Post #106
What did they know, and when did they know it? OR the importance of Volume.
Here is a chart of some of today's price action in the Euro.
What is telling here is the actions of Professional Money PRIOR to the news release. We can see when they begin to position themselves and on what side through the use of
VSA.
Almost an hour beforehand, we see an Ultra Wide Spread Bar with Ultra High Volume, that closes down from the previous bar and closes in the middle of its range. This bar represents a transfer of ownership. That is, the Professionals are buying from the retail traders. Why would they be buying prior to a usually volatile news release ? Seems like a risky thing to do. Could they already have an idea of what it will say?
Now
VSA tells us that if this is the case, we would expect that if they are BUYING now, they will be SELLING into the release itself for profit taking. Especially If the news spurs the retail traders into entering the market on the long side. However, if the retail trader is believes the news to be bearish, they (Smart Money) would be BUYING more. That is, if the retail traders are getting short, who are they selling to? So we should see both Professional selling and buying. We don't expect then to get net short in other words.
Check out the large dark hammer as the news is released. There was some profit taking on that bar. But the bar has ultra High volume, closes on its low with the next bar up. Some buying must of taken place as well. More exactly, they took profits and then began buying as the retail traders (weak hands) rushed in on the short side. We always want to consider "who is on the other side" with
VSA. Usually, its the Smart Money and that is not good. I should say, without
VSA it's usually the Smart Money and that is not good.
Note that price did begin to fall for a few bars. But then we get a dark hammer line. The Long Shadow of the hammer line happens, not so coincidently, to trade into the region of the First candle mentioned where the transfer of ownership begun. The Smart Money is becoming aggressive on the demand side. They are locking in the weak holders (retail shorts) as they know price is going HIGER NOT LOWER. The down move and the dark hammer itself may have even pushed some weak longs out.
If you look at a chart beyond the time shown here, you will see the strong up move that ensues.
1. The Smart Money began getting long (long) prior to the News.
2. Some used the event to take a bit of profit.
3. Most got even more long (demand).
4. Once the weak holders where short, price found support in a such a way as to knock out weak longs and lock in weak shorts.
5. what can not be seen in this picture, is a large inverted white hammer that represents the last effort for the weak shorts to get out at break even if the bought on the news release itself.
When we use
VSA we get a 3 dimensional picture: volume, range and price. Ignoring one of them (like volume or keeping volume constant) is like cutting off one leg of a tripod...............
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