[VSA] Volume Spread Analysis Part I

[Anonymous 11]

Tawe

 

Maybe I should of been more exact. It is a candle/bar that is narrower than the previous candle/bar. You are correct that it is not a narrow range bar as defined by an overall measure of bar/candle ranges.

 

Range/Spread means high to low. The only exception is WRB which is Wide Range Body and refers to the distance between the open and the close.

[tawe trader 10]

PP - thanks for the clarification.

[Anonymous 11]

Taken it up a notch.

 

A: Down bar on high volume with a close in the upper portion of range; Demand enters. This is confirmed with the next bar up.

 

B: WRB/Effort to Rise. Up bar with high volume and increasing range. Markets typically don't like up bars on high volume as they may contain selling (supply). WRB analysis says that a change in the supply/demand dynamic may be happening.

 

C: Down bar on high volume. Some supply did enter on previous bar. However, this bar is down on high(er) volume and could be hiding strength. The next bar does indeed close up, so there must be some buying in this down bar.

 

D: Up bar that closes in the lower portion of its range. Volume is high. Clearly Supply entered on this bar. The move sideways confirms that there was some supply entering on the last few bars. The fact that the market moves sideways and not down is telling of overall strength.

 

E: Down bar that is also a selling bar (low lower than previous low and high equal to or lesser than previous high). Volume has dried up and is less than the previous two volume levels. This is No Supply. Possible first entry as we now have a low volume sign within the body of a WRB with high volume.

 

F: D created a top and F is an Effort to Rise thru that top and the resistance level of B. Note volume is not very high and the close is on the high of the bar. This is a time when an up bar is strength not weakness.

 

G: More supply comes in. We get a very high volume bar that closes equal to the previous bar and closes in the lower portion of its range. While this was a buying bar (higher high than previous bar and higher or equal low than previous low), volume reveals the truth. Supply entered. The next bar is indeed down.

 

H: This is a Test. Had this been actual selling the volume would be higher. Plus the close would not be on the high of the range. When the next bar closes up and confirms the Test, we again have a low volume sign within the body of WRB. In short, another possible entry point.

 

I: is No Demand. There is no weakness in the background here. Or at least we see much more strength than weakness. The pros may not be ready to participate on an up move, but they are not selling decisively. Note how the next bar is down but does not trade lower than the low of the Test.

 

J: Test/Test in a Rising Market. Normally bullish but there is now a Gap on the chart. Gaps are usually filled. Does the Test tell us that this one will not be?

 

K: Effort to Rise. As previously stated, many times after a low volume sign there will be an Effort bar. This is due to the relationship between volume and volatility. At any rate, the next bar is down and we can see no close higher than this bar. This looks like No Result from an Effort to Rise (Bearish). Evidence that the market wants to at least back fill the gap.

 

L: Possible Test. The chart was captured before the close of the last bar so it may turn out that this bar is not a Test. If it is, it would make sense that the market is looking for supply as there has not yet been any results from the Effort to Rise and there is a Gap below. One should note that the low of this Possible Test is not lower than the low of the previous Test. This could be a good sign. Any dark WRB closing lower than this Test bar would be a sign of further falling prices....

Edited March 29, 2008 by mister ed
Add back chart

[tawe trader 10]

Now I mainly trade the FTSE 100 Futures contract listed on the Liffe exchange from a 7 minute chart. I follow the cash market closely. Tom Williams states that if you're going to trade futures based on Indexes you must follow what the cash market is doing before jumping into the futures market.

 

The only probelm I have is that Interactive brokers do not provide realtime volume information for the FTSE 100 cash market. How is one to trade intraday using Tom Williams' methods if you do not have access to realtime parent index volume information?

 

Do you simply ignore the cash market all together and use the volume in the futures market as the guide? If so, aren't you trading contrary to what Tom has espoused in his writings on VSA?

 

Hello lote_tree, if you have read this thread you would see that I also trade the FTSE future and I have managed to bag some pts since I started posting my charts.

 

Yes, in an ideal world we would like to have cash mkt (live) intraday volume to help us trade but until that is available I believe the futures mkt volume is the next-best-thing. There is EOD volume available for the FTSE cash index.

 

I have also noticed frequent volume 'spikes' in the FTSE future which is normally followed by a good size move. I can only assume that the in-the-know traders have some advance notice of some important news and then they pile into (or go short) the FTSE future contract.

 

The main difference between cash and future mkt which has been previously discussed is 'testing' where in the cash mkt it needs to be low to be successful, but if the futures traders see a successful 'cash' test they then pile in, which can lead to a high volume futures test.

 

As somebody else suggested, (if it can be done) you could add the intraday volume of the FTSE's say 15 largest companies by mkt cap ie BP, Shell, Glaxo, Rio, Bats, Vodafone and the big banks etc.

 

Just out of interest, why do you use a 7 min timeframe ? I usually have a range of various timeframes open, from 3mins to 60 min.

