[VSA] Volume Spread Analysis Part I

BlowFish · #**241** 06-18-2007, 10:40 AM

traderX,

its a relative thing. Also it may not all enter on a single bar. You need to train your eye to see it really (its pretty easy). I look for 'roughly double' the volume. I also look for a volume 'hump' over a few bars. This is one of the things that indicates to me it may be a climax rather than a pause. A pause is usually a moderately high volume bar with wide spread followed by 1-3 (ocasionaly more) low volume bars. The open is usually tricky from a VSA point fo view as there is often a volume 'climax'.

If you want a simple yes/no for high volume try putting a moving average on the volume (actually 2 times a moving average works quite nicely).

Low volume is much easier generally what is required is volume that is less than the volume on the previous two bars. Thats the definition Tom always used and is still cncidered the 'norm'.

On the attached chart I have red for ultra high and pink for high. At the moment I am just messing round with a VSA study.

traderxman · #**242** 06-18-2007, 11:02 AM

OK thanks BF... nice looking chart, nice work. MultiCharts...had that one for a while...but seemed to be buggy...perhaps just me and my computer.

Tasuki · #**243** 06-18-2007, 12:42 PM

Please see attachemnt. Five minute chart ES today (Monday 6/18/07).

Question is typed on the chart--When you see a WRB with high volume, do you always think, "Ah, reversal in price is in the near future"? In other words, is this type of bar really nothing more than "stopping volume", or is there more to it than that? I can't find an example now because the situation is rare, but I swear I've seen one of these type of bars followed by a continuation of the price in the direction it was originally going (oftentimes, or maybe always, on even higher volume), and I coined a term, "pausing volume" instead of "stopping volume".

Are there any rules in VSA to help you determine whether price will continue or reverse after a WRB on high volume?

notouch · #**244** 06-18-2007, 12:48 PM

I prefer comparing volume bars to previous bars as far back as possible. Looking at today's 15 minute bars, for example, we can see that the reversal bar was higher than all of today's and Friday's volume bars except the first 15 minutes on Friday. If we look to today's 5 minute chart we see the reversal bar was higher than any today or on Friday. This all points to strong demand coming in on the lows of the day and potentially further strength ahead.

traderxman · #**245** 06-18-2007, 01:32 PM

Any chance there is a YM trader who can see VSA helpful for the 3 trades noted?

Tasuki · #**246** 06-18-2007, 02:54 PM

just an observation, FWIW:
Looking at the 15 minute chart of the same time as my last post (see attachment), it seems (to my eyes at least) that the 15 minute is so much clearer than the pattern on the 5 minute chart. I know that VSA, like everything else, is supposed to work better the longer timeframe you look at, but there's a point of diminishing returns, especially if you're an intraday trader. I mean, sure VSA (even MACD or RSI) would give better signals on a weekly chart than a 5 minute chart, but the weekly isn't all that useful (except as general direction) for daytrading. The stopping volume and the successful test on this 15 minute chart are so clear they reach out of your computer and smack you in the face. I haven't seen that kind of clarity with shorter timeframes, although I know that some folks use them (including me, up 'til now).

Anonymous · #**247** 06-18-2007, 06:09 PM

Originally Posted by notouch

....... The way I interpret Master the Markets the professional traders are a minority only active during accumulation/distribution and upthrusts/downthrusts........

Nice.

There are a few key questions a trader needs to be able to answer:

* Why do we have Bull Markets?
* Why do we have Bear Markets?
* Why do markets sometimes trend strongly?
* Why do markets sometimes run sideways?

STRONG HOLDERS

Strong holders are usually those traders who have not allowed themselves to be trapped into a poor trading situation. They are happy with their position, and they will not be shaken out on a sudden down move, or sucked into the market at or near the top. Strong holders are strong because they are trading on the right side of the market.

WEAK HOLDERS

Weak holders are those traders who have allowed themselves to be 'locked-in' as the market moves against them, and are hoping and praying that the market will soon move back to their price level.

These traders are liable to be "shaken-out" on any sudden moves or bad news. Generally, weak holders will find that they are trading on the wrong side of the market, and are therefore immediately under pressure if price turns against them.

* A BULL MARKET occurs when there has been a substantial transfer of stock from Weak holders to Strong holders, generally, at a loss to the weak holders. (accumulation)

* A BEAR MARKET occurs when there has been a substantial transfer of stock from Strong holders to Weak holders, generally, at a profit to the Strong holders. (distribution)

It is about Supply and Demand. Volume represents little more than activity.

Forget about the 85% number. Volume Spread Analysis is not a house of cards built on the foundation of this notion.

What you need to understand is:

A. There is a group of traders that are consistently among the Strong holders. And because of that, they tend to trade with more size.

B. Large-sized Strong holders leave tracks:
-- When Volume is high, it is telling.
-- When volume is low it is still telling; when volume is low, nothing is being done, and that is telling.

C. Even when one attributes large volume to the retail trader (usually Weak holders), one must consider who is taking the other side of the transaction. If it were other retail traders, then 90% of all retail traders wouldn't fail.

There is little doubt that there is a group of traders who are consistently among the Strong Holders. Whether they are syndicate traders, hedge funds, pension funds, or banks matters little.

Whether any single individual amongst the group is always right, matters even less.

Anonymous · #**248** 06-18-2007, 06:36 PM

Tasuki;

Nice charts. Thank you for posting. Pleas keep them coming.

First of all, we need to clear up the issue of WRBs. Please remember that WRBs refer to the BODY of the bar: the distance from the open to the close. I see no open on your bars. Strict VSA does not look at the open and in fact usually leave it off of the bars as you do.

What you show there is a WSB (Wide Spread Bar). The spread (range) of the bar is indeed wide, but without an open on the bar we cannot know if it is a WRB.

I mention this as I do not want to confuse yourself and others. WRB analysis, in my opinion, is a natural fit with VSA, but only when you include the open. Tom, however, disregards the open.

Having said that, I really like your charts.

That bar is indeed a WSB with Ultra High Volume. If that bar was selling, then why is the close not on the low? Moreover, why is the next bar up? In fact the large bar is Stopping Volume. Momentum actually takes the market down further where we get a High volume Test/ Shake out.

In truth, based only on this timeframe, one might be looking to go short after the stopping volume. Take a look at the bar two bars later. It is a form of No Demand. Which is why more than one timeframe should be used.

As for your actual question, when we say the market does not like wide spread bars on high or ultra high volume, we mean that the volume may mask hidden selling/buying. To put it another way, if the bar is wide spread up on very high volume, then there can be some selling in the bar. Remember that most people see an up bar with high volume and think the bar is strong. VSA points to the possible weakness (changing supply/demand dynamic) underneath.

P.S. I see you put the 15 min chart in later. Now you have answered part of your own question

. I really like the 5/15 timeframe combo.