[VSA] Volume Spread Analysis Part I

[BlowFish 10]

Here's a chart showing where I would consider entries. Apologies for the clunky annotation MSpaint is not that great for the job!

 

The yellow lines are S/R zones they are more or less where I see supply and demand entering though most are clearly confirmed within a couple of bars as the level is 'proved' by the level holding against attack. A quick aside - as I have mentioned before I have a bit of an issue with using WRB's (and wicks alone for that matter). I certainly do not want to take away from PP's excellent work here so I'll put that in a paragraph at the end so those who wish to can ignore it.

 

The first black bar on the left is the first correction in the move the high and low represent the start and end of that correction. The first visit back there I would for sure have taken a long (probably:) ). You would have had to jumped in pretty much on faith but getting in on a test is a very rewarding entry when it comes through.

 

The first cyan dot is a pretty perfect entry I'd probably have had a crack if my longer term bias was short. Second pair of dots would be a good entry also though it would have been nicer a bit later so it was at the trend line or a bit higher with an upward test type bar.

 

Toward the end things are starting to look iffy for shorts (again depending on longer term context). I would be a little wary as the trend line is broken. I have no issue with re-drawing a trend line though. Who needs momentum indicators!! you can see we are still moving down but the momentum has slowed.

 

OK a quick bit on WRB's - the open and close that define a WRB are single 'ticks in time' they don't really represent any consensus or behaviour. They are simply a function of how you sample time to draw the candles. They are determined at an arbitrary single point in time. Now to take a point in time (the open of a bar) and another point in time (the close) and say they are far apart does have value to me however the specific price at those split seconds in time don't. Further more there is no shift in the over all dynamic if a bar opens it low and closes on it high even though supply must have been present it has not caused the price rise to abate. You may well get 1 2 3 or more of these candles. I believe there is are candlestick patterns (not near my books now) maybe called 3 black crows & 3 white soldiers. They are in essence 3 WRB's in a row.

 

Now using highs and lows is altogether different they represent where supply has overcome demand and caused the price direction to change. While this occurrs at a point in time it is significant over a range of time. More over every time price bumps against that level and is repelled it adds confidence to that level. From the attached chart you can see that happens often.

 

Finally WRB's are often caused by stops cascading, people jumping on to breakouts or the 'smart money' moving price through a level. If you go behind the WRB you will usually See the true S/R in the case of the chart here the congestion bottom left and the congestion up top after price has been run up. This I guess Wycoff's basic accumulation mark up distribution 'model'.

 

Finally don't listen to me listen to PP! Seriously. This thread is gold dust and I really don't want to detract from that. Actually I feel like an interloper coming in once every few pages with my paltry offerings.

 

Cheers,

Nick.

[Anonymous 11]

How would you read the following chart?

 

Hi Flatwallet. We are all interested to know how you see it. The more perspectives given, the more we all can learn. Thanks for the chart and keep 'em coming.

 

The key bar is obviously the Ultra Wide Spread bar with Ultra High Volume. I notice that the volume is painted powder blue. So I am sure this catches you attention.

 

I can not look a this bar without using the Highly related concepts in WRB & Long Shadow Analysis. Thus, forgive me for some non-VSA ideas that follow.

 

First note that this bar closes down from the previous bar, has Ultra High Volume and closes in the middle (or slightly above). As soon as this candle is created, one should think Transfer of Ownership bar. That is, the strong hands are buying (demand) from the weak hands. The Smart Money is either buying back their shorts, or simply buying in anticipation of a future rise in price.

 

Next we get a No Demand bar. This tells us that while the Professional Money was buying on the Wide Spread Candle, they are not yet interested in higher prices. It is also possible, that all that High volume meant that there is still supply (sellers) in the market. Price does indeed continue south. Now, even though there was buying (demand) on the Ultra Wide Spread candle, there is such a thing as momentum. It does appear that the trend was moving down at this point, so the momentum created by the move can take prices lower even in the midst of demand. Nevertheless, I am looking to go long.

