know what, I think it's time we peeled this discussion off to a separate thread and I started posting examples.....the problem is, TradersLab is taking over my life. I am spending WAY too many hours a day reading and replying....information overload!

[Tasuki 10]

TradeGuider does not have volume up / volume down.

 

You have got to be kidding me. What we need (OK, what I need) is a separate thread where I can safely fire up my flamethrower.

[mister ed 10]

You have got to be kidding me. What we need (OK, what I need) is a separate thread where I can safely fire up my flamethrower.

 

Tasuki - flamethrower thread has not yet started, however Jerry has started one on buy and sell volume, found here.

[MC 10]

OK, MC, I'll be happy to correct you. No, this is not bid/ask volume. Rather, these bars are created from the Time and Sales data, which just represents actual sales, not bids and offers. In a standard T&S window, there are two colors, red and green. The bars in my upvolume indicator simply tally up the number of contracts in each sale that's green on the T&S, and the bars in my downvolume indicator simply tally up the number of contracts in each sale that's red on the T&S. The only novel thing I've done is to arrange my Tradestation indicators so that the upvolume appears inside the downvolume on the same bar--it just gives you a handy way to look at the difference between buying and selling, or to be more accurate, selling on the offer and selling on the bid.

 

The green represents selling at the offer price, i.e. selling as price is going up, which means that the buyer is buying when the price is going up, which means that the buyer is "paying up" because he expects the price to go up even further. In other words, the green represents buying pressure.

 

The red represents selling at the bid price, i.e. selling as the price is going down, which means that the seller is selling at the lower price (the bid price is always lower than the offer price) because the seller expects prices to go down even further.

 

If you look at the up vs down volume for a while, you will convince yourself that this is not "smoke and mirrors" (as bids and offers often are when they don't result in actual trades), and I think you can also convince yourself (as I have) that this information is very valuable.

 

AHHH so if the contract/contracts are bought on an uptick it's green and if it's bought on a downtick it's red.

 

I understand the difference, I have the tick delta indicator only.

Have you shared your custom indicator here, I'd love to watch it at work if you're willing to share.

 

Thanks for the correction.

[BlowFish 10]

OK going to carry on the discussion in the thread Jerry has started as Mr Ed has introduced yet another dimension the final piece of market generated data a trader can use

 

See you guys there http://www.traderslaboratory.com/forums/f34/what-is-demand-supply-volume-2994.html

 

Cheers.

[monad 10]

You have got to be kidding me. What we need (OK, what I need) is a separate thread where I can safely fire up my flamethrower.

 

The most productive route would be to illustrate with charts. That way it will far quicker and informative to ascertain whether or not the green/red bars on the volume histogram have any value.

 

For example when the market breaks out of a congestion zone,

 

1. There would probably be a wide bar on high vol, if this is a genuine breakout you should observe more green then red, right.

 

2. Now lets presume there is an uptrend first, as the prices rise, along the way there are WRB on high vol, then retracements and continuation. Once again you should observe more green then red on those WRB and less red then green on the retracement bars.

 

3. Now lets say there is buying climax , market goes sideways, there are upthrusts, no demand etc and then breakdown and market reverses to the downside. On that buying climax you should observe more red than green, right.

 

4. Prices now keep going down with WRB on high vol, retracement etc . The green/red sequence should now be opposite. more red than green.

 

5. We get a selling climax, there should be more green than red here

 

Hope I am reading you right, if you observe these changes along the various bars mentioned above in realtime charts, then at least that should provide some more meaningful discussion.

[Tasuki 10]

AHHH so if the contract/contracts are bought on an uptick it's green and if it's bought on a downtick it's red.

 

I understand the difference, I have the tick delta indicator only.

Have you shared your custom indicator here, I'd love to watch it at work if you're willing to share.

 

Thanks for the correction.

 

MC, see attached. My "famous" up-inside-down volume indicator is the essence of simplicity. I simply put both upvolume and downvolume indicators (standard Tradestation issue) on the same subgraph, and arrange them so that the upvolume is inside the downvolume. Personally, I put this double indicator on two timeframes---I include it on a five minute chart, and also a one minute chart. With the one minute chart, you can more easily see how the volume is unfolding as the five minute bar is progressing.