 

Darren

[jjthetrader 10]

In the boot camp Tom says there are situations when a high volume up bar is actually bullish and that he'd explain later. But he never does so what are the situations when a high volume, wide spread, up bar is bullish?

[marketguy 11]

JJ,

It is indeed explained. Here are my notes of it.

 

There is one circumstance when a HV WRB is bullish. This is when the market needs a push, it needs the volume to get thru resistance. You’ve got to be aware of where you are when HV comes in. Look to the left for resistance.

 

When you see an old trading area to the left like below, there are traders who are locked in long. On every dip down, they are worried. Smart money doesn’t want to see them sell when they want to drive the prices higher.

 

Bryan

[That One Guy 10]

Marketguy, is what you speak of, the same for down WRB's? The picture attached shows the QQQQ daily. It pushes through support with huge volume. However, it closes 19 cents off the low. One thing I would like to point out is, that on the 15 min chart, there was a huge volume spike. It took place in the last 15 minutes of the real market being open. Followed by the rest of the after hours session moving higher. Would this suggest overall weakness in the market, but a slight pop on Monday? I found Friday to be a very interesting day. The bad NFP report, plus the key break of support with so much force, could spell trouble here for the Nasdaq and the overall market.

[jjthetrader 10]

JJ,

It is indeed explained. Here are my notes of it.

 

There is one circumstance when a HV WRB is bullish. This is when the market needs a push, it needs the volume to get thru resistance. You’ve got to be aware of where you are when HV comes in. Look to the left for resistance.

 

When you see an old trading area to the left like below, there are traders who are locked in long. On every dip down, they are worried. Smart money doesn’t want to see them sell when they want to drive the prices higher.

 

Bryan

 

Oh yes I do recall that but I thought the tactict was to gap up through resistance rather than push.

 

So basically, if we've seen a down move with a bit of accumulation and we then get a big bar up, it's probably bullish where as if we've had a nice rally and we see a big bar up then we're probably looking at the top or at least weakness, correct?

[tawe trader 10]

There is a chapter called Pushing through Supply / Support Lines in the book.

 

'If you observe a wide spread up bar on high volume, punching thro' the top of a trend channel / down-trendline (supply line) and the next bar is level or higher, then you would now be expecting higher prices. Any low volume down-bar (potential test) will confirm this view.

 

I believe the opposite is true for pushing down through an up sloping channel / trendline.

 

There is also the possible act of gapping through support / resistance.

 

So basically, if we've seen a down move with a bit of accumulation and we then get a big bar up, it's probably bullish where as if we've had a nice rally and we see a big bar up then we're probably looking at the top or at least weakness, correct?

 

JJ, that seems a valid statement. I think the trick with VSA (like many others have said) is to look left on the chart to see where prices have come from, before acting on what is currently happening. Where has the mkt been ? and then compare that to where it is now. It is worth asking yourself this question on a continual basis. 'They' say that TA doesn't work, as past prices can't predict the future but it the case of VSA I believe that looking at the past is vital to making it work on the hard right edge.

 

A wide spread high volume up bar after a rally 'could' be seen as bearish.

A wide spread high volume up bar after a decline pushing through a trendline 'could' be seen as bullish, effort to rise etc and the start of a possible rally and change of trend.

Edited January 6, 2008 by tawe trader
.

[tradeit007 10]

Hi,

I joined this forum around mid-december and have read most posts in this thread. I have also read "Master the Markets" by Tom Williams.

 

I have a question about volume adjustmentss around the holiday season. In "Master the Markets", p103, it is said: "It is a good idea to double the volume figures for half-day trading periods".

 

Is this generally done, is there any other volume adjustments to make for dec-24 to jan-2 ?

 

Thanks,

Rene

[tawe trader 10]

Hi

If anyone is willing to sell a used "Professional Chart Reading Boot Camp" CD please email me.

 

tradproj, I have noticed that there is one for sale on ebay, have a look at:-

 

hxxp://cgi.ebay.ca/ws/eBayISAPI.dll?ViewItem&rd=1&item=190188487740&ssPageName=STRK:MESE:IT&ih=009

 

If the link doesn't work, try changing the hxxp to http.

Edited January 7, 2008 by tawe trader

[Tasuki 10]

See attached chart.

On this forum several people have asked for realtime trades with VSA, which is still beyond me (not good enough at VSA), but I think it would be really useful to post after-the-close charts of daily or weekly charts of the major indices and predict where we think the market is going, or at least show what we think might be valid VSA indicators.

 

So, for example, I've attached a daily chart of the Dow Industrials, and applied what I hope to be a correct analysis vis VSA. Namely, we have tested lower prices on higher volume. That would suggest to me that there's still more supply down below. Given the fact that we are sitting at support from last November as well as last August, and given the fact that we are still very oversold, we may get an upward bounce at this point, but I think this VSA interpretation suggests that we are not yet ready for a sustained, tradable up-move (unless you're trading intraday, perhaps).

