[VSA] Volume Spread Analysis

[Anonymous]

TG:

Thank you so much for the post, please keep 'em coming. Great stuff.

My two cents:

Trade 1- I see a valid High close Doji pattern. From a VSA point of view, I see an Effort to Rise bar. Which you correctly pointed out. In short, I would of most likely gone long here too :sad:.

Trade 2- I see a valid white hammer pattern which culminates with the white hammer line. You are correct with the No Supply (low volume) candle prior to the hammer line. I have also marked off another No Supply that appears within the range of a WRB as an alternative entry signal.

Moving back a bit. We see the candle prior to the first No Supply has High Volume and a wide spread but closes on the upper portion of the range. Some Demand must of entered on this bar. (Strength comes in on down bars)

Thanks again. We can all learn from your knowledge and skill. Very nice work.

[ranj]

Hi All,

Setup for review on a daily chart. Looking to short XLF at the 50 % fib retrace. from May high to Aug low. I see a very high vol up bar closing in the middle (weakness), followed by a low vol up bar closing the middle (no demand) two days later. Looking to enter on a break of of the prior day's low. I am still working on my VSA skills, any insights would be helpful.

Thanks
Rajiv

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[mister ed]

Thanks for the comments PivotProfiler (post#329 - I gotta try harder to keep up ...) and for the correction to the WRB definition. I think my definition makes me comfortable (which is nice but not necessarily useful) because it has roots in stats, but the idea of looking at the most recent bars is more in keeping with getting in tune with what the market is doing right now. Much more useful.

And thanks for the reference to the WRB thread - yes have read it and actually done a bit of a summary so I can reread it when I am offline.

[Anonymous]

Hello Ranj and welcome to the thread and the forum. I hope you have found a place to call home. Thank you for posting.

While I believe in Fibs, I have not been able to apply them in trading. I never know when to apply them. So I am looking forward to seeing more posts from you showing VSA principles in action around certain Fib areas.

I am sure some of the many capable readers of this thread can give you insight.

Your analysis of the Ultra High Volume Bar that closed up from the previous bar and closed in its middle as a transfer of ownership bar is correct. Supply entered on that bar. HOWEVER, look at the very next bar:

1. it is a selling bar (positional relationship) that closes down, has a smaller range than the previous bar, and has volume less than the previous two bars.

2. the bar after it (the one you labeled No Demand), closes up. THIS IS KEY FOR MY DEFINITIONS OF NO DEMAND/SUPPLY. This next bars does not make a lower low and closes up, which to me confirms the previous bar was No Supply.

Note that the bar trades below the 38.2, but the close is at that level. That has got to mean something to the Fib trader.

From a VSA standpoint, There was supply on the Transfer of ownership bar, but that supply was actually swamped by demand as evidenced by the No Supply the very next bar.

Things get a bit murky after that. While the base definition of No Demand is an Up bar with volume less than the previous two bars and a narrow range, TG looks for a close in the middle or low AND a close lower on the following bar. Personally, one way I define No Demand would also mean that this bar needs to have a close higher than the bar that follows it and not have a lower low. Hence for me, it is NOT a No Demand bar.

Joel Pozen would consider that bar No Demand and the previous bar No Supply as both have the key element of volume less than the previous two bars and close up or down, respectively, from the prior close.

This is not to discourage or scorn, just to point out that there are various subtle differences used by various users. Which is the greatest assets of this thread and why it is imperative that everyone participates.

As to the issue of going short. I have no idea. I know that for me I see possible strength in the market. Based on the No Supply, which is supported by the Fib level. With that said, I would not be looking to go long just yet.
It is possible that the No Supply can be viewed as a test. As a test it would be a low volume test (Volume less than the previous two) but also a high volume (actual) test. In this scenario, we would expect the up move to be muted, or drift sideways, as there would still be too much supply in the market.

I know I haven't been of much help, but "when in doubt, stay out".

Can somebody help us out here?

P.S. I like to look for low volume signs within the range of high volume candles. In this case, I would like to see something happen within the Shadow of the transfer of ownership bar. Or within the body of the WRB candle which is the engulfing candle prior to the Transfer of ownership bar.

[mister ed]

Hi Rajiv,

Sorry to do this after the event, and its not really VSA, but I hope the comments are of some value. I am a believer in using complementary forms of analysis, so if I was to be looking for a shorting opportunity at or around a Fib retracement I would like to see it backed up by some other resistance.

I have attached your chart with short-term support and resistance drawn in by myself - the levels are rough but hopefully get the idea across. Support 1 and 2 show where there were small bounces in the downtrend, then a (small) gap lower. Then resistance forms just under the prior support.

The large white candle off the low shows demand coming in, and you would expect to get a trade higher in coming days. What you do get is an immediate reaction, on the following bar no less, all the way up to short-term resistance, above the 50% retracement but below the 61.8. In conclusion, and from a short-term perspective, this is the reaction, and with the confluence of the Fib retracement levels and the support that has now become resistance, this is the shorting area and bar, if that is the trade sought.