 

There are lots and lots of cool nuances to watching the volume this way. As I've said before, those of you who are volume freaks (and everyone who trades with VSA should be, IMHO), please put this on your charts and just watch it for a week. You'll be amazed how much information you get out of it. Yeah, there are lots of subtleties, but that's a good thing.

 

One word of caution from that famous trader Yogi Berra, "It ain't over 'til it's over." In other words, don't make the mistake (speaking from experience here) of assuming that the volume pattern on a bar will be such-and-such until the bar actually closes.

[MC 10]

MC, see attached. My "famous" up-inside-down volume indicator is the essence of simplicity. I simply put both upvolume and downvolume indicators (standard Tradestation issue) on the same subgraph, and arrange them so that the upvolume is inside the downvolume. Personally, I put this double indicator on two timeframes---I include it on a five minute chart, and also a one minute chart. With the one minute chart, you can more easily see how the volume is unfolding as the five minute bar is progressing.

 

There are lots and lots of cool nuances to watching the volume this way. As I've said before, those of you who are volume freaks (and everyone who trades with VSA should be, IMHO), please put this on your charts and just watch it for a week. You'll be amazed how much information you get out of it. Yeah, there are lots of subtleties, but that's a good thing.

 

One word of caution from that famous trader Yogi Berra, "It ain't over 'til it's over." In other words, don't make the mistake (speaking from experience here) of assuming that the volume pattern on a bar will be such-and-such until the bar actually closes.

 

Thanks for the tips...I'm going to try this out for a week and see how it works. Looks visually alot easier to read and I can't wait to see if live.

[RAVIN 10]

MC, see attached. My "famous" up-inside-down volume indicator is the essence of simplicity. I simply put both upvolume and downvolume indicators (standard Tradestation issue) on the same subgraph, and arrange them so that the upvolume is inside the downvolume. Personally, I put this double indicator on two timeframes---I include it on a five minute chart, and also a one minute chart. With the one minute chart, you can more easily see how the volume is unfolding as the five minute bar is progressing.

 

.

 

Tasuki, I have no problem at evaluating any method of evaluating the supply/demand balance and would enhance VSA reading and my trading edge.

 

With ref. to post 982 following a query by jjtrader,:

" Many pages ago on this thread, I recommended an enhancement to VSA in which volume would be broken down into volume up vs volume down. The "experts" on the thread didn't like my idea, but here's an example where it is valuable (in fact, invaluable). See attached chart. On your putative upthrust, the total volume is too high, but just as importantly, the upvolume nearly matches the downvolume (upvolume is seen as a green line inside the wider red line which is downvolume). This clearly shows that there was significant buying on this bar, hence it was not an upthrust. The total volume itself would have been a clue, but the picture is clearer if you separate the up from the down."

 

Based on your observations, I was trying to figure out your recent 5min chart. On the 5.35 bozo (WRB) there appears to be more green then red, as per the indicator on your chart, that would suggest more buying than selling, market forms a double top and reverses. Similar situation exhibits itself on the bars pointed out with a white line. Now I am no expert on up and down vol. but would appreciate if you would clarify the situation for as has been suggested that the only productive and meanifulway way forward is to illustrate these concepts via charts and explanations based on realtime trades. IMHO

[monad 10]

Blowfish has made some very pertinent points on this matter at elitetrader

http://www.elitetrader.com/vb/showthread.php?s=&threadid=92158&perpage=6&highlight=volume%20delta&pagenumber=3

[Blu-Ray 10]

Blu-Ray, as much as I respect your incredible knowledge of the markets, you are mistaken here. As my statistics professor used to say, "There is safety in numbers." Trade volume is an absolute, a hard number. That hard number is reflected in a one-to-one correspondence to the size of the volume bars. There is no room for "giving an impression" with a hard number. The fakeouts you are describing are not reflected in the actual trade volume. Not even the so-called smart money can give the impression that there are more buyers than sellers, at least not if you can separate volume up from volume down...you know what, I think it's time we peeled this discussion off to a separate thread and I started posting examples.....the problem is, TradersLab is taking over my life. I am spending WAY too many hours a day reading and replying....information overload!