 

To go short, I would want to see a No Supply sign in the shadow of this Long Shadow and then either the No Demand or an Upthrust.

 

The market heads south, the we get a No Supply sign. For me, still not a point to get long. Note that this candle is up against the support/resistance zone created by the Long Shadow, but not within it. It is, however, within the body of a large dark WRB. I WOULD LIKE TO SEE A LOW VOLUME SIGNAL WITHIN THE RANGE OF THE SHADOW. The market starts moving up and we get a Test bar. This is a low volume test in the ideal area for me. Again, we have a low volume sign within the range of a previously high volume candle.

 

Note that the volume on the test candle is not less than the previous two candles. It is, however, lower than the previous bar and the second lowest since the Wide Spread candle (Long Shadow).

 

Also note that this Test is within the body of a large dark WRB.

 

Edited March 26, 2008 by mister ed
Add back deleted chart

[flatwallet 10]

Pivot,

 

I am fairly new to VSA and while I appreciate it, I know how to read it properly. What I've noticed in my personal chart reading is that I tend to be biased when I see the full picture. That is why I posted a partial chart to see what you would be looking for. This was not to quiz someone's knowledge, however, I wanted to to get an unbiased read like you normally have to do in real time. This is what I learned from your analysis:

 

"Note that this candle is up against the support/resistance zone created by the Long Shadow, but not within it. It is, however, within the body of a large dark WRB. I WOULD LIKE TO SEE A LOW VOLUME SIGNAL WITHIN THE RANGE OF THE SHADOW."

 

Wow. That is the kind of stuff you don't find in the book as Tom Williams tells you a lot but it always in the context of "and TradeGuider will help you find this witha bar" blah blah. Take a look at the posted chart. Prices do not move above the Shadow. FYI. The next day was chop that closed in the middle of the Opening WRB. Thank you for teaching us yet another thing to look out for.

 

11:30 - 12:00 There are two no demand bars one red and one green. But if I can't evaluate the next few bars, I would not be sure if I should go long or short. I assume short only because the general trend was down.

 

[Anonymous 11]

Thanks Flatwallet. Would it be possible for you to post a 15 min chart of the same timeperiod?

 

P.S. are you sure this is the same chart? The test bar is not on the "extended" version. AND THAT CHANGES EVERYTHING. Without that candle, the upthrust (last candle on the origianl chart may be the key candle). Maybe I am looking at it wrong, but it looks like the entire shadow of the test bar is gone. Which makes a for a less worthwhile test. Especially,as mentioned in my first post, since the volume is not less than the previous two bars.

 

At any rate, I have no problem with my first post and the negative results. So long as that one candle is correct. But again, please post a 15 min of this period if possible.

[flatwallet 10]

Pivot,

 

It's the same ticker. You may need to click on the image to see the shadows properly.

 

Also, as per your request:

 

 

Thanks

[notouch 10]

All the charts are very interesting but a lot of the analysis in this thread is hindsight analysis. So I thought it would be interesting to post a daily chart of YM and do a bit of VSA on it.

 

 

On 04/25 we have the highest volume of the month together with a wide ranging candle which closes near its high. This suggests weakness could follow. The next day, however, is an up day which doesn't immediately suggest weakness BUT it could be interpreted as a "no demand" day given its narrow range. The bearish scenario is confirmed by today closing on its lows.

 

Any opinions on this analysis?

[notouch 10]

No one has the balls for some real time VSA analysis? Hindsight analysis is easy. Foresight analysis separates the men from the boys.

 

Today was interesting from a VSA perspective. Early weakness as expected so you could have picked up 50 points on YM from that. Ultimately though I recall something one of the speakers in the VSA seminar said: you need to filter your trades. In a strongly trending market like the US stock indices right now you need a long-only filter. Intraday VSA would have got you into 2 good trades on YM today.

[Vercingetorix 10]

What do you mean by foresight analysis? Calling out trades using VSA in real time?