I know this is not a VSA analysis (and PivotProfiler has already posted his), and also that it is hindsight analysis, but I hope it is useful

[Tasuki]

The Breakout Breaker.
Have any of you heard Tom Williams analyze a chart? He is completely amazing. He will go through a chart and explain every single bar. The Tradeguider software will give you indicators every so often, but not every bar like TW. Even Todd Krueger doesn't seem to be able to do what TW does. Well, if Tom's VSA prowess is such that he can see meaning in every bar, and if VSA terminology doesn't seem to have an explanation for every bar, maybe there's room for some new definitions? I'd like to offer one I call the Breakout Breaker.

To illustrate, I'll use Tingull's great chart from page 33 (permalink #330) (see attached chart). This is the same chart TG showed, except with the classic HLC bars, as well as my notes.

The basic premise is this--
you're coming up to resistance, and the live bar pierces that resistance on increased volume, and closes near the high. All of these factors are designed to fool traders into thinking that there really is demand coming in, and that higher prices will follow. The fact is, the professionals have figured out that people are looking at volume nowadays, so they bump up the volume to make the breakout look real. When this happens at resistance, BEWARE. Wait to see how the next bar behaves.

p.s. if anyone else has new VSA definitions that are not covered in the canonical writings, please share!

[stock]

Will be interesting to see how mister ed's chart pans out.

To me both the very high volume bars are demand, the second one should be coloured green. How else could the price bar close so high from the days lows and so high above the previous days close. It could not do this if supply was overcoming demand on that day. Given the response I see this as one for the too hard basket (or wait and see).

Tasuki, I follow professionals bumping up the price to fake a breakout during periods of low volume. If it takes a lot of volume to push the price away from the direction they wish to trade, they would be trading against them selves.

[ranj]

Pivot,

Thanks for the insight. I am still trying to hone my skills with VSA. And your analysis is excellent.

I use Fib retracements to kind of get an area of interest on the chart. In this example, I saw the HV Up bar closing in the middle. So I thought why would the ETF be weak at this time, or why would this bar form like it did. So one of my assumptions is that some traders (many based on the volume) may have plotted a fib retracement on their chart and acted upon it and that is why it closed where is did.

I don't find any special property to fib retraces and extensions, it is just an area that I expect other trades act upon and I am trying to detect their participation by looking at the price action via VSA. I apply the same process to MA and trendlines and intraday pivot numbers.

Thanks
Rajiv

[Anonymous]

	Quote:	Tasuki
	..............When this happens at resistance, BEWARE. Wait to see how the next bar behaves.

ON PATIENCE:

I am not a fan of TG software, as many know. My reasons have nothing to do with what the most oft heard criticism is, however.

This criticism has to do with "signs" showing up "after the fact" or in hindsight. More broadly, this same criticism can be laid at the foot of Volume Spread Analysis.

Those who look at static charts see signs with an almost uncanny precision. That is, they see many market turns being "called" by these signs. They go as far as to say, "I can buy tops and bottoms on these incredible buy and sell signals". What the charts do not convey, is PATIENCE.

Many signs of strength or signs of weakness show up as two or three bar patterns. Most fall into the two bar category.

No Demand is defined as an up bar with volume less than the previous two bars on a narrow spread. This base definition, however, fails to look at the next bar where we would want to see the close LOWER than the previous bar, confirming a lack of demand.

This is true of a Test. While a low volume test will close lower than the previous bar, close on its middle or high and have volume less than the previous two bars, it is not truly confirmed until we see a close higher than the test bar. This needs to come on the NEXT bar or the bar after that at the latest.

That is why these will show up "one bar late" to some. In truth, what is happening is this: one bar is looked at as cause and the following bar is looked at as effect.

If you see a wide spread bar on ultra high volume closing near the high (cause), but the next bar is down (effect), then there must of been SELLING in the Wide Spread bar.

"..A wide spread up on high volume shows effort to go up. If the next bar is down, this demonstrates that with the high volume seen on the day before, selling overcame the demand, otherwise, prices could not possibly have fallen the next day........." Master the Markets,Tom Williams, P. 145.

"If a market is moving upwards on wide spreads, accompanied by high volume and no progress is seen on the NEXT day (bar), this shows the volume contains more selling than buying." IBID, p.154

"For a market to drop, selling pressure needs to be evident, which normally shows itself as wide spreads down on high volume. If the next day is down this usually confirms that the volume seen on the day (bar) before is genuine selling. However, if the next day is up then it shows that there was selling going on, but the professional money was prepared to buy and support the market as well...." IBID, P. 166

Again, the point is that one should usually be waiting one bar after seeing the high volume or the low volume (in the case of No Demand/No Supply or Tests). Having the patience to wait one day(bar) or two allows for a more acurate and complete view of what is happening.

Nice work Tasuki. You have basically "proven" to yourself what Tom has written about in the book. The name is not as important as the underlying concept.

Tom says the two most important things a trader needs to understand are Volume and Support/Resistance. You seem to be on your way there.

P.S. This is not unlike some candlestick patterns that have multiple candles where some come AFTER a hammer or doji line.

[Tasuki]

Thanks, PP. I have indeed been spending way too much effort thinking of VSA as one bar patterns. I need to re-evaluate my VSA signals as two bar patterns at least. BTW, you mentioned that there are some VSA patterns that unfold over three bars. Is there a list somewhere of which ones are one, two or three bar patterns? Maybe it would be helpful to create a comprehensive checklist of the VSA patterns, where members can add, subtract, and refine the definitioins? I was creating one for myself, but obviously I need to re-think my descriptions in light of PP's (as always) brilliant commentary.