 

Anyway, this is my best guess, given what I know of VSA so far.

[gassah 10]

See attached chart.

Namely, we have tested lower prices on higher volume. That would suggest to me that there's still more supply down below. Given the fact that we are sitting at support from last November as well as last August, and given the fact that we are still very oversold, we may get an upward bounce at this point, but I think this VSA interpretation suggests that we are not yet ready for a sustained, tradable up-move (unless you're trading intraday, perhaps).

 

.

 

Today's narrowing spread on higher volume probably represents demand overcoming supply. I think Wyckoff and Williams called it bagholding. With the low to the left and the oversold position relative to the channel it's a logical place for demand to enter.

 

nic

Edited January 8, 2008 by gassah

[gassah 10]

Williams prefers a down close for today's bar but Wyckoff didn't care.

 

"As they are buying (or absorbing) all of the stock on offer, this prevents substantial down-moves during the day's trading (despite all the frantic selling) and finishes up with a narrow spread on a down-day. If the professional money had not been bullish, they would refuse to buy stocks on offer, which means that the spread would then be wide and down for the day." MTM

 

nic

[gassah 10]

This is what Wyckoff stated for a similar bar:

 

"...although the price makes a new low and the closing is on the bottom, the downward thrust has shortened with volume still comparatively heavy, indicating that on this and the previous day somebody is holding the bag for the sellers -- a large demand is overcoming large supply-- the buying is of better quality than the selling.

 

If the above reasoning is incorrect, that is, if it should later turn out that the increasing volume... should have been interpreted to mean that liquidation is breaking out, we probably will be warned of this by the stock’s inability to rally convincingly from the critical supporting level... We are not likely to be long in doubt. Should it rally poorly...or should the price continue to decline on increasing volume, we must let our 3 Position stand (a bearish position). But if it quiets down and tends to hold, we must conclude that this means the break to a new low is failing to follow through."

 

nic

[gassah 10]

QQQQ did close lower and is at multi-week lows so it fits the above descriptions more neatly.

 

nic

[Soultrader 12]

This is what Wyckoff stated for a similar bar:

 

"...although the price makes a new low and the closing is on the bottom, the downward thrust has shortened with volume still comparatively heavy, indicating that on this and the previous day somebody is holding the bag for the sellers -- a large demand is overcoming large supply-- the buying is of better quality than the selling.

 

If the above reasoning is incorrect, that is, if it should later turn out that the increasing volume... should have been interpreted to mean that liquidation is breaking out, we probably will be warned of this by the stock’s inability to rally convincingly from the critical supporting level... We are not likely to be long in doubt. Should it rally poorly...or should the price continue to decline on increasing volume, we must let our 3 Position stand (a bearish position). But if it quiets down and tends to hold, we must conclude that this means the break to a new low is failing to follow through."

 

nic

 

Hi nic,

 

Could you point out which book this quote is from? I would like to read it myself. Thank you.

[gassah 10]

Hi nic,

 

Could you point out which book this quote is from? I would like to read it myself. Thank you.

 

Hi,

 

It's from Wyckoff's original course that is also part of SMI's Unit 2.

 

nic

[Soultrader 12]

Hi,

 

It's from Wyckoff's original course that is also part of SMI's Unit 2.

 

nic

 

Thank you nic, do you have by any chance the url to this course? I would like to check this out when I get a chance. Ive always been a avid student of Wyckoff but never had a chance to take his course.

[gassah 10]

Thank you nic, do you have by any chance the url to this course? .

 

http://wyckoffstockmarketinstitute.com/

 

nic

[jjthetrader 10]

Here's a RT trade from today. We see weakness come in on these high volume wide spread up bars. The spread narrows and the volume is still high. This is an "End of a rising market" to me so I shorted it. My entry and stop are market.

cheers

[Tasuki 10]

"As they are buying (or absorbing) all of the stock on offer, this prevents substantial down-moves during the day's trading (despite all the frantic selling) and finishes up with a narrow spread on a down-day. If the professional money had not been bullish, they would refuse to buy stocks on offer, which means that the spread would then be wide and down for the day." MTM

 

gassah, can you please tell me which page this quote appears on?

[gassah 10]

gassah, can you please tell me which page this quote appears on?

 

It's in the Glossary of Terms under Bag Holding. Mine is page 142.

 

nic

[Soultrader 12]

Hi Folks

 

Please find todays ES Analysis for tuesday 8th Jan 08, I have managed to get the file size down without losing too much quality.

 

Regards Sebastian

 

Happy new year and a profitable one too, to you all.

 

Hi Sebastion,

 

Having some trouble with the video. Is the file audio only?

[Tasuki 10]

Hi Sebastion,

 

Having some trouble with the video. Is the file audio only?

 

James, no trouble here Video and audio crystal clear. Maybe try rebooting? Sometimes that clears video/audio problems. Are you using wmplayer to view it? If you're using something else, that could also be a problem. Hope you get it figured out---Sebastian was brilliant, as always.