[VSA] Volume Spread Analysis

[mister ed]

	Quote:	Tasuki
	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]

	Quote:	Tasuki
	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]

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/for...lume-2994.html

Cheers.

[monad]

	Quote:	Tasuki
	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]

	Quote:	mcichocki_
	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]

	Quote:	Tasuki
	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]

	Quote:	Tasuki
	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]

Blowfish has made some very pertinent points on this matter at elitetrader
http://www.elitetrader.com/vb/showth...a&pagenumber=3

[Blu-Ray]

	Quote:	Tasuki
	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

Cheers

Blu-Ray

[Tasuki]

	Quote:	Blu-Ray
	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.