 

I posted some charts of some swing positions I took using VSA in this thread: http://www.traderslaboratory.com/forums/30/vsa-chart-day-1476-new-post.html

 

Earlier in this thread I was bullish on the stock indexes using VSA a month ago: http://www.traderslaboratory.com/forums/8042-post58.html

[flatwallet 10]

Fight fight fight....

 

NoTouch...I for one am just a VSA newbie...as for the other, I don't think any of them actually visit the website a whole lot during the day...and even foresight analysis can teach us a lot if we see this during the day...just my 3 cents...But I think we will all welcome charts and vsa lessons from you...so please post or bring to our attention some great vsa concepts...much like Vercingetorix call on BIDU prior to earnings

[notouch 10]

VSA applies just as much to longer term time frames as shorter term ones so posting daily or hourly charts together with an analysis of what might happen next day is more interesting than an analysis of what's already happened. I appreciate some posters have already done that and didn't mean to offend anyone. I was just a bit cheesed off that no one responded to my "what happens next" YM analysis. Too late now...

[malvado xetra 10]

I combined 60 minutes VSA with daily VSA. It is the best to avoid noise from the market. trying to trade with 5 minutes candles is like being in the middle of the jungle. everything can happen. risk management and money management is absolutely necessary for 5 minutes traders because nothing is for sure

[Gordon G. 10]

Hi PivotProfiler,

 

as regards Ultra Wide Spread Bar and the search for signals within its range, do you think it is worth considering also entries within narrow spread bars with ultra high volume ?

 

Thanks

[mroalan 10]

yes i still pop in every day,keep it up.would be interested in a blow by blow account of each candle,it would appear that most candles are just making up the numbers with the few being important,i,ve seen dojis on here which are not my idea of that candle,to me it is a very narrowed bodied candle but have seen it described as thick bodied candle at times,or am i reading it wrong? going back to that chart of pivots "where to enter" bear in mind i know nothing of VSA.my move would have on the tweezers where supply entered,if you look along the chart there are several instances of tweezers,more so the pair which formed to the underside where the original break was. if looking at EOD charts on stock it is quite easy to see and the following days candle will normally confirm which way the share is headed,not so easy with the idices charts EOD,doesn,t happen to often.anyway thankyou.

[Anonymous 11]

Hi PivotProfiler,

 

as regards Ultra Wide Spread Bar and the search for signals within its range, do you think it is worth considering also entries within narrow spread bars with ultra high volume ?

 

Thanks

 

Narrow range bars with Ultra High Volume are very important. However, with a narrow range bar it is less likely that a signal with appear within its range. That is, because the bar IS narrow, it is "harder" for a signal to appear within its range. Of course that depends on how narrow the range actually is.

 

It is better if the narrow range bar comes within the range of a WRB or Long Shadow.

 

But if a low volume signal does appear within the range of a narrow bar with Ultra High Volume, it is surely worth taking. (as long as everything else is in alignment).

[Gordon G. 10]

Thank you for this interesting explanation, Pivot !

 

Have a great day

[Anonymous 11]

(As I am not the thread starter, I have no compulsion to keep the thread alive. With the lack of interaction, my posts and enthusiasm have dried up. Which is why this one sucks.............)

 

Cool Chart here.

 

The first key is what is not shown: 15 min chart. From there we see that price is moving is a sideways channel from a down trend. Said channel may be accumulation or distribution.. only time will tell.

 

At 2200 hrs New York time we get a No supply bar on the 15. This bar is confirmed by an up bar at 2215.

 

Now let's look at the trading chart, the 5 min:

 

The first thing we see is a white WRB that constitutes effort to rise at 2205. Things get a bit tricky next. Entry 1 is a test. The bar closes on its high has volume less than the previous two bars, closes equal to the previous bar and is confirmed on the next bar. This is a low volume test that happens to be within the range of a Long Shadow (not shown) and at 2240 hrs. We know that there is No Supply on the larger timeframe and we now know there is no supply (based on a valid low volume test) on the 5 min. One could of entered here.