 

Tasuki

 

It's okay, I don't mind agreeing to disagree, but I'll just post a quick example.

 

 

As you can see in the chart posted, price is 13702 Bid and 13703 Ask.

 

You put a limit order in at 13700. Suddenly price comes down and you get filled.

 

Your 1 lot limit order WILL NOT show on the time and sales as a BUY and it won't show as Green on your up/down Volume indicator.

 

What it will show on the time and sales is the "aggressive seller" who sold at market. For example, he sold 10 lots, ( with your 1 lot being one of them)

 

10 lots will show on the time and sales and that will show as RED on your up/down volume indicator .

 

But...... clearly you bought.

 

Hope this makes sense.

 

And as for TL taking over your life, ditto :o

 

Cheers

 

Blu-Ray

[Tasuki 10]

Tasuki

But...... clearly you bought.

Blu-Ray, good post and analysis. Yes, it'll be red on the time and sales because you bought while the price was going down. But it won't appear on the volume bar because that was one measly contract, and each bar represents hundreds or thousands or even tens of thousands of contracts. Now, if you were to see four trades go off at once on the T&S, each one for 300 contracts on the ES, and they were all red, then you should sit up and take notice, because it's likely that somebody or somebodies knows something that you don't, and maybe you don't want to go long with your one contract into the teeth of 1200 contracts going off as the price goes down.

 

All I can say is, watch it for a week and you'll see that it works.

[Blu-Ray 10]

Blu-Ray, good post and analysis. Yes, it'll be red on the time and sales because you bought while the price was going down. But it won't appear on the volume bar because that was one measly contract, and each bar represents hundreds or thousands or even tens of thousands of contracts. Now, if you were to see four trades go off at once on the T&S, each one for 300 contracts on the ES, and they were all red, then you should sit up and take notice, because it's likely that somebody or somebodies knows something that you don't, and maybe you don't want to go long with your one contract into the teeth of 1200 contracts going off as the price goes down.

 

All I can say is, watch it for a week and you'll see that it works.

 

Tasuki

 

No problem, I'm on your side here, as I do use the tick delta version of it and I do find it useful. But I was just trying to stress that it can contain hidden volume.

 

Anyway apologies for de-railing the thread a little.

 

Cheers

 

Blu-Ray

[BlowFish 10]

Guys I dont want to sound all dictatorial but this is very different from VSA. Its still valid, interesting etc. but It would be a shame to mix two distinctly different things up. Worse you could scare off some of the VSA guys. Obviously II can't speak for any one else but from what I know certain individuals have no intention of mixing this stuff into there successful trading methods. I know its not my thread but I feel kind of responsible having invited people here to discuss VSA.

 

Lets take it to http://www.traderslaboratory.com/forums/f34/what-is-demand-supply-volume-2994.html a better venue for this discussion and I am sure both threads will flourish.

 

Cheers.

[Tasuki 10]

Ravin,

You're asking for the nuances, and that's cool. So, let's go through the four bars you've highlighted. From left to right:

1) stopping volume--if this were simply total volume, what would you see? You'd see one humongous green bar, and they'd tell you that there was very likely selling hidden in that bar. Well, now you can see the selling right there in front of you--if the bulls really were taking over the earth, as it would appear with such a beautiful green WRB, then why the hell is the red volume bar 2/3 as high as the green bar? Why, because there's your hidden selling, staring you in the face. This is EXACTLY why I recommend this type of volume analysis.

 

2) Here, the price action has been down, and the bar in question is down, but the volume has definitely dropped off, and as you can see from this bar and the previous one (and the the next few after it), the green volume bar is starting to catch up to the red volume bar, showing that the buyers are starting to "nibble" at the market at these prices. It takes a little while for the boat to turn around, and for prices to go back up, but the fact that the green bars are starting to match the red bars in size suggests that at least the selling pressure is abating.

 

3) Here, the price has been going up smartly, and it looks like blue skies and sunshine for our ES, until you notice that the volume of buyers has decreased on this bar, giving you an advance warning that maybe all is not so damn rosy. The very next bar shows red overwhelming green on the volume, which is a definite warning sign.

 

4) Here, the price has been going down briskly, and the red volume is nearly identical to the previous bar. So, how come the green bar is nearly twice as high as in the previous bar? Why, because this is "hidden" buying, hidden no longer.

