[VSA] Volume Spread Analysis

[tawe trader]

No probs tech/a we are all prone to our blond moments.............

I think the biggest eye-opener for me after being introduced to VSA is that it show's that the mkts are definately not random and it is one big game. 'Those in the know' will push the mkt around to suit their own interests, which is perhaps why most T.A. fails. 'They' will take the mkt to a level they want it go and just because some indicator has made a crossover (or flashed a buy signal) doesn't mean it is going to stop it.

They will let the mkt fall (or drive it down) during bad news, like the last week or so, whilst quietly accumulating positions. They need all the weak holders and major sellers to be forced out and they check by 'testing'. They take the mkt down again, past their pain threshold. If there are no more sellers coming in then there is obviously less/no resistance to any rises.

If anyone believes what I have said above is wrong, please feel free to correct me, as I am still learning everyday.

[Soultrader]

Here is a chart from todays trading day.



First trade was taken at 15110 around 9:03am. Premarket SGX rallied into the previous day value. As Osaka opened, price opened within the previous day value to rally about 90 yen (roughly $900 a contract). Price then retraced back to the value low pivot. I took a long as price was falling because internals showed strenght and market analysis was telling me that prie would rotate back into value. Price dropped 50 yen ($500 a contract) as soon as I went long. My usual stop is 40yen but I did not notice any heavy selling. The bid was thin and I figured it was a price slip due to fast price action and buyers were slow to step on the bid. Price then came back to my entry point and I was conviced price would lift. This all happened in about 30-45 seconds.

My exit was at 15200 as 00 levels are usually met with strong selling/buying. Took 90yen off this trade.

Trade #2 was a short at 15180 as price met resistance at 15200. I exited right away at 15190 for a 10yen loss. Usually sellers will step in to dump 300+ lots at the 00 levels. However, only 1 big lot trader sold and the currencies (yen) started to rally. I exited immediately for a loss.

Trade #3 was a long at 15100 as price was declining. I felt good about this trade at VAL but as soon as price lifted to 15130, 400+ lot seller came right back. I exited asap at market for +20yen. I got lucky on this one.

Trade #4 was at the blue arrow. Price reversed and came back to the opening low. I waited for the decline to finish by reading volume. The upbar on high volume after the decline was my signal and I entered a long at 15010. However, sellers showed up at 15060 which to be honest scared the crap out of me and I booked at 15040 for +30yen. I exited extremely early but the tape at that moment looked pretty bad to the long side. Only when 400-500 lot traders started buying again did price lift.

Trade #5 was at the doji and hanging man candlesticks at the attempt to test the high of day. My short entry was at 15190. Price rallied 40yen upwards and then bam! Two 350+ lots got dumped sending prices lower. The decline from 15230 to 15150 took seconds as 300+ got sold at the bid. The bid/ask became extremely thin hinting warning signs as panic situations tend to cause price to jump everywhere. I sent a limit order at 15150 immediately for +40yen. Of course, my usual thing seems to be taking profits too soon. But with the Nikkei, I aim for 60yen (6 ticks) a day.

Todays trading took 180yen (18ticks), 3 times my usual daily goal. Overall it was a crazy day but patience paid off.

Chart shows explanations on volume and candle analysis. I also watch the yen as it affects exporters heavily which can impact the Nikkei index. I also use a few custom internal tools that measure net change relative to the opening price instead of the previous day close. Also a few custom TRIN, PC Ratio, TICK indicators.

Note: This is not typical Nikkei action. Rarely will you see such huge intraday swings so aiming for +60yen trades everytime will kill you. There were days when the ATR was 60yen. Lately it is 180yen.

[jjthetrader]

Does my example below look like a market that is about to rise?
With all these signs of weakness with weakness in the background it struck me odd that this market should take off.

First I saw hidden potential selling, upthrusts, reversals, no demand.
Any ideas on what I'm missing here?
Could this have been accumulation rather than distribution?
I kept watching for a short to come my way, finally took a small one but never saw the dropping off that you would expect with this much weakness.

In the boot camp Tom Williams said that a weak bar showing up on a 15 min chart would produce weakness for 15 min. Is this what people find?
Could my weakness in my example just be a bunch of temporary weaknesses that were overcome easily?

[Anonymous]

"Markets will frequently have to rest and go sideways after any high volume up-days, because the selling has to disappear. Remember, selling is resistance to higher prices! The best way for the professional traders to find out if the selling has disappeared is to 'Test' the market-that is, to drive the market down during the day (or other timeframe) to flush out any sellers. If the activity and the volume are low on any drive down in price, the professional traders will immediately know that the selling has dried-up. This now becomes a very strong buy signal for them." Master the Markets,Tom Williams P.39


Nice chart of a couple of would be signs of weakness that are actually signs of strength in their failure to produce weak results.

Markets do not like high volume on up days (bars) as it could contain selling within them. Hence, very often after a high volume up day (bar) the market moves sideways. On the 5 this is what happens after we see the Squat. Notice that the market basically moves sideways on this flood of supply (selling). Within this sideways action, we get an Effort to Fall candle. This is an attempt to move the market down. Yet, note that price does not trade lower on a closing basis. A few candles later, we see a Test. An Effort to Fall, which is a WRB, without result than a Test for supply within its body.