 

Depending on where you placed your stop, you could still be in or taken out as price moved down. Entry 1a is labeled as such, because once the WRB was formed and you saw that it was also "effort to rise", you could of opted to look for something to happen within the range of this candle rather than the Long Shadow. Note also that the volume on the long shadow candle was not that high. And since neither high volume nor news events created it, it might be missed.

 

No matter, consider 1a as a second chance entry. You were either stopped out, missed the test bar or choose to ignore the test bar. Notice how the market gives us a No Supply bar within the range of the WRB (see any previous post ).

 

Before we get to Entry 2 we see Professional Money push thru supply. This is the channel area mentioned before. On the 5 we get another white WRB that represents effort to rise. It is followed by a larger white WRB which sets up the support and resistance zone where Entry 2 is signaled after the appearance of No Supply. Entry 2 is really more like add-on 1, but if you did not want to take a trade within the sideways channel then this would be your entry (this could also be a reason not to take entry 1 and 1a).

Edited March 26, 2008 by mister ed
Add back deleted chart

[notouch 10]

Do you really think Professional Money is active in the Euro futures market when it's 2200 New York time and 0300 in the morning London time? A 10 pip move is nothing. It looks more like the natural ebbs and flows of a sleeping market.

[Guest cooter]

And what time is it in Tokyo, or Shanghai, Hong Kong, Singapore or Sydney?

 

Quite a myopic view of the world you've got there, isn't it :p

[notouch 10]

No because CME Euro futures are not widely traded in any of those places. If you look at the chart you'll see volume never goes above 30! Hardly "Professional Money"... :p

[Anonymous 11]

Do you really think Professional Money is active in the Euro futures market when it's 2200 New York time and 0300 in the morning London time? A 10 pip move is nothing. It looks more like the natural ebbs and flows of a sleeping market.

 

First:

 

This is not a picture of the futures, but the spot.

 

Second:

1pip = 10 dollars

 

10=100

5*10=500 (5 contracts)

10*10=1000 (10 contracts)

 

You want more money, trade more contracts. I am not calling you a losing trader, but that is a losing trader's mentality. A trader could be set for life if he could make 10 pips (net) a day every day. Not all trades need to be 150 pips. Greed may be good but it gets traders into trouble.

 

Third:

If you believe that an Upthrust is created by professional money, then you can not turn around and say that it is just happenstance. That is, if you believe that bars are manipulated by the smart money when the day session is going, you can not turn around and say just because the day session ended that same bar is somehow not manipulated. Simply, an Upthrust is always an Upthrust.

 

Four:

I have stated the time of day to trade many times before. I do not feel the need to post them in every post. Moreover, this is a post about reading the chart.

[Anonymous 11]

How much more do you need?

 

Wow. Here is an example of a great short trade that was signaled in more than one way.

 

As this thread is VSA, I will not say much about the Low Close Doji pattern, but it too signals a short entry. I would say that the pattern happens where we would want it to be: within the range of a WRB.

 

Fist let's start with the 15 min. Notice the Effort to fall sign followed by a No Demand. See how the No Demand is within the range of the Effort candle. This is a sign of weakness.

 

Next, we see a narrow range bar with increased volume: a squat.

 

At this time we now have seen supply enter the market and some downwards price action that will make us predisposed to be short on the trading chart.

 

The trading chart.

 

First Note the large white WRB. This sets-up the support/resistance zone. As I must apparently repeat things, we want to see something happen within the range of this candle.

 

Price trades higher after that white WRB on high volume, but the range of the bar narrows, so we know that there was some supply (selling) in the high volume WRB.

 

Now the key bar. A dark WRB (although smaller than the white WRB) appears. WRB: body greater than the three (3) prior intervals. This WRB happens to be "effort to fall". In other words, the Smart Money wants to take prices down.

 

Note that we then get a No Demand bar within the range of this dark WRB and within the range of the large White WRB. Time to get short. Upside weakness where the market previous showed downside strength.