 

I keep asking people to just watch this (preferably with an open mind) for a week because the nuances of this method are numerous, and they do NOT make sense UNLESS you put them in the context of VSA analysis.

[Tasuki 10]

this is very different from VSA.

 

Blowfish, here we are agreeing to disagree again. The volume analysis I'm proposing, with its up-inside-down indicator, is of little value unless it is put in the context of Volume Spread Analysis. It is able to elucidate VSA to some degree, but it is not different or separate, at least not in the way I am trying to present it. Sorry if I've done a poor job of that, but let me repeat one example---when I first presented this idea, I started out by mentioning that this double volume indicator could show you the "hidden" buying or selling on intraday charts. As I hoped to show in my last post, this method has much more to offer than just shining a light on hidden volume, but if it did nothng else, it would help traders to see when the big money is starting to turn the boat around by "hiding" volume that will eventually take the market in the opposite direction from where it is currently headed. As I think you will see if you watch this for a while, the up-inside-down volume bars can provide useful information to many VSA setups (no demand, tests, stopping volume, etc. etc. etc.), but without VSA, the volume bars make little sense. Rather, they complement each other.

[RAVIN 10]

Thanks Tasuki,

From the manner of your analysis of the 3 market turns on the chart, it sound very much like VSA and in that respect, both would appear to be two sides of the same coin and hence complementary. However VSA takes into account the spread i.e the range of the bar and the close and ofcourse the background strength/weakness.

 

Would appreciate if you could post some realtime trades. As I mentioned previously I have no problem examining any method which would enhance my trading edge.

[BlowFish 10]

Hi Tasuki,

 

My point is perhaps this is not the thread to discuss it. The fact you use them to supplement VSA does not mean they are a part of VSA. If you think the other thread is inappropriate too maybe start one discussing VSA & upvol/downvol. VSA is very straightforward in this regard. When inventory is transferred from weak hands to strong hands or vice versa it shows up as volume. It matters not one whit whether it was on an uptickvol or downtickvol. Just like when there is no demand it matters not whether there where more uptickvol or downtickvol. Actually I put forward an idea for discussion that this is actually at odds with how smart money actually accumulates and distributes. I think this maybe demonstrable (but not here).

 

 

I do think there are some flaws to the uptick = buyer downtick = seller which I have outlined in some detail but again this is probably not the best venue to discuss it that is all Im saying Anyway Im really pleased you are getting good value out of these indicators. One reason being I'd like to learn from that! I can certainly see they have utility but I am still trying to integrate them into my day to day trading. Come over to the other thread and show us all! (Im sure no one will mind if you use VSA as 'context').:fight::beer:

 

Cheers,

[Anonymous 11]

Tasuki and others,

 

Please use the other thread for such discussions. This thread is about Volume Spread Analysis. VSA can be used in a multitude of ways and this thread promotes all of them. What you are talking about is NOT VSA period. Could there be some value, maybe. But this is not a forum for that discussion.

 

We all know what Tom and Todd say about Up/down volume. If you feel differently, that is your proagative. And in fact, you may correct. But let's try to keep the stuff here germane. Post on the VSA aspects of your analysis with links to another thread for the more "specialized" stuff.

[Tasuki 10]

We all know what Tom and Todd say about Up/down volume.

 

Well, at least one person (yours truely) has been out of the loop. No, I don't know what Tom/Todd have said on the subject of up/down volume. Actually, I would be surprised if they had anything at all to say on the subject, given the fact that Tradeguider can't view up/down volume (that's already been established by someone on this thread who apparently knows).

 

PP, please enlighten us as to what Tom and Todd say about up/down volume. Either here or that other thread, your choice, but I'd really like to know. I don't recall any discussion in Master the Markets, maybe I missed it. Was it perhaps mentioned in the bootcamp CD?

[Seb Manby 11]

I now have camtasia, so i have uploaded video and audio for my analysis of the ES Monday 10th dec

 

dowmload here 19mb http://www.megaupload.com/?d=AZBX5YW2

[Sparrow 10]

Thanks Sebastian, I've uploaded the file as an swf, suppose not everybody has camtasia here.