[Anonymous]

	Quote:	jjthetrader
	Does my example below look like a market that is about to rise? With all these signs of weakness with weakness in the background it struck me odd that this market should take off. First I saw hidden potential selling, upthrusts, reversals, no demand. Any ideas on what I'm missing here? Could this have been accumulation rather than distribution? I kept watching for a short to come my way, finally took a small one but never saw the dropping off that you would expect with this much weakness. In the boot camp Tom Williams said that a weak bar showing up on a 15 min chart would produce weakness for 15 min. Is this what people find? Could my weakness in my example just be a bunch of temporary weaknesses that were overcome easily?

Just a quick observation that can be totally off the mark. You have a blue line on your chart. I am assuming that this is a pivot line or Market Profile value area line or Fib retracement line. In other words, the blue line is delineating an area where you should be looking for certain price/volume clues.



Now look at the portion of the chart in the circle. Note that there was high volume up bar which contained some selling. But a few bars later the Professional Money is Testing for supply right around this line. The point: of all the things you have arrows on, the most important ones come near this "pivot area". That is the reason you have the line on there: to focus you to changes in supply and demand at certain predetermined levels. See my previous post as it also speaks about the circled area on this chart.

Also, I would add that if that high volume bar is also a WRB, then I would have the type of set up I like to talk about. While most of the areas you have marked don't actually become trade set ups as I see them.

[Soultrader]

	Quote:	PivotProfiler
	"Markets will frequently have to rest and go sideways after any high volume up-days, because the selling has to disappear. Remember, selling is resistance to higher prices! The best way for the professional traders to find out if the selling has disappeared is to 'Test' the market-that is, to drive the market down during the day (or other timeframe) to flush out any sellers. If the activity and the volume are low on any drive down in price, the professional traders will immediately know that the selling has dried-up. This now becomes a very strong buy signal for them." Master the Markets,Tom Williams P.39 Nice chart of a couple of would be signs of weakness that are actually signs of strength in their failure to produce weak results. Markets do not like high volume on up days (bars) as it could contain selling within them. Hence, very often after a high volume up day (bar) the market moves sideways. On the 5 this is what happens after we see the Squat. Notice that the market basically moves sideways on this flood of supply (selling). Within this sideways action, we get an Effort to Fall candle. This is an attempt to move the market down. Yet, note that price does not trade lower on a closing basis. A few candles later, we see a Test. An Effort to Fall, which is a WRB, without result than a Test for supply within its body.

Hi Pivot,

Can you explain what a squat is? Was there an explanation somewhere in Master the Markets?

[TinGull]

Squat's are dojis on a narrow range, I believe.

[Wookey]

The name Squat comes I believe from Bill Williams' book. It's a bar which has higher volume and narrower range than previous one. Tom Williams also siggests paying attention to narrow spread bars with high volume.

Wookey

[Soultrader]

	Quote:	TinGull
	Squat's are dojis on a narrow range, I believe.

	Quote:	Wookey
	The name Squat comes I believe from Bill Williams' book. It's a bar which has higher volume and narrower range than previous one. Tom Williams also siggests paying attention to narrow spread bars with high volume. Wookey

Thanks Tin and Wookey,

Should squat bars be taken as a reversal bar? Pivot mentioned squat supply bar will cause the market to go sideways. Why is this the case?

[Anonymous]

	Quote:	Soultrader
	Hi Pivot, Can you explain what a squat is? Was there an explanation somewhere in Master the Markets?

Hello Soultrader, glad you're still keeping an eye on this thread. Have I thanked you lately for providing such a wonder place to meet, share ideas, and just have some fun? Thanks


I will answer the second question first: yes and no.

Tom Williams talks about high volume bars with narrow spreads (ranges). The question is why is the spread narrow? If the volume is high, but the spread is narrow, then the market makers, who can see both sides of the market, must be keeping the spread low for a reason. In the case of a rising market, they must be becoming BEARISH. If they were bullish then the spread would be wide. They would be charging new traders to get aboard the bull. But as narrow spread implies they see large blocks of SUPPLY above the market and thus are looking for prices to fall. In this case the are more than willing to give the herd what appears to be a good price-narrow spread.

Now, what we have just described is a situation where the range of the bar is narrower than the previous bar and the volume is high to ultra high. Bill Williams' short hand definition of a squat is a bar with a narrower range than the previous bar and more volume. So, while Tom does not mention the term squat specifically, he talks about the concept.

The actual definition of a squat is a bar with increasing volume and decreasing MFI. However, the short hand definition does the job. According to Bill, all trends will end in a squat as the high/low bar plus or minus one bar of the same time period. Of course, NOT ALL SQUATS ARE CREATED EQUAL.
That were VSA takes the lead. VSA tells us to look for high or ultra high volume with the squat.

Bill says, "The squat it the last battle of the bears and the bulls, with lots of buying and selling but little price movement. There is an almost equal division between the number and enthusiasm of both the bears and the bulls.........." Trading Chaos, P.93

He is right on squats but wrong on concept. The most import group, the Smart money is decidedly bullish or bearish and the little guys are in the opposite camp. The spread is narrow not because the battle is evenly waged. It is narrow because it is not.