 

If you missed that, There is a doji that also happens to be an Upthrust 3 bars later. Get short. Weakness in the background and an UpThrust a classic short signal. Did I mention that the Upthrust is within the body of the WRB? (well, the one's I favor would usually be )

Edited March 26, 2008 by mister ed
Add back deleted chart

[BlowFish 10]

I guess it is safe to say there is often more than one agenda going on most times. It is not hard to make an argument that a thin market is easier to mark up/down for whatever reason. The 'smart' money may not actually be 'smart' they may simply be A US company hedging $50 million against European sales. I am talking multinationals and even governments when it comes to forex.

 

Another type of 'smart' money are the 'insiders' like specialists and market makers. They are likely to play in thinner markets thier only agenda may be to find order flow and exploit it. Incidentally anyone who can read a chart can make a pretty good guess where there are orders likely to be bunched.

 

Having said that the chart under discussion does look very 'blocky' and thin. It is one I would be wary of trading when a lot of the bars are just a few ticks wide and opening low and closing high or vice versa. It just dosen't have well formed bars.

 

Like any analysis VSA isn't perfect and I think thats due in part to my original point. Often there are various participants with conflicting agendas. You can often see the fight but sometimes the outcome isn't clear.

 

As an example differentiating stopping volume in a down leg (that allows the trend to resume) from 'climatic' volume that signify that the trend is over can be subtly hard. I would say actually sometimes it is impossible.

 

Maybe I'll post some charts - not to try and "catch anyone out" but I know if I can better identify the difference it will improve my trading. Perhaps discussion will allow us all to see things that we did not before.

 

PP I have to say I am very inclined to look at the currencies despite the fact you use tick volume as a proxy they seem to be a much easier read than the indexes. Now it could be that you have selected 'clean' charts to illustrate a point. I'd be interested in seeing some tougher ones.

 

Cheers.

[Anonymous 11]

First:

 

This is not a picture of the futures, but the spot.

 

Second:

1pip = 10 dollars

 

10=100

5*10=500 (5 contracts)

10*10=1000 (10 contracts)

 

You want more money, trade more contracts. I am not calling you a losing trader, but that is a losing trader's mentality. A trader could be set for life if he could make 10 pips (net) a day every day. Not all trades need to be 150 pips. Greed may be good but it gets traders into trouble.

 

Third:

If you believe that an Upthrust is created by professional money, then you can not turn around and say that it is just happenstance. That is, if you believe that bars are manipulated by the smart money when the day session is going, you can not turn around and say just because the day session ended that same bar is somehow not manipulated. Simply, an Upthrust is always an Upthrust.

 

Four:

I have stated the time of day to trade many times before. I do not feel the need to post them in every post. Moreover, this is a post about reading the chart.

 

forgot five:

This is, in my opinion, the only real "leap of faith" required by VSA. VSA states that 80-85% of a volume histogram bar represents Professional Money. Or Professional activity. Hence if 100 contracts are traded, 80-85 are Smart Money (To be sure this is not how that info is to be used). If 1000 contracts traded, 800-850 is Professional money. If 10 then 8-8.5 are professional money. In short, Professional money IS ALWAYS ACTIVE. As long as there is a histogram bar, there is Professional activity present.

 

Now that does not mean all times are idea for the retail trader or all volume levels are ideal. It does mean they, the smart money, are there none the less.

[mroalan 10]

again excellent stuff Pivot,i,m papering the walls with your charts so i don,t forget them.

[mroalan 10]

a couple of questions for you pivot.

1.that squat (hammer to me) does it need to inside the body of the preceding candle and does the colour matter?

2.does the colour of the volume bars matter?

3on the second chart,the candle following the WRB (spinning top)would give the game away,not sure if it was you who said its "change of ownership bar".

5 bit confused about the no demand bar as its not got much of a tail,would not the upthrust bar be more of "no demand"?

thats enough for now,you,ll be pleased to learn i,m getting there,well i thought so!say